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 healthcare reform signed into law by then-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 healthcare policies intended to expand access to health insurance to millions of uninsured Americans.

The law 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 preexisting conditions.

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 that 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 law allows states to extend Medicaid coverage to a wider range of people. As of September 2022, 39 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. 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.

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 healthcare 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 multistate-based insurance exchanges to help individuals and small businesses purchase insurance. 

The law expanded Medicaid coverage for low-income individuals and allows young adults to remain on parents’ policies until age 26.

Part of the ACA until 2017 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.

Increase Consumer Insurance Protections

The ACA prohibits lifetime monetary caps on insurance coverage, limits the use of annual caps, and 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 law requires oversight of health insurance premiums and practices, reducing healthcare 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

Updates to the Affordable Care Act

With his election in 2016, then-President Donald Trump launched efforts to repeal and replace the ACA, stating that the United States 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 the Kaiser Family Foundation, a healthcare research organization.

In 2021, President 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 preexisting conditions, policies undermining the Health Insurance Marketplace, enrollment roadblocks, and affordability. 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 Biden on Aug. 16, 2022, financial assistance was extended for people enrolled in the 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.

The Bottom Line

The Patient Protection and Affordable Care Act (ACA) was passed in 2010 and is commonly known as Obamacare. It extended healthcare 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.