The Explainer: Rx for Understanding the Affordable Care Act

Andrew Kitchenman | September 24, 2013 | Explainer, Health Care
Complicated and controversial, President Barack Obama's ACA is on track to revise and remake healthcare in the United States

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The Affordable Care Act is the law signed by President Barack Obama on March 23, 2010, that implemented a series of changes to American healthcare intended to expand access to those without insurance and slow the growth in medical costs.

What it is

The ACA comprises two bills: the Patient Protection and Affordable Care Act and the Health Care Education Reconciliation Act, which amended the first bill. It is widely considered to be the most extensive modification to U.S. healthcare law since the Social Security Amendments of 1965, which created Medicare and Medicaid, the primary health insurance for older and low-income Americans.

The bill includes several provisions designed to make it easier to obtain health insurance, including a ban on using pre-existing conditions as a reason for insurance companies to deny coverage, and a prohibition on insurers placing lifetime and annual caps on benefits. . It also requires that all insurance plans cover clinical preventive health services; allows parents to keep children up to age 26 on their plans; and mandates that insurers spend at least 85 percent of their premium revenue on medical expenses.

How it aims to expand coverage

Insurance coverage is expanded via two primary means: a new marketplace or exchange and an expansion of eligibility for Medicaid.

The marketplace is an online one-stop shop for residents to purchase insurance and learn whether they are eligible for subsidies. These subsidies will primarily benefit people between 138 percent and 400 percent of the poverty line, which currently amounts to between $15,856 and $45,960 annually for a single person and between $32,499 and $94,200 for a family of four. All plans available through the exchange must offer essential health benefits in 10 different categories, including pediatric oral and vision care.

Medicaid — known as New Jersey FamilyCare — will expand from a program that primarily serves low-income families and extremely low-income childless adults to one that benefits all low-income residents. In New Jersey, this expansion will cover residents with incomes above the maximum allowed for the state’s General Assistance program ($2,520 per year for a single person who isn’t disabled) but below 138 percent of the federal poverty line (currently $15,415 for a single person). The U.S. Supreme Court decided that each state must decide for itself whether to expand Medicaid, and Gov. Chris Christie opted for the expansion. For the first three years, 100 percent of the cost of expansion will be covered by the federal government, tapering off to90 percent — with the state covering 10 percent in 2020.

The individual mandate

The law mandates that all Americans above the poverty line purchase insurance or pay a penalty, which will rise from the greater of $95 or 1 percent of income in 2014 to the greater of $695 or 2.5 percent of income in 2016.

A hodgepodge of provisions

The ACA also requires doctors to submit data on the quality of care they deliver or face Medicare payment reductions; establishes Medicare accountable care organizations, in which providers are rewarded for taking responsibility for the cost and quality of care their patients receive; penalizes hospitals with high levels of preventable patient readmissions; and reduces payments to hospitals for uncompensated care — known as charity care in New Jersey — due to the projected decrease in the number of uninsured patients.

Other sections of the bill promote programs intended to prevent illnesses, such as requiring Medicare to pay for annual wellness visits and requiring chain restaurants to list the calories of items; build the healthcare workforce; and increase transparency of health costs. A section that has already been discarded would have created a national insurance program for purchasing community-living assistance services.

How it’s paid for

The ACA includes many provisions that raise money through new taxes, fees, or other methods. Single residents with incomes above $200,000 and couples above $250,000 will pay an additional 0.9 percent in hospital insurance taxes, as well as an additional 3.8 percent in capital gains taxes. Insurance and pharmaceutical companies must pay billions of dollars in additional annual fees. Starting in 2018, plans that charge premiums of more than $10,200 for single coverage and $27,500 for family coverage must pay a 40-percent excise tax, known as the Cadillac tax. A new 2.3 percent tax on medical devices also was introduced.

A continuing source of controversy

The ACA has been controversial since President Obama first outlined his goals for the legislation in 2009. Critics, including many conservatives, believe that it represents a harmful intrusion of the federal government into the healthcare system.

Republican members of Congress have repeatedly attempted to repeal the law. While they have succeeded in the U.S. House of Representatives, none of the repeal bills have advanced in the Democratic-controlled Senate.

Effective dates

Some of the ACA’s provisions were phased in beginning in 2010, including allowing parents to keep their children on their insurance until they’re 26. But the law’s central provisions, including the introduction of the marketplace and Medicaid expansion, as well as the mandate to purchase insurance, go into effect on January 1, 2014. A separate provision requiring businesses with more than 50 workers to provide insurance or pay a penalty was delayed until January 1, 2015.

The lag time between the enactment of the law and the effective date of its key provisions allowed federal and state officials time to prepare. It also kept the initial 10-year estimated cost of the bill to less than $1 trillion.