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 simply Obamacare—the law includes a list of health-related provisions intended to extend health-insurance coverage to millions of uninsured Americans.

The Act expanded Medicaid eligibility, created health insurance exchanges, and prevents insurance companies from denying coverage (or charging more) due to pre-existing conditions. It also allows children to remain on their parents' insurance plan until age 26.

Key Takeaways

  • The Affordable Care Act—also known as Obamacare—was signed into law in March 2010. It was designed to extend health insurance coverage to millions of uninsured Americans.
  • The Act expanded Medicaid eligibility and created a Health Insurance Marketplace. It prevents insurance companies from denying coverage due to pre-existing conditions and requires plans to cover a list of essential health benefits.
  • Lower-income families can qualify for extra savings on health insurance plans through premium tax credits and cost-sharing reductions.

Understanding the Affordable Care Act (ACA)

The Affordable Care Act 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 costs for lower-income individuals and families.

Premium tax credits lower your health insurance bill each month. Cost-sharing reductions lower your out-of-pocket costs for deductibles, copays, and coinsurance. They also lower 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 services

In addition, the Affordable Care Act 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. (To date, 37 states and the District of Columbia have exercised that option.)

Special Considerations

A notable part of the Affordable Care Act 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 increasingly stiff tax penalties. 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.

On Jan. 20, 2017, in his first executive order after taking office, President Donald Trump signaled his intention to defund the Affordable Care Act, 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. Rolling back the law was one of Trump's central campaign promises aimed at reducing the fiscal burden on the government.

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 have addressed some of the objections raised by opponents, while still keeping the Marketplace open active for users. For example, as part of the Tax Cuts and Jobs Act, Congress in Dec. 2017 removed the penalty for not having health insurance. Starting with 2019 taxes, the individual mandate 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 from 17.8 in 2015 to 13.8 in 2015, according to a report from healthcare research organization KFF.

In March 2019, the Trump administration revealed it will seek to repeal the entire Affordable Care Act. The Justice Department in a letter to a federal appeals court 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 is expected to go to the Supreme Court with a coalition of 21 attorneys general defending the Affordable Care Act. Meanwhile, also in March 2019, House Democrats unveiled legislation to shore up the Act and expand coverage.