Affordable Care Act (ACA): What It Is, Key Features, and Updates

What Is the Affordable Care Act (ACA)?

The Affordable Care Act (ACA) is the comprehensive health care reform signed into law by President Barack Obama in March 2010. Formally known as the Patient Protection and Affordable Care Act and commonly referred to as "Obamacare," the law includes a list of health care policies intended to expand access to health insurance 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 due to pre-existing conditions.

Key Takeaways

  • The Affordable Care Act was signed into law in March 2010 and is commonly known as "Obamacare."
  • The ACA was designed to extend health coverage to millions of uninsured Americans.
  • The ACA expanded Medicaid eligibility, created a Health Insurance Marketplace, and prevented insurance companies from denying coverage due to pre-existing conditions.
  • The Affordable Care Act requires insurers to cover a list of essential health benefits.

Understanding the Affordable Care Act (ACA)

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

The ACA requires most insurance plans, including those sold on the Health Insurance Marketplace, to cover a list of preventive services at no cost to policyholders which include checkups, patient counseling, immunizations, and numerous health screenings.

All ACA-compliant health insurance plans must cover specific "essential health benefits," such as emergency services, family planning, maternity care, hospitalization, prescription medications, mental health services, and pediatric care.

The act allows states to extend Medicaid coverage to a wider range of people. As of September 2022, 39 states, including 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. Enrollment outside of the open season is allowed only for those whose circumstances change, such as marrying, divorcing, becoming a parent, or losing a job that provided health insurance coverage.

The Inflation Reduction Act of 2022 extends the expanded ACA for three years through 2025 for people who need financial assistance. It also allows Medicare to negotiate the cost of prescription drugs and place an annual cap of $2,000 on the cost of drugs. The ACA extension is expected to cost an estimated $64 billion.

Key Features of the Affordable Care Act

Provisions included in the ACA expand access to insurance, increase consumer protections, emphasize prevention and wellness, improve quality and system performance, expand the health workforce, and curb rising health care costs.

Expand Access to Insurance

The ACA requires employers to cover their workers and provides tax credits to certain small businesses that cover specified costs of health insurance for their employees. It created state or multi-state-based insurance exchanges to help individuals and small businesses purchase insurance. 

The act expanded Medicaid coverage for low-income individuals and allows young adults to remain on parents' policies until the age of 26.

Part of the ACA until 2017 was the individual mandate, a provision requiring all Americans to have health care coverage, either from an employer or through the ACA or another source, or face tax penalties.

Increase Consumer Insurance Protections

The ACA prohibits lifetime monetary caps on insurance coverage and limits the use of annual caps as well as establishes state rate reviews for insurance premium increases. It prohibits insurance plans from excluding coverage for children with preexisting conditions and canceling or rescinding coverage.

Prevention and Wellness

The Prevention and Public Health Fund, established under the ACA, provides grants to states for prevention activities, such as disease screenings and immunizations, and the National Prevention, Health Promotion, and Public Health Council addresses tobacco use, physical inactivity, and poor nutrition.

The ACA requires insurance plans to cover preventive care such as immunizations, preventive care for children, screening for certain adults for conditions such as high blood pressure, high cholesterol, diabetes, and cancer, and a public education campaign for oral health.

Improve Health Quality and Curb Costs

The ACA requested investments in health information technology. It addressed guidelines to reduce medical errors and create payment mechanisms to improve efficiency and results and improve care coordination among providers.

The act requires oversight of health insurance premiums and practices, reducing health care fraud and uncompensated care to foster comparison shopping in insurance exchanges to increase competition and price transparency.

Pros and Cons of the Affordable Care Act

Pros
  • Expands health care availability to more citizens

  • Prevents insurers from making unreasonable rate increases

  • Individuals with pre-existing health conditions cannot be denied

  • Coverage for additional screenings, immunizations, and preventative care

Cons
  • Those already insured saw an increase in premiums

  • Taxes were created to help supplement the ACA, including taxes on medical equipment and pharmaceutical sales

  • The enrollment period is limited for new enrollees

  • Many businesses curtailed employee hours to avoid providing medical insurance

Updates to the Affordable Care Act

With his election in 2016, President Donald Trump launched efforts to repeal and replace the ACA, stating that the U.S. should delay "the implementation of any provision or requirement of the Patient Protection and Affordable Care Act that would impose a fiscal burden on any State."

In December 2017, the Tax Cuts and Jobs Act (TCJA) removed the penalty for individuals not having health insurance and substantially scaled back the outreach program to help Americans sign up for the ACA, cutting the enrollment period in half. 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 health care research organization Kaiser Family Foundation.

In 2021, President Joe Biden signed an executive order to focus on the "rules and other policies that limit Americans' access to health care," prompting federal agencies to examine five areas including pre-existing conditions, policies undermining the Health Insurance Marketplace, enrollment roadblocks, and affordability. The COVID-19 relief legislation, the American Rescue Plan Act (ARPA), extended eligibility for ACA health insurance subsidies to those buying their health coverage on the marketplace with incomes over 400% of poverty.

With the passage of the Inflation Reduction Act, signed into law by President Joe Biden on Aug. 16, 2022, financial assistance was extended for people enrolled in ACA through 2025 instead of 2022. It also expands eligibility, allowing more middle-class citizens to receive premium assistance. The legislation passed in both the House of Representatives and the Senate.

What Are Common Arguments for and Against the ACA?

Opponents argue that the Affordable Care Act hurts small businesses that are required to provide insurance, raises health care costs, and creates a reliance on government services by individuals. Proponents state that those with health insurance get medical attention quickly and live a healthier lifestyle. They contend the health care system will operate more efficiently when commercial insurers and their customers do not need to fund the uninsured.

When Does the Yearly Enrollment Period on the Marketplace Begin?

The Health Insurance Marketplace is available for new enrollment on November 1st and information is available on the government website.

How Many Citizens Use the Health Insurance Marketplace?

As of 2021, over 13 million citizens are enrolled in coverage offered by the ACA's HIM.

The Bottom Line

The Patient Protection and Affordable Care Act (ACA) was passed in 2010 and is commonly known as Obamacare. It extended health care coverage to millions of previously uninsured Americans. The ACA launched 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 several essential health benefits. The ACA has continued to evolve through three presidencies.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Healthcare.gov. "Affordable Care Act (ACA)."

  2. Healthcare.gov. "Preventive Care Benefits for Adults."

  3. Healthcare.gov. "What Marketplace Health Insurance Plans Cover."

  4. Kaiser Family Foundation. "Status of Medicaid Expansion Decisions: Interactive Map."

  5. Healthcare.gov. "Enroll In or Change 2022 Plans — Only with a Special Enrollment Period."

  6. Senate Democrats. "Summary: The Inflation Reduction Act of 2022," Page 1.

  7. Congress.gov. "H.R.5376 - Inflation Reduction Act of 2022: Actions."

  8. National Conference of State Legislatures. "The Affordable Care Act."

  9. Healthcare.gov. "No Health Insurance? See If You'll Owe a Fee."

  10. Federal Register. "Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal."

  11. Kaiser Family Foundation. "Data Note: Changes in Enrollment in the Individual Health Insurance Market Through Early 2019."

  12. The White House. "Fact Sheet: President Biden to Sign Executive Orders Strengthening Americans’ Access to Quality, Affordable Health Care."

  13. U.S. Department of Health & Human Services. "All-Time High: 13.6 Million People Signed Up for Health Coverage on the ACA Insurance Marketplaces With a Month of Open Enrollment Left to Go."