The Affordable Care Act or Obamacare

Signed into law by President Barack Obama in 2010, the Patient Protection and Affordable Care Act—generally known as the Affordable Care Act or ACA—is responsible for the most sweeping reforms of the United States’ healthcare system since the 1965 passage of Medicare and Medicaid.

Some of the ACA's affordability provisions have been temporarily enhanced by the American Rescue Plan Act, designed to address the ongoing COVID pandemic and signed into law by President Joe Biden in 2021.

Background

Hotly contested along party lines, Republicans opposed the Affordable Care Act, derisively using the term Obamacare to describe the Act. But it should be noted that although no Republicans voted for the final bill, the process of creating the ACA was very much bipartisan. By 2012, President Obama had embraced the term Obamacare, and it is now widely used by both supporters and opponents of the law. But controversy about the ACA continued after its passage, with numerous court challenges to the law, some of which are ongoing more than a decade after the law was enacted.

What Are the Reforms?

The ACA implemented a wide range of reforms. Some are more behind-the-scenes, including payment reforms, efficiency in the Medicare system, and a focus on value-based care. But many of the reforms have significantly changed the landscape of health insurance in America, including coverage, access, and affordability. The bulk of these consumer-facing reforms have applied to the individual/family market, and to some extent, the small group market. But there have also been changes in the large-group market and for Medicare and Medicaid. Here's a summary of some of the most important changes (note that grandmothered and grandfathered plans are exempt from many—but not all—of the ACA's requirements):

Guaranteed-Issue Coverage in the Individual Market
All individual major medical health plans purchased since 2014 have been guaranteed issue. The ACA prevents insurers from refusing to cover people with a pre-existing condition, or from charging them higher premiums because of a pre-existing condition. This is true both on and off the exchange and represents a significant change from how the individual market functioned prior to 2014 in nearly every state. (Note that while short-term health plans are sometimes referred to as major medical plans, they are not regulated by the ACA and they still use medical underwriting.)

Health Insurance Exchanges
The creation of health insurance exchanges, or marketplaces, where individuals and families—and in some states, small businesses—may purchase guaranteed issue qualified health insurance plans. Note that there is just one official exchange in each state. In most states, it's HealthCare.gov, but DC and 14 states have fully state-run exchanges and use their own websites for enrollment. Individual major medical plans can also be purchased directly from the insurance companies (with the exception of DC, where all plans are sold via the exchange), and the coverage is still guaranteed issue. But financial assistance is not available outside the exchange, so this is generally only a good idea for people who know that they aren't eligible for any sort of financial assistance. The American Rescue Plan makes many previously ineligible people eligible for subsidies for the first time, but only if they enroll in a plan through the exchange.

Limited Enrollment Windows
Regardless of whether individual major medical coverage is purchased through the exchange or directly from an insurer, it's only available during open enrollment or a special enrollment period. Prior to the ACA, individual major medical coverage could be purchased at any time, but applicants were subject to medical underwriting in nearly every state. (Note that in 2021, there's a special enrollment period that runs through August 15, 2021 in most states. It's designed to address the COVID pandemic as well as the subsidy enhancements created by the American Rescue Plan. A qualifying event is not necessary during this window, even though it's outside of the annual fall enrollment period.)

Premium Subsidies
The ACA provides low and middle-income purchasers with subsidies (premium tax credits) to make buying health insurance more affordable. Under ACA rules, premium subsidies are only available to enrollees whose household income does not exceed 400% of the poverty level. But Section 9661 of the American Rescue Plan, enacted in March 2021, temporarily removes this income limit in 2021 and 2022. For those two years only, there is no upper cap on income for subsidy eligibility. Instead, people with income at or above 400% of the poverty level are simply expected to pay no more than 8.5% of their income for the benchmark plan's premium. If it would cost more than that, a subsidy is available. The American Rescue Plan has also increased the size of premium subsidies for people with incomes below 400% of the poverty level, for 2021 and 2022. (For perspective, 400% of the poverty level in 2021 is $51,040 for a single individual and $104,800 for a family of four; prior to the American Rescue Plan, these were the income caps for subsidy eligibility, but those limits have been removed for 2021 and 2022.)

Cost-Sharing Reductions
There are also subsidies to reduce out-of-pocket costs for eligible enrollees who select silver plans in the exchange (income cannot exceed 250 percent of the poverty level or $65,500 for a family of four in 2021). These subsidies help to improve access to health care by reducing the amount of money that enrollees have to pay when they receive medical care. For 2021 only, Section 9663 of the American Rescue Plan ensures that people who are receiving unemployment compensation at any time in 2021 are able to enroll in a $0 premium silver plan with full cost-sharing reductions—assuming they're not eligible for Medicaid—regardless of what their actual income is (the law caps countable income in those circumstances as if it's no more than 133% of the poverty level).

Individual Mandate
For tax years 2014 through 2018, the ACA also imposed a tax penalty on those who remained uninsured; the penalty took effect in 2014, and gradually ramped up to its maximum level by 2016. But although there is still a law requiring most Americans to maintain minimum essential health insurance coverage, the penalty for non-compliance was reduced to $0 as of January 2019, under the terms of the Tax Cuts and Jobs Act (H.R.1) that was enacted in late 2017. People are no longer subject to penalties for being uninsured unless they live in one of the states where state-based individual mandates (and penalties) have been implemented.

Elimination of Lifetime and Annual Limits
The ACA eliminated annual and lifetime dollar caps on how much an insurance company will pay for an insured’s covered health care (essential health benefits), and limits out-of-pocket maximums. Large group health plans are not required to cover all of the essential health benefits (most do, however), but for any essential health benefits that they do cover, they cannot impose any dollar limits on how much they'll pay for those services.

Essential Health Benefits
The ACA requires health insurance plans in the individual and small group markets to cover ten essential health benefits. One of the essential health benefit categories is preventive care, and a wide range of preventive care services are required to be covered with no cost-sharing. Although large group plans are not required to cover the full list of essential health benefits, non-grandfathered large group plans are required to cover preventive care with no cost-sharing.

Actuarial Value Requirements
In the individual and small group markets, all plans issued since 2014 (with the exception of catastrophic plans in the individual market) have to fit into one of four "metal" levels (bronze, silver, gold, and platinum) that are determined based on actuarial value.

Employer Mandate
The ACA requires large employers—those with 50 or more full-time equivalent employees—to offer affordable, minimum value health insurance to all full-time (30+ hours per week) employees, or risk a penalty under the employer shared responsibility provision. Employers must ensure that the coverage is considered affordable for the employee, but there's no affordability test for the cost of covering family members under the plan. Because of how this works and how subsidy availability is determined in the exchanges, some people are unable to obtain affordable coverage due to what's referred to as the "family glitch."

Expansion of Medicaid and Transition to MAGI-Based Eligibility
Medicaid has historically covered low-income, low-asset Americans who were also either pregnant, children, parents of minor children, disabled, or elderly. The ACA called for an expansion of Medicaid to cover adults age 19-64 (including those who do not have children and are not pregnant or disabled) with income as high as 138% of the poverty level (133% plus a 5% income disregard). The law also transitioned some Medicaid populations to an eligibility system that only considers income, without taking assets into consideration. But a Supreme Court ruling in 2012 made Medicaid expansion optional for each state, and there are still 12 states (as of 2021) that have taken no action towards expanding Medicaid (two additional states, Missouri and Oklahoma, plan to expand Medicaid in mid-2021 under the terms of ballot measures that voters in those states passed in 2020, although the process could be delayed in Missouri due to legislative disagreement about funding). As a result, there are 2.2 million Americans caught in the Medicaid coverage gap—their incomes are too low for premium subsidies, but they're also ineligible for Medicaid.

Improvements to Medicare
The ACA also gradually closed the Medicare Part D donut hole, and added new preventive care benefits to Medicare.

Some Parts of the Affordable Care Act Have Been Delayed or Eliminated

Some parts of the ACA have been altered, delayed, or will never be implemented.

As noted above, the Supreme Court disallowed a provision that would have withdrawn federal Medicaid funding to states that didn’t offer Medicaid to more people. Most states have expanded Medicaid anyway, but some continue to resist expansion, leaving 2.2 million people in a dozen states with essentially no realistic access to coverage.

Additionally, Congress repealed the long-term care provision of the ACA, known as the CLASS Act, in January 2013 after the Department of Health and Human Services determined it was unworkable.

Numerous aspects of the ACA were delayed, including the employer shared responsibility provision (it took effect in 2015, rather than 2014, and wasn't fully phased in until 2016), and the termination of non-grandfathered, non-ACA-compliant plans that were issued prior to 2014. These plans are transitional, or " grandmothered," and they're currently allowed to continue in force until the end of 2022, at the discretion of states and health insurers (extensions have thus-far been issued on an annual basis).

The Cadillac Tax was repeatedly delayed and ultimately repealed. The Health Insurance Tax and the Medical Device Tax have also been repealed.

And although the individual mandate (individual shared responsibility provision) was implemented and continues to exist, the tax levied by the IRS for non-compliance was eliminated after the end of 2018, under the terms of the GOP's Tax Cuts and Jobs Act.

Ongoing Legal Challenges

The ACA has endured numerous legal challenges over the years. In 2018, a lawsuit was filed (Texas v. Azar, now called California v. Texas) that threatened to overturn the entire law. The lawsuit stemmed from the fact that an earlier lawsuit (the one in which the Supreme Court ruled in 2012 that the ACA was constitutional but that states could not be forced to expand Medicaid or lose their federal Medicaid funding) determined that the enforcement mechanism for the individual mandate constituted a tax rather than a penalty.

That tax was eliminated (effective January 2019) by the GOP tax bill that was enacted in late 2017. Soon thereafter, a group of 20 GOP-led states sued to overturn the ACA, arguing that without the tax, the rest of the law could no longer be considered constitutional. Legal scholars generally agreed that this was a stretch, but in December 2018, a federal judge ruled that the ACA should indeed be overturned.

Under the Trump administration, the Department of Justice declined to defend the ACA, and agreed with the judge's ruling—that the ACA should be overturned in full. Oral arguments in the appeal were heard in July 2019. Later that year, a federal appeals court ruled that the law requiring health insurance was unconstitutional without a tax penalty but stopped short of invalidating the rest of the law, instead sending it back to the lower court.

Under the Biden administration, the Department of Justice changed its stance on the ACA and defended the ACA's ability to stand without the mandate. The Supreme Court heard oral arguments in November 2020 and is expected to return a decision by June 2021.