What You Should Know About the Affordable Care Act

How Health Reform Affects You

On March 23, 2010, President Obama signed into law the federal health reform legislation known as the Patient Protection and Affordable Care Act (generally just referred to as the Affordable Care Act, ACA, or Obamacare). A primary purpose of the legislation is to assure that almost all Americans have access to affordable health insurance.

This article will describe what the ACA is, how it has reformed health insurance in the U.S., and how the implementation of the ACA has evolved over time.

The key reforms in the Affordable Care Act were designed to significantly decrease barriers to obtaining health coverage as well as accessing needed healthcare services. But the law has been controversial from the beginning, and the bitter partisan divide over healthcare reform has resulted in a less-than-optimal implementation of healthcare reform.

Most of the ACA's provisions took effect in 2014, including health insurance exchanges, premium subsidies for people who buy their own health insurance, guaranteed-issue coverage, essential health benefits, and the requirement that virtually all Americans maintain health insurance coverage—either through their employer, through a public program such as Medicaid or Medicare, or by purchasing coverage in the individual market, either via the exchange or off-exchange.

From 2014 through 2018, there was a penalty that was assessed by the IRS when people didn't maintain health insurance, although that penalty was repealed after the end of 2018, under the terms of the Tax Cuts and Jobs Act, which was enacted in December 2017. But there is still a penalty for being uninsured in Massachusetts, DC, New Jersey, California, and Rhode Island, as they all have their own requirement that residents maintain health coverage, along with penalities for non-compliance.

Graphic with family and stethoscope
alexsl / iStockphoto

Highlights of the Affordable Care Act

Bars individual/family and small group major medical health plans from:

  • Denying coverage because of pre-existing medical conditions.
  • Rescinding coverage except in cases of fraud or intentional misrepresentation.
  • Charging higher premiums because of health issues.
  • Charging older enrollees more than three times as much as younger enrollees.
  • Offering plans that don't cover the essential health benefits, unless the plan is grandfathered or grandmothered.

Requires all non-grandfathered health plans to:

  • Cover preventive care with no cost-sharing.
  • Cap out-of-pocket costs for in-network essential health benefits. HHS sets the upper limits for out-of-pocket costs each year. For 2023, the maximum out-of-pocket limit is $9,100 for an individual and $18,200 for a family.
  • Allow young adults to remain on a parent's health plan until age 26.

Requires large employers to:

Requires individuals to:

  • Obtain health insurance, unless they qualify for certain exemptions. This requirement technically remains in effect, although the federal penalty has been reduced to $0 for people who are uninsured in 2019 and beyond (states can impose their own mandates and penalties; New Jersey, DC, Massachusetts, California, and Rhode Island all have penalties for residents who are uninsured and not otherwise exempt from the penalty).

Makes coverage and care more affordable with:

ACA Changes for Americans With No Health Insurance

Depending on your household income, family size, and state of residence, you may have several coverage options and may qualify for financial help (subsidies). The following are examples of coverage options for 2023.

For Medicaid, CHIP, and BHP eligibility, the 2023 Federal Poverty Level (FPL) numbers are used (they were published in mid-January 2023; prior to that, the 2022 numbers were used).

But for premium subsidy eligibility, the 2022 FPL numbers will be used for any plans with effective dates in 2023, regardless of whether the person applied before or after the 2023 FPL numbers were published. This is because open enrollment for private plan coverage takes place in the fall and early winter, before the FPL numbers are updated for the new year. So to maintain continuity, those FPL numbers continue to be used for people who enroll later in the year, due to a qualifying life event.

Example 1: Eligible for Medicaid in a state that has expanded Medicaid
Annual income:

  • up to $20,120 for an individual (this is 138% of the 2023 poverty level)
  • up to $41,400 for a family of four
  • The limits are higher in Alaska and Hawaii.

Comments:

  • Low-income Americans who are U.S. citizens (as well as many legal immigrants who have been in the US for at least five years) can enroll in their state's Medicaid program.
  • Your state may impose some minimal level of out-of-pocket expenses, such as a copayment of $1 to $5 for a doctor's visit or for selected services. Some states also impose nominal premiums for Medicaid enrollees with income above the poverty level (the ACA's expansion of Medicaid extends to 138% of the poverty level, so it does include many people with income above the poverty level; many states provide free coverage for all Medicaid-eligible enrollees, but some do have modest premiums).
  • Children are eligible for Medicaid in households with higher incomes. So even if the adults are eligible for premium subsidies for private plans in the marketplace/exchange, the children in the household may be eligible for Medicaid or CHIP instead. (The numbers above for a family of four will make the adults eligible for Medicaid in most states; children would be eligible for Medicaid with a higher household income.)
  • In states that have not expanded Medicaid, able-bodied, childless adults are typically ineligible for Medicaid regardless of how low their income is, and eligibility for parents of minor children tend to be limited to those with extremely low incomes—far below the poverty level.

Example 2: Eligible to buy a subsidized health plan through a state-based health insurance exchange
In 2023, annual income must be above the cutoff for Medicaid eligibility, but not so high that the cost of the benchmark plan would be less than 8.5% of the household's income. Prior to 2021 (and after 2025, unless the American Rescue Plan's provisions are extended again), there was a subsidy eligibility income cap equal to 400% of the poverty level.

Before the American Rescue Plan was enacted, this meant that premium subsidies in 2021 were only available to a single person earning up to $51,040, and to a household of four earning up to $104,800. But those caps were eliminated by the American Rescue Plan. People with income above those limits are eligible for subsidies in 2023 if the benchmark plan would otherwise cost more than 8.5% of their household income.

So there is technically still an income cap for subsidy eligibility, but it varies from one person to another and from one place to another. In other words, if you earn enough money that the benchmark plan would cost less than 8.5% of your household income, your income is too high to be subsidy-eligible. But that's going to be a different income level depending on how old you are and where you live, since the cost of health insurance varies with age and location.

Comments:

  • Health plans that participate in an exchange must offer a package of essential health benefits and cover at least 58% of average healthcare expenses for an overall standard population. But that doesn't mean that your plan will necessarily cover at least 58% of your costs—if you need very little in the way of health care, you might pay for most of it yourself, depending on how your plan is designed (catastrophic plans can cover a lower percentage of average expenses, but subsidies cannot be used to purchase catastrophic plans).
  • If you buy your health insurance through an exchange and qualify for premium subsidies, your share of the premium (for the second-lowest-cost silver plan in your area) won't exceed a certain percent of your income—ranging from 0% to 8.5% in 2023, under the terms of the American Rescue Plan—depending on how much you earn (these percentages were higher before the ARP was enacted). You're not required to buy the second-lowest-cost silver plan though. You can choose to buy a more or less expensive plan, and apply the subsidy to that plan instead. If you buy a cheaper plan, you'll pay an even lower percentage of your income in after-subsidy premiums, and if you buy a more expensive plan, you'll pay a higher percentage of your income in after-subsidy premiums.

Example 3: Eligible to purchase private coverage but without financial assistance
Even with the American Rescue Plan in place, there are still some people who don't qualify for premium subsidies and have to pay full price if they wish to purchase a plan in the marketplace/exchange. This includes the following groups:

  • Households with an annual income high enough that the benchmark plan would cost less than 8.5% of the household's income without a subsidy.
  • Some households that were previously affected by the "family glitch." Although the family glitch has been fixed as of 2023, the new rules don't result in subsidy eligibility for all of the affected families, since subsidy eligibility still depends on total household income versus the cost of coverage for the family members who are applying for coverage in the exchange. When one family member has employer-sponsored coverage, this can sometimes mean that the rest of the family still isn't eligible for subsidies, depending on the circumstances.
  • People with income below the poverty level in states that haven't expanded Medicaid, assuming they're not eligible for Medicaid based on existing eligibility rules.

ACA Changes for Americans with Health Insurance

Depending on the type of health insurance you already had, you may or may not have experienced changes as a result of the ACA.

If your source of health coverage was already an employer plan, these are some of your options:

Stay in your employer plan: If your employer continues to offer health insurance, you can keep it.

Shop for a health plan through the health insurance exchange in your state: If you own a small business, or your employer offers coverage that doesn't provide minimum value, or if your plan is not considered affordable, you can look for better options in the exchange (note that small business plans are no longer available in the exchanges in many states, but ACA-compliant small business plans can be purchased directly from insurers, with or without the help of a broker).

If your source of health insurance is an individual policy that you purchased for yourself and/or your family prior to 2014 these are your options:

Keep your current plan: If your health plan continues to offer the same coverage, you can renew it. However, new health insurance policies must comply with federal minimum coverage standards; older health plans that don't meet these standards cannot enroll new customers.

Grandfathered plans (in force by March 23, 2010) can remain in existence indefinitely, as long as the insurer continues to renew them—which they are not required to do. Grandmothered plans (effective dates after March 23, 2010, but before the end of 2013) are currently allowed to remain in force until further notice, under guidance that was issued in 2022.

Shop for coverage through the insurance exchange in your state: Depending on your income (as determined by the ACA's modified adjusted gross income calculation) and the plans available in your area, you may qualify for federal tax credits to help offset the cost of your premium.

Note that you can only purchase individual major medical coverage (through the exchange or outside the exchange) during the annual open enrollment period, or during a special enrollment period triggered by a qualifying event.

If you are on Medicare, your options may not have changed significantly, but your drug-related costs might have decreased if you need enough medication ​that you reach the donut hole, and your access to services may have improved:

Your basic (or guaranteed) benefits and eligibility have not changed: The ACA did not change the eligibility rules for Medicare or the basic framework of benefits that it provides.

Medicare Advantage: Federal subsidies for Medicare Advantage plans have been reduced, which initially resulted in speculation that the plans would become less robust and lose enrollees. But Medicare Advantage enrollment has continued to increase in the years since the ACA was signed into law. The plans are more popular than ever, with about 46% of all Medicare beneficiaries enrolled in Medicare Advantage plans as of 2022.

Access to services: Medicare now covers annual wellness visits, thanks to the ACA's preventive care benefit mandates.

Prescription drug coverage: The prescription drug coverage gap (Medicare Part D doughnut hole) was eliminated as of 2020. But plans can still have different benefits above and below the initial coverage limit, and the donut hole concept is still important in terms of how medication costs are calculated toward reaching the catastrophic coverage threshold.

Summary

The ACA has changed many aspects of the American health insurance system. The effects were most noticeable in the individual/family (self-purchased) market and for Medicaid eligibility. But ACA rules also apply to employer-sponsored health insurance and some aspects of Medicare. Although the ACA has faced numerous challenges, it has been upheld three times by the Supreme Court and is now an integral part of the U.S. health care system.

A Word From Verywell

If you have health insurance in the United States, you've probably experienced some changes as a result of the Affordable Care Act. Although the ACA has always been controversial, its primary provisions are all aimed at strengthening consumer protections and increasing the number of Americans who have health coverage.

The ACA prevents insurers from excluding coverage for pre-existing conditions or charging people higher premiums based on their medical history. It also ensures that people with individual/family or small group coverage are able to enroll in robust coverage, and it provides financial support to make self-purchased coverage affordable to millions of Americans. It also expanded eligibility for Medicaid, which has served as a crucial safety net during the COVID pandemic.

9 Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. 115th Congress. H.R.1 - An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.

  2. HealthCare.gov. Out-of-pocket maximum/limit.

  3. Healthinsurance.org. A state-by-state guide to Medicaid expansion, eligibility, enrollment and benefits.

  4. Centers for Medicare and Medicaid Services. Medicaid, Children's Health Insurance Program, and Basic Health Program Eligibility Levels.

  5. Rae, Matthew; Cox, Cynthia; Claxton, Gary; McDermott, Daniel; Damico, Anthony. Kaiser Family Foundation. How the American Rescue Plan Act Affects Subsidies for Marketplace Shoppers and People Who Are Uninsured.

  6. Healthinsurance.org. Can small businesses use the ACA’s health insurance marketplaces (exchanges)?

  7. Healthinsurance.org. What is a grandmothered health plan?

  8. Centers for Medicare and Medicaid Services. Medicare Monthly Enrollment.

  9. Medicareresources.org. How did the Medicare Donut Hole Change for 2023?

Additional Reading

By Michael Bihari, MD
Michael Bihari, MD, is a board-certified pediatrician, health educator, and medical writer, and president emeritus of the Community Health Center of Cape Cod.