Before 2010, securing health insurance coverage as an individual in the U.S. was challenging. Expensive premiums, costly out-of-pocket expenses, pre-existing condition restrictions, and limited plan options left 46.5 million Americans without health insurance1. These complications impacted the individual market, as well as employers who were considering offering health benefits at their organizations.
After passing the Patient Protection and Affordable Care Act (ACA) in 2010, the federal government provided greater consumer protections to make health insurance more accessible and affordable nationwide. But what is the ACA, and how does it affect individuals and employers?
This article will take you through everything you need to know about the ACA and its changes to the U.S. health insurance industry.
Takeaways from this blog post:
- The ACA had three main goals: expanding access to health insurance, expanding Medicaid coverage, and reducing healthcare costs for all individuals, regardless of income or health status.
- The ACA offers various consumer protections like limiting out-of-pocket expenses, prohibiting lifetime limits, and requiring qualified health plans to provide coverage for essential health benefits. It also offers premium tax credits to lower-income individuals.
- Staying informed about the ACA is vital for employers looking to offer health insurance. The ACA's employer mandate requires applicable large employers (ALEs) to provide appropriate health insurance coverage to their full-time employees or potentially face tax penalties.
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 federal government 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 21.3 million people signed up for Marketplace coverage for 2024, showing the growing popularity of the ACA as an effective way to enroll more people in health insurance.
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.
To help you better understand the changes made by the ACA, we’ll go over several of them in more detail below.
Health insurance market reforms
The ACA introduced multiple health reforms for insurance companies and the individual market. These provisions aimed to put consumers back in charge of their coverage, improve the quality of care, reduce health insurance premium increases, 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 care and eliminate cost-sharing requirements for these services.
- Young adult health coverage: Children listed as dependents on their parent’s health insurance plan can remain on their plan until age 26. College students may purchase a university-sponsored insurance plan if family coverage is unavailable. These plans must cover the 10 essential benefits.
- Grandfathered health plans: Individuals may keep grandfathered health plans purchased 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. Subsequent laws allow employers to offer an HRA as an alternative to traditional group health insurance by reimbursing employees for health insurance premiums.
- Market rating reforms: Health insurers must follow product pricing standards to create 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 prevents group health plans and insurers providing mental health or substance use disorder benefits from imposing fewer limitations for these benefits than on medical or surgical benefits.
- 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 other provisions.
- Insurance 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 reform requirements and can’t use their integration with ACA-compliant individual plans 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 & Medicaid Services (CMS) enforces market reforms in each state to ensure compliance.
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 the individual shared responsibility payment.
The Tax Cut and Jobs Act of 2017 repealed the individual mandate on the federal level effective 2019, meaning the federal government no longer requires any individual to pay a penalty during tax season for not having health insurance.
However, New Jersey, Vermont, California, Rhode Island, Massachusetts, and the District of Columbia 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.
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 health insurance coverage that’s affordable and provides both minimum essential coverage (MEC) and minimum value or 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 tax 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, if an organization offers employees a qualified small employer HRA (QSEHRA) must have a health insurance policy that meets MEC to receive tax-free healthcare reimbursements.
Examples of plans that provide minimum essential health coverage are:
- Employer-sponsored coverage, like group health plans and COBRA for MEC plans
- Individual coverage, like marketplace plans and private exchange plans
- Government-sponsored health programs, like Medicaid, Medicare, and CHIP plans
In contrast, certain TRICARE plans, AmeriCorp plans, and ancillary benefits consisting only of excepted benefits are examples of coverage that don’t meet MEC.
Minimum value is a standardized way of measuring employer-sponsored coverage to ensure it meets the minimum coverage requirements in the ESRP. Your plan meets minimum values if it pays at least 60% of the total cost of healthcare services for the standard population, and its benefits 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. However, you can also use the safe harbor method to determine your plan’s MV level if you don’t want to use the calculator.
Essential health benefits
Due to the ACA, all individual and small group medical plans sold on public and private health exchanges 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, like emergency services, hospitalization, prescription drugs, and mental health services.
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 making annual or lifetime maximums on the amount they’ll pay for these covered services.
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 healthcare 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 health insurance 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.
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 purchase a health plan from public exchanges.
Open enrollment is the designated time period for individuals to enroll in, renew, or change their health plan. The federal government created the open enrollment period to standardize the process of obtaining or changing health coverage. Individuals no longer had to wait until the last minute to get health insurance.
In most states, the annual open enrollment period typically starts on November 1 and ends on January 15. If you enroll by December 15 and pay your first month’s premium, your coverage will begin on January 1. If your state extends the enrollment process through late January, anyone who enrolls or changes coverage between mid-December and mid-January will have active coverage on February 1.
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.
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 services, or 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 illness, like a chronic condition, is illegal. However, a few health insurance plans still allow limitations based on a policyholder’s medical history, like short-term health 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 payment 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 2024 FPL income threshold is $15,060 for single individuals and $31,200 for a family of four. You can only receive federal premium subsidies if you purchase a health plan through a public marketplace.
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.
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-level plan through the end of 2025, regardless of the FPL.
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)4 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.
Medicaid coverage expansion
Medicaid is a federal assistance program that provides health insurance to low-income individuals. Uninsured Americans in every state can qualify for Medicaid services based on income, household size, disability, family status, and other factors.
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.
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 coverage5.
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 or premium tax credits through a 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, like 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, though the federal government removed some features, like 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 25.6 million in 2022.1
The ACA has forever changed the healthcare system in the U.S. With expanded access to health coverage, greater consumer protections, controlled costs, 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 health insurance 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.
Elizabeth Walker is a content marketing specialist at PeopleKeep. She has worked for the company since April 2021. Elizabeth has been a writer for more than 20 years and has written several poems and short stories, in addition to publishing two children’s books in 2019 and 2021. Her background as a musician and love of the arts continues to inspire her writing and strengthens her ability to be creative.