What is the Affordable Care Act (ACA)?

By Elizabeth Walker on October 17, 2025 at 9:15 AM

Before 2010, getting health insurance coverage as an individual in the U.S. was challenging. Expensive premiums, pre-existing condition restrictions, and limited plan options left 46.5 million Americans without health insurance¹. These complications affected both the individual market and companies considering offering employer-sponsored health benefits.

Following the passage of the Patient Protection and Affordable Care Act (ACA) in 2010, the federal government implemented greater consumer protections to make health insurance more accessible and affordable nationwide. But what is the ACA, and how does it affect individuals and business owners?

This article will take you through everything you need to know about the ACA and its changes to the U.S. health insurance industry.

In this blog post, you’ll learn:

What the Affordable Care Act (ACA) is and why the federal government created it.

How the ACA transformed the U.S. health insurance industry for both individuals and employers.

How consumers and business owners can navigate ACA requirements successfully.

What is the Affordable Care Act?

The Patient Protection and Affordable Care Act — also known as the PPACA, the ACA, or Obamacare — is a landmark healthcare reform legislation former President Obama signed into law in March 2010.

The Obama Administration created the ACA as a comprehensive way to extend access to health coverage and reduce the financial burden of medical expenses for millions of Americans.

The ACA had three main goals:

Make affordable health insurance coverage more accessible to more people in the individual market.
Expand the Medicaid program to cover more adults who meet the low-income threshold.
Reduce healthcare costs affecting consumers and the federal government by supporting innovative medical care methods.

In 2014, 8 million people enrolled in health coverage on the ACA Marketplaces². A record-breaking 23.6 million people signed up for Marketplace coverage in 2025, showing the growing popularity of the ACA as an effective way to enroll more people in health insurance.

Find out how the ACA varies by state by reading our blog.

What changes did the Affordable Care Act make to the health insurance industry?

The ACA has significantly adjusted how we approach healthcare in the U.S. Whether you’re an individual shopping for health insurance or an employer enrolling in a traditional group health plan for your employees, the ACA will impact your decision process.

We'll discuss several of the ACA's changes in more detail below to help you better understand them.

Health insurance market reforms

The ACA introduced multiple healthcare reform laws for insurance companies and the individual market. These provisions aimed to put consumers back in charge of their coverage, improve the quality of care, and control overall medical costs.

The following bullets briefly highlight several ACA health market provisions:

Limitations: Health plans can’t impose annual limits on coverage for the 10 essential health benefits. Plans must cover preventive services without cost-sharing requirements.
Young adult health coverage: Children listed as dependents on their parents’ health insurance plan can remain on their plan until age 26. College students may buy a university-sponsored insurance plan if family coverage is unavailable. These plans must also cover the 10 essential benefits.
Grandfathered plans: Individuals may keep grandfathered plans bought on or before March 23, 2010. However, they may not receive some ACA protections.
Health reimbursement arrangements: The ACA considers health reimbursement arrangements (HRAs) a group health plan. This temporarily limited HRAs as they didn’t meet market reforms. Subsequent laws now allow employers to offer an HRA as an alternative to traditional group coverage by reimbursing employees for health insurance premiums and other qualified out-of-pocket expenses.
Market rating reforms: Health insurers must follow product pricing standards to promote transparency and fair premiums.
Medical loss ratio: The law requires insurers to submit data regarding medical loss ratios and issue rebates to plan participants if the ratio percentage doesn’t meet the minimum standards.
The Mental Health Parity and Addiction Equity Act (MHPAEA): This law prohibits group health plans and insurers offering mental health services or substance use treatment from imposing more restrictive limitations on these benefits than on medical or surgical care.
Patient's Bill of Rights: The Patient’s Bill of Rights ensures people with pre-existing conditions receive health coverage, protects an individual’s choice of physicians, ends lifetime limits on healthcare, and includes other provisions.
Premium rate review: States will receive federal funding to review and reduce health plan premium hikes to improve insurer accountability and consumer transparency.
Self-funded, non-federal governmental health plans: Sponsors of self-funded, non-federal governmental health plans can no longer opt out of many requirements listed in Title XXVII of the Public Health Service Act.
Removal of employer payment plans: Employer payment plans (EPPs) don’t meet the market healthcare reform requirements and can’t integrate with ACA-compliant individual policies to meet the necessary provisions. Therefore, they don’t comply with the ACA. Employers found offering an EPP will be subject to a penalty.

The Centers for Medicare and Medicaid Services (CMS) enforces market reforms in each state to ensure compliance.

Individual mandate

Until 2017, the ACA required most individuals to enroll in a health insurance plan or pay a tax penalty. This requirement was known as the individual mandate, and the penalty was referred to as the individual shared responsibility payment.

The Tax Cut and Jobs Act of 2017 repealed the individual mandate on the federal level, effective as of 2019. This means the federal government no longer requires any individual to pay a penalty during tax season for not having health insurance.

However, the following states still require their residents to have individual coverage on a state level:

Residents of these states, except Vermont, must pay a tax penalty if they can afford health coverage but don’t enroll in a plan.

Employer mandate

The ACA considers an organization an applicable large employer (ALE) if they have 50 or more full-time equivalent employees (FTEs). If your company is an ALE, you must comply with the ACA’s employer shared responsibility provisions (ESRP), also known as the employer mandate.

The employer mandate requires all ALEs to offer at least 95% of their full-time employees and their dependents affordable health insurance coverage that provides minimum essential coverage (MEC) and minimum value. If they don’t, they’ll be subject to potential tax penalties in the form of payments under the employer-shared responsibility provisions.

If you’re not an ALE, you don’t have to offer your employees health insurance coverage or pay a penalty.

Minimum essential coverage

Minimum essential coverage (MEC) is any type of health insurance coverage that meets the individual shared responsibility requirement under the ACA. While the individual mandate penalty no longer applies in most states, the ACA still requires plans to have MEC in many cases.

For example, suppose an organization offers employees a qualified small employer HRA (QSEHRA). In that case, it must have a health insurance policy that meets MEC to participate in the benefit and receive tax-free healthcare reimbursements.

Examples of plans that provide MEC are:

Employer-sponsored coverage, like group health plans and COBRA policies.
Individual coverage, like public and private health insurance exchange plans.
Government-sponsored health programs, like Medicaid, Medicare, and CHIP plans.

In contrast, certain TRICARE plans, AmeriCorp policies, and supplemental or ancillary plans that consist only of excepted benefits are examples of coverage that don’t meet MEC.

Visit our blog to learn more about minimum essential coverage.

Minimum value

Minimum value is a standardized way of measuring employer-sponsored coverage to ensure it meets the minimum coverage requirements outlined in the ESRP. Your plan meets minimum value if it pays at least 60% of the total cost of healthcare services for the standard population. Its benefits must also include substantial coverage of doctor and inpatient hospital services.

The easiest way to determine if your health plan provides minimum value is by using the Department of Health and Human Services’ minimum value calculator³. If you don’t want to use the calculator, you can also use the safe harbor method to determine your plan’s MV level.

Read our full article to get more details about minimum value standards.

Essential health benefits

Due to the ACA, all individual and small group medical plans sold on a public and private health insurance exchange must offer participants coverage for 10 essential health benefits.

These benefits include various basic items and services that individuals need coverage for to receive quality care, such as:

Emergency services
Prescription drugs
Mental health services
Rehabilitative care
Preventive services, like cancer screening and vaccinations

Once a policyholder reaches their annual out-of-pocket limit for essential health benefits, the plan will cover 100% of the remaining cost of these services. The ACA also prohibited insurance companies from setting annual or lifetime maximums on the amount they would pay for these covered services.

Learn more about the 10 essential health benefits in our blog.

Qualified health plans

Qualified health plans (QHPs) are certain types of health insurance policies sold on the individual market that must meet specific standards under ACA requirements. While they must meet MEC and cover the 10 essential health benefits, some QHPs offer additional perks, like vision and dental coverage.

QHPs must also adhere to the following rules:

They must limit an individual's out-of-pocket costs, such as deductibles, copayments, and annual out-of-pocket maximum amounts.
They must prohibit lifetime benefit limits.
They must include a reasonable number of in-network providers set by each state.
They must follow other applicable ACA requirements.

Public health exchanges, like the federal and state-based marketplaces, certify QHPs with CMS annually. However, private exchanges can also sell consumers ACA-compliant coverage plans if they don’t want to shop and enroll in a plan on a public exchange.

Metallic tiers of health coverage

To standardize shopping for health insurance, the ACA requires insurers to categorize QHPs sold on the individual market by four standard levels of coverage, also known as metallic tiers. The four metallic tiers are bronze, silver, gold, and platinum.

Higher-level tiers — like gold and platinum — have more expensive premium rates, but the health insurer will pay a larger share of your medical expenses. Lower-level tiers — like bronze and silver — have cheaper premium rates, but individuals will pay more in out-of-pocket costs.

There are also catastrophic plans. These plans have cheaper premiums but more out-of-pocket costs. They’re generally only available to those younger than 30 unless you have a hardship exemption.

You can choose from various health plan types, like HMOs, EPOs, and PPOs, within each metallic tier to help you determine your network and prices for eligible services and prescription drugs.

The metallic tiers only impact how you and your insurer split your medical costs. They don’t reflect the quality of care that you’ll receive.

Health insurance marketplaces

With all the health plan coverage and classification changes, the ACA had to create a system to allow individuals to find these policies. This system evolved into the health insurance marketplaces.

The ACA Marketplaces let individuals and families browse, compare, and enroll in various QHPs from different insurance companies. The ACA allows states to choose whether to set up their own exchange or allow their residents to use the federal Health Insurance Marketplace to enroll in coverage. Together, state-based exchanges and the federal Marketplace are called public health exchanges.

All ACA-compliant plans sold on public exchanges must have an actuarial value of at least 60% (the value of a bronze-tier plan), cover essential health benefits, and include birth control and breastfeeding coverage. Individuals and small employers with fewer than 50 employees can buy a health plan from public exchanges.

In contrast, private health exchanges are insurance companies, agents, and brokers. Public exchanges can only sell ACA-compliant plans. However, private exchanges can offer ACA-compliant and non-compliant policies, including ancillary coverage, supplemental benefits, and short-term insurance.

Enrollment periods

Open Enrollment Period is the designated time frame during which individuals can enroll in, renew, or change their health plan. The federal government created the Open Enrollment Period to standardize the process of getting or changing health coverage. Individuals no longer had to wait until the last minute to get health insurance.

Currently, the Open Enrollment Period in most states starts on November 1 and ends on January 15. However, effective at the start of the 2026 Open Enrollment Period for 2027 coverage, the enrollment dates will begin on November 1 and end on December 15 for all states with public exchanges operating on the federal Health Insurance Marketplace. State-based exchanges will also have to shorten their annual enrollment period to end by December 31⁴.

Outside of the Open Enrollment Period, certain qualifying life events will trigger a special enrollment period, allowing you to change your current plan mid-year. Generally speaking, you'll have a 60-day special enrollment period after the event to enroll in a new health plan through federal or state-based marketplaces.

Pre-existing conditions

Before the ACA, most insurance companies in the individual market would use medical underwriting to examine each individual's health records.

Depending on an applicant’s medical history, they could:

Reject health insurance applications
Charge higher monthly premiums
Deny medical services
Create a waiting period for people with pre-existing conditions

In most cases, denying or limiting coverage and raising premium costs due to a pre-existing condition, such as a chronic illness, is illegal. However, a few policies still allow limitations based on a policyholder’s medical history, such as short-term limited-duration insurance and large group health insurance plans.

Premium tax credits

Implemented after the creation of the ACA marketplaces, premium tax credits provide financial assistance for lower-income individuals to purchase single-only or family coverage. You can receive premium tax credits on your federal income tax return or choose advance payments to help you immediately pay your monthly insurance premium costs throughout the year.

The eligibility requirements for financial assistance through premium tax credits are the same nationwide. Adults with incomes between 100% and 400% of the federal poverty level (FPL) are eligible; however, the specific threshold changes annually. The 2025 FPL income threshold is $15,650 for single individuals and $32,150 for a family of four. You can only receive federal premium subsidies if you purchase a health plan through a public marketplace.

Additionally, all U.S. adults purchasing health coverage from a public exchange will pay no more than 8.5% of their actual household income for the benchmark silver plan through the end of 2025, regardless of the FPL.

Lastly, the American Rescue Plan Act (ARP) expanded premium tax credits and cost-sharing reduction eligibility. While initially set to expire at the end of 2022, the Inflation Reduction Act in August 2022 extended the enhanced premium tax credits through 2025. If Congress allows the enhanced credits to expire at the end of 2025, premium payments could more than double for enrollees in 2026⁵.

The small business health care tax credit

One way small employers can offer ACA-compliant health coverage is with the small business health care tax credit. To qualify, employers must offer a QHP through the Small Business Health Options Program Marketplace (SHOP) and have fewer than 25 FTEs during the tax year. You’ll also need to determine if you meet the annual wage requirements to receive the credit.

Learn more about how the small business health care tax credit works in our blog.

Medicaid coverage expansion

Medicaid is a federal assistance program that provides health insurance to low-income individuals and families. Uninsured Americans in every state can qualify for Medicaid services based on factors like income, household size, disability, and family status.

The ACA initially required all states to expand their Medicaid program. But in 2012, the Supreme Court left the decision to provide Medicaid expansion coverage up to the individual states. However, the enhanced federal funding for states that newly adopt Medicaid expansion will end on January 1, 2026, removing a vital financial incentive for more states to expand⁶.

In every state without Medicaid expansion, your annual income limit must be no more than 138% of the FPL to qualify. In the 41 states (including D.C.) that have chosen to expand Medicaid services, individuals with an annual limit of less than 133% of the FPL will qualify.

During the COVID-19 pandemic, states kept Medicaid participants continuously enrolled. This provision ended on March 31, 2023. Since April 2023, the federal government has disenrolled more than 15 million Americans from Medicaid coverage⁷.

Suppose your state doesn’t have expansion coverage. In that case, if your household income is less than the FDL, and you don't meet your state’s Medicaid eligibility requirements, you can’t qualify for Medicaid. You also won’t be eligible for premium tax credits through a state or federal exchange.

The Additional Medicare Tax

The Additional Medicare Tax is an extra tax payment implemented by the ACA since 2013. While the standard Medicare tax goes toward Medicare Part A, the Additional Medicare Tax goes toward the ACA to help fund certain services and benefits, such as premium tax credits.

High-earning individuals with wages, compensation, investment earnings, self-employment earnings, or combined income with their spouse that exceeds the applicable threshold for the individual's filing status must pay an additional 0.9% on earnings beyond the threshold. The employer must ensure they’re withholding the correct amount of Medicare taxes.

The 60-day notice of material modification

The ACA requires employers and insurers to provide their employees or plan participants with a summary of benefits and coverage (SBC). SBCs describe an employee’s health benefits in plain language so they can better understand their coverage. Under the ACA, employers must provide employees with at least 60 days’ notice before making any material modifications to their health plans that would affect the SBC.

The goal of the 60-day notice is to provide employees with the information they need to make informed decisions about their health plans promptly. Material modifications can include changes to coverage, cost-sharing, network providers, or any other terms that may impact the employee’s benefits.

Is Obamacare still in effect?

The ACA is still in effect, although the federal government has removed certain features, such as the individual mandate. While there’s no longer a tax penalty for individuals or families without health coverage in most states, employers must still provide health benefits to their employees if they have at least 50 FTEs.

Since the federal government implemented the ACA in 2010, the number of uninsured Americans dropped from 46.5 million in 2010 to 25.3 million in 2023.

Conclusion

The ACA has forever changed the U.S. healthcare system. With expanded access to health coverage, greater consumer protections, and standardized regulations, the ACA has made several positive strides toward providing affordable coverage to more U.S. adults, regardless of their income, ZIP code, or health status.

As with all healthcare reform laws, the federal government will make changes over time. By staying up to date with ACA updates, individuals and employers can make better decisions when shopping for health insurance for themselves, their families, or their employees.

This article was originally published on January 31, 2024. It was last updated on October 17, 2025.

1. Key Facts about the Uninsured Population

2. Another Year of Record ACA Marketplace Signups, Driven in Part by Medicaid Unwinding and Enhanced Subsidies

3. Minimum Value Calculator

4. Patient Protection and Affordable Care Act; Marketplace Integrity and Affordability

5. ACA Marketplace Premium Payments Would More than Double on Average Next Year if Enhanced Premium Tax Credits Expire

6. Health Provisions in the 2025 Federal Budget Reconciliation Bill

7. Drivers of ACA Marketplace Growth from 2023 to 2024