What Is the Affordable Care Act (ACA)?

The Affordable Care Act (ACA) is the comprehensive healthcare reform signed into law by President Barack Obama in March 2010. Formally known as the Patient Protection and Affordable Care Act, and often just called Obamacare, the law includes a list of healthcare policies intended to extend health insurance coverage to millions of uninsured Americans.

The act expanded Medicaid eligibility, created health insurance exchanges, mandated that Americans purchase or otherwise obtain health insurance, and prohibited insurance companies from denying coverage (or charging more) due to preexisting conditions. It also allows children to remain on their parents' insurance plan until age 26.

Key Takeaways

  • The Affordable Care Act (ACA), also known as Obamacare, was signed into law in March 2010.
  • It was designed to extend health coverage to millions of uninsured Americans.
  • The act expanded Medicaid eligibility, created a Health Insurance Marketplace, prevented insurance companies from denying coverage due to pre-existing conditions, and required plans to cover a list of essential health benefits.
  • Lower-income families qualify for subsidies for coverage purchased through the Marketplace.

Understanding the Affordable Care Act (ACA)

The ACA was designed to reduce the cost of health insurance coverage for people who qualify. The law includes premium tax credits and cost-sharing reductions to help lower expenses for lower-income individuals and families.

You only have through Aug. 15, 2021, to enroll in or change your Health Insurance Marketplace coverage under the special enrollment period established to help people through the recent economic crisis when many temporarily or permanently lost employer-provided health insurance. Detailed rules about who qualifies—and under which circumstances—are listed on HealthCare.gov, the ACA website.

Premium tax credits lower your health insurance bill each month. Cost-sharing reductions, meanwhile, reduce your out-of-pocket costs for deductibles, copays, and coinsurance, as well as lowering your out-of-pocket maximum: the total amount you pay in a year for covered health expenses.

All ACA-compliant health insurance plans—including every plan that's sold on the Health Insurance Marketplace—must cover specific "essential health benefits" including:

  • Ambulatory patient services
  • Breastfeeding
  • Emergency services
  • Family planning
  • Hospitalization
  • Laboratory services
  • Mental health and substance use disorder services
  • Pregnancy, maternity, and newborn care
  • Prescription medications
  • Preventive and wellness services and chronic disease management
  • Pediatric services
  • Rehabilitative and habilitative service

As part of the American Rescue Plan of 2021, subsidies for coverage purchased through healthcare.gov have been increased, and eligibility for subsidies has been extended to higher income levels.

In addition, the ACA requires most insurance plans, including those sold on the Marketplace, to cover at no cost to policyholders a list of preventive services. These include checkups, patient counseling, immunizations, and numerous health screenings. It also allowed states that opted in to extend Medicaid coverage to a wider range of people. As of June 2021, 37 states and the District of Columbia had exercised that option.

Every year, there is an open enrollment period on the Health Insurance Marketplace during which people can buy or switch insurance plans. If you miss this time, you cannot enroll until the following year unless you qualify for a special enrollment period because your circumstances change—for example, you marry, divorce, become a parent, or lose a job that provided health insurance coverage.

Special Considerations

A critical part of the original ACA was the individual mandate, a provision requiring all Americans to have healthcare coverage—either from an employer or through the ACA or another source—or face tax penalties. The mandate was eliminated in 2017.

This mandate served the double purpose of extending healthcare to uninsured Americans and ensuring that there was a sufficiently broad pool of insured individuals to support health insurance payouts.

Criticism of the Affordable Care Act (ACA)

Critics of the ACA pointed out that is represented an unprecedented expansion of federal power within the healthcare industry because it required all individuals to purchase a service (health insurance) whether they wanted to purchase it or not.

This aspect of the law was a major focus of debate, and it was challenged in the U.S. Supreme Court in 2012 by the National Federation of Independent Business. The Court ruled in favor of the individual mandate as a constitutional exercise of the taxing authority of Congress, characterizing the penalties levied against the uninsured as a tax.

Recent History of the Affordable Care Act (ACA)

After President Obama left office, the ACA weathered opposition and a number of significant changes.

Trump Administration

On Jan. 20, 2017, in his first executive order after taking office, former President Donald Trump signaled his intention to defund the ACA, saying executive agency heads should "delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State." The intention of this order signaled the first phase of Republican efforts to repeal and replace the ACA.

Attempts by the government in 2017 to repeal the law altogether were not successful. However, the government substantially scaled back its outreach program to help Americans sign up for the ACA and cut the enrollment period in half.

Changes have been made to the law that addressed some of the objections raised by opponents, while still keeping the Marketplace open for users. For example, in December 2017, as part of the Tax Cuts and Jobs Act (TCJA), Congress removed the penalty for not having health insurance. Starting with the tax year 2019, the individual mandate penalty was reduced to zero dollars, essentially removing the requirement that many Republicans had opposed.

By 2018, the number of Americans covered under the ACA had dropped to 13.8 million (from 17.4 million in 2015), according to a report from healthcare research organization KFF. By 2021, there were 11.3 million people with plans through the ACA, but 14.8 million people newly enrolled in Medicaid through the ACA expansion.

Support for the ACA returned to a record high of 55% at the end of 2020, according to polling from Gallup.

In March 2019, House Democrats unveiled legislation to shore up the Act and expand coverage, while the Trump administration revealed it would seek to repeal the entirety of the ACA. In a letter to a federal appeals court, the Justice Department said it agreed with a federal judge in Texas, who declared the healthcare law unconstitutional, and added that it will support the judgment on appeal. The case was heard by the Supreme Court in November 2020, with a coalition of 21 attorney generals defending the ACA.

Biden Administration

President Joseph Biden, who helped Obama pass the law, is widely expected to make efforts to strengthen the ACA during his term and veto further legislative attempts to overturn it.

In addition to setting up a new special enrollment period, the executive order President Biden signed on Jan. 28, 2021, also focused on "rules and other policies that limit American's access to health care." This executive ordering federal agencies to examine five areas and decide whether action is needed there:

  • Protections for people with pre-existing conditions
  • Work requirements and other limitations to access to Medicaid and the ACA
  • Policies undermining health insurance markets, including the Health Insurance Marketplace
  • Policies increasing the difficulty of enrolling in Medicaid and the ACA
  • Policies reducing affordability or financial assistance, for recipients or dependents

The Bottom Line

The Affordable Care Act (ACA) was created in 2010, and is more commonly known as Obamacare. It extended healthcare coverage to millions of previously uninsured Americans. The act required that all Americans purchase (or otherwise obtain) health insurance, and prohibited insurance companies from denying coverage (or charging more) due to preexisting conditions. It also allows children to remain on their parents' insurance plan until age 26.

The ACA also created the Health Insurance Marketplace, through which eligible people may find and buy health insurance policies. All ACA-compliant health insurance plans, including those sold through the marketplace, must cover a number of “essential” health benefits. The Biden administration is expected to extend the ACA over the next few years.