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Affordable Care Act

Definition of "Affordable Care Act"

A federal statute signed into law in March 2010 as a part of the healthcare reform agenda of the Obama administration. Signed under the title of The Patient Protection and Affordable Care Act, the law included multiple provisions that would take effect over a matter of years, including the expansion of Medicaid eligibility, the establishment of health insurance exchanges and prohibiting health insurers from denying coverage due to pre-existing conditions.

Investopedia Explains "Affordable Care Act"

At the time of its enactment, the Congressional Budget Office estimated that the new law would reduce the federal deficit by nearly $145 billion in the first 10 years and between .25% and .5% of GDP thereafter. The costs associated with the new amendments are offset by numerous taxes, such as increased taxes on items and services such as eye glasses, hearing aids and indoor tanning.

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How the Affordable Care Act Changed Insurance

Whether you’re a fan or a naysayer, there is no question the Affordable Care Act, often referred to as Obamacare, has changed the face of the American health insurance marketplace. Some of those changes are positive, others not so much, but one thing is for sure – the ACA is likely to continue to stir up controversy for some time.

Mandated Health Insurance

While every state has long required automobile drivers to have either auto insurance or proof of financial responsibility, up until now, the decision to have health insurance has been left to the individual. That’s all changed with Obamacare, however. As of 2014, going uninsured means you’ll face a fine on your tax return – for most people, that fine is 1% of their yearly household income, or $95 per person, whichever is higher, and the penalty will increase each year.    

…But Some Still Lack Coverage

Despite the requirement that everyone have health insurance, millions of Americans still lack coverage after the rollout of Obamacare. The vast majority of those people are between the ages of 18 and 44, have low incomes, and are caught in the difficult position of having just enough income to exceed eligibility for state Medicaid, yet not enough income to afford even subsidized insurance. Most will be exempt from paying the fine, however, since the law permits those who cannot find insurance costing less than 9.5% of their income to opt of out mandated coverage. As more states increase Medicaid eligibility, the number of uninsured Americans should continue to decrease.

Improved Access to Treatment

One of the major reforms of the ACA is the elimination of “pre-existing condition” clauses that allowed insurance companies to refuse coverage, or charge much higher rates, to those with various health conditions such as heart disease, cancer or asthma. This had previously left an estimated 25 million Americans uninsured. As of 2014, no one can be denied insurance due to pre-existing or chronic medical issues.

Another benefit of Obamacare is preventative healthcare at no charge to the patient. Routine checkups, mammograms and other cancer screenings, childhood vaccinations, well-baby appointments and screenings for high cholesterol, hypertension and depression are just some of the services that insurance companies must cover without charging a co-pay or requiring the patient to have already met the annual deductible.

Yet another change is the elimination of insurance lifetime limits – set dollar amounts beyond which insurance would no longer pay for medical treatment. Though few people ever reached the limit, for the unfortunate few – usually facing extremely high healthcare costs due to a severe, chronic illness or catastrophic injury – hitting the lifetime limit meant either reduced medical care, financial hardship or more often, both. As of 2010, insurance companies can no longer name a dollar-amount-limit to coverage.

Your Rates Might Go Up – Or Go Down

If you purchase health insurance on your own -- not through an employer or a government program such as Medicaid or Medicare -- depending on what state you live in, your age and your gender, your insurance premiums might go up more than 50% -- or they could go down 20% or more. In states where insurers previously charged much higher rates to those with chronic illnesses, women or seniors, prices for insurance are likely to go up. States that already prohibited higher costs to those groups are likely to see rates fall. Overall, if you are young and in good health, you’re likelier to see a rate increase. Older or sicker Americans are likelier to have a rate decrease.

If your healthcare comes through your employer, be prepared for sticker shock. Around 46% of middle-class Americans report their premiums have gone up significantly since 2012. It’s not clear, however, if those increases are directly due to Obamacare, or are a result of employers choosing to pass a higher percentage of costs on to their employees.

Will Your Hours Be Cut?

Obamacare requires that businesses with more than 50 full-time employees provide healthcare insurance by 2015, or by 2016 if the business has over 100 full-time employees. Businesses with less than 50 employees, which account for 96% of the companies in the US, are exempt from the requirement to provide employees with health insurance. One of the hottest areas of controversy regarding Obamacare is the claim by some critics that employers will cut full-time employees’ hours down to part-time status to avoid providing insurance. While there is anecdotal evidence that this is true, the Bureau of Labor statistics shows that while there is a rise in part-time employment and a drop in full-time work, the change is slight. In fact, the largest employer in the country, Walmart, shifted 35,000 employees from part-time to full-time status, and began offering an insurance plan to employees that goes beyond what Obamacare offers.

State and Federal Insurance Exchanges

One of the biggest innovations in the insurance market post-ACA is the formation of state health insurance exchanges. These exchanges make it easy to shop online for insurance – you can compare deductibles and co-pays, see what each plan covers and find out if you qualify for a subsidy to help with your costs. So far, less than half of states have established their own exchanges, with the remainder defaulting to the federal insurance exchange found at www.healthcare.gov.  

Along with the insurance exchanges, over half of states have expanded their Medicaid eligibility, providing insurance at no-or-low cost to 10.5 million Americans with very low income. You can apply for Medicaid through your state exchange, or through the federal website if your state does not run its own exchange.

The Bottom Line

Obamacare is undoubtedly a hot topic, one with strong supporters and equally adamant detractors. Regardless of which side you fall on, the plan has both pros and cons, each of which should become clearer as enough time passes to assess the far-reaching effects of this landmark new law.