5.2 Patient Protection and Affordable Care Act

5.2.1 Background

The Patient Protection and Affordable Care Act, commonly referred to as the Affordable Care Act or “ACA” for short, was signed into law in 2010 (U.S. Department of Health and Human Services, 2022). The primary objective was to provide healthcare insurance for Americans who were uninsured. Before many of its provisions took effect, it was estimated that 44 million Americans lacked health insurance (Garfield et al., 2019). The law also extended coverage by allowing those up to the age of 26 to remain on their parent’s healthcare plans. In addition, it expanded Medicaid coverage to include those with incomes 133% or less of the national poverty level. It also prevented health insurance companies from kicking people out of their plans for pre-existing conditions.

Technologically, the ACA created an open market and access to it through an online portal, or health exchange, where Americans could purchase insurance. However, the law has seen many court challenges since its adoption, and the one area with the biggest point of contention was the “individual mandate.” The individual mandate section of the law initially required individuals to have insurance, and if they didn’t, they would be penalized. Legislation passed in late 2017 ended federal penalties beginning with the 2019 tax year; however, individual states can still impose a penalty.

The efforts of the ACA were not only to reduce the number of people without insurance but knowing that the uninsured were exceptionally costly to the system, reducing their numbers could then decrease the overall cost to the healthcare system. It also attempted to establish price transparency, which is the ability of consumers to find and compare pricing for healthcare services. The success of the ACA is still somewhat disputed; however, most sources agree that it did provide health insurance to those who were previously not covered by a policy (Colla & Skinner, 2020). 

5.2.2 Primary Goals & Provisions

I. Primary Goals

According to the U.S. Department of Health and Human Services (2022), the Patient Protection and Affordable Care Act has three primary goals:

  • Make affordable health insurance available to more people. The law provides consumers with subsidies (“premium tax credits”) that lower costs for households with incomes between 100% and 400% of the federal poverty level (FPL).
  • Expand the Medicaid program to cover all adults with income below 138% of the FPL. Not all states have expanded their Medicaid programs.
  • Support innovative medical care delivery methods designed to lower the costs of healthcare.

II. Provisions Related to the Triple Aim

The Triple Aim of Healthcare was first presented by the Institute for Healthcare Improvement in 2007 (Berwick et al., 2008). It was defined as an attempt to realign the three aims of healthcare identified in an existing model known as the Iron Triangle. The Iron Triangle focused on three key aims of healthcare delivery: access, quality, and cost (Berwick et al., 2008). The Triple Aim has the three pillars: improving the patient experience of care, improving the health of populations, and reducing the per capita cost of healthcare.

The ACA achieved increased access through two primary mechanisms, a combination of new and already existing insurance arrangements: (1) a mandate to possess insurance or to purchase it through ACA marketplaces; and (2) Medicaid expansion in many states. Low-income Americans benefited most because, starting in 2014, they received Medicaid coverage if they lived in a state where Medicaid expansion went forward. Other low income individuals received subsidies for purchasing private insurance. However, the poor living in states that did not expand Medicaid did not benefit from either of these two mechanisms. The ACA also included quality improvement measures. Improved medical care may result from the ACA’s emphasis on primary care and Accountable Care Organizations (Centers for Medicare & Medicaid Services [CMS], 2019). The use of comparative effectiveness (although not cost-effectiveness) information was encouraged. Incentive systems in some programs and pilot research projects attempted to link quality to outcomes. More information on the best medical care available has been made public, and transparency has been encouraged. Lastly, proponents of the ACA also claim the Act was designed to control rising healthcare costs and reduce the national deficit. These measures included greater regulation of insurance pricing, increased competition to lower the price of insurance through the ACA marketplaces, reform of payments to Medicare, bundled payment systems, and the potential for future implementation of the results of several pilot projects. These provisions will be covered in more detail in the sections below.

Increased Access

The ACA requires health insurers to sell policies to all those seeking to purchase them (guaranteed issue) at a fixed rate for each age category and tobacco use within a specific family size and regional area (community rating). The most significant of these is the one regarding age, where the legislation required that premiums charged to older adults be no more than three times those of younger adults. In addition, discrimination based on gender or health status (an individual’s health history) is prohibited for plans sold on the ACA insurance markets. An annual ceiling of approximately $7,900 for out-of-pocket (OOP) costs (i.e., deductibles, copayments, and coinsurance) for individuals and $15,800 for families was also required by the ACA in 2019. In 2014, minimum standards as to what must be included in all health insurance plans went into effect, addressing the problem of the “underinsured”, which are those people with less than adequate coverage (Commonwealth Fund, 2010a). States had an important role in setting up and implementing these standards.

The ACA mandated that every resident must have health insurance starting in 2014. However, there were exemptions for those with moral or religious objections, American Indians, undocumented immigrants, those in prison, those who can prove that the lowest cost plan option exceeds 8% of their income, those whose income is so low that they are not required to file a tax return, and for the very poor residing in states that do not expand Medicaid (Kaiser Family Foundation, 2011).

Removal of the penalty by Congress in 2017 could undermine the risk pool of the healthcare marketplaces where individual policies are sold. Most of those who choose to forgo health insurance legally and without penalty are expected to be healthy and younger than the general population. Therefore, the cost of insurance for those remaining in the purchasing pool will be higher as they are likely to be sicker and older than those who opt-out.

The Supreme Court’s decision in 2012 made Medicaid expansion optional, and some states have opted out of the Medicaid expansion, arguing that they could not afford it. However, a range of options was available to states. There was no deadline for states to make choices about Medicaid expansion; some did so later, though they did not receive the full array of financial incentives offered to states that expanded Medicaid early on. To date, 37 states (including Washington, DC) have adopted the Medicaid expansion, and 14 states have not (Kaiser Family Foundation, 2019a).

Because the funding for Medicaid expansion was largely the federal government’s responsibility, states had the incentive to participate. “Specifically, for people who became newly eligible for Medicaid under the expansion, the federal government covered 100% of costs from 2014 through 2016, declining to 90% of costs in 2020” (Congressional Budget Office [CBO], 2012a, p. 9).

It is not entirely certain how much the Supreme Court’s 2012 decision to not require states to expand Medicaid reduces access to health insurance for the poor (CBO, 2012b). While many of the poorest individuals live in states that have not expanded Medicaid, many with incomes below 100% of the federal poverty level (FPL) remain uninsured and cannot receive federal subsidies when purchasing coverage in the ACA’s insurance marketplaces. However, those with incomes above 100% of the FPL met the requirements for purchasing insurance on the ACA markets with substantial federal subsidies (CBO, 2012b). Individuals were also exempt from purchasing insurance for other reasons.

Review chart book (Center on Budget and Policy Priorities, 2020): Benefits of The Affordable Care Act’s Medicaid Expansion

Most people in the United States obtain health insurance through their employers, which continued after the ACA was adopted. Employers with 50 or more full-time employees who did not offer insurance were obliged to pay the penalty. The same was true if coverage did not meet state standards, if it was too expensive for employees to afford, or if employers asked new employees to wait more than 60 days for coverage to begin (Tolbert, 2010). Some employers with fewer than 50 employees received special tax deductions for offering health insurance, but they were exempt from the penalties even if they did not offer insurance.

The ACA included the mandatory creation of state health insurance marketplaces – online markets where insurers compete to sell state and/or federally compliant policies to individuals and small businesses. If states chose not to implement an ACA marketplace, the federal government was mandated to step in and make a federal ACA marketplace available to the residents of these states. Up to half the states partnered with the federal government to organize and implement an ACA marketplace (Mercer, 2013). States that partnered were permitted to alter these decisions and take over the responsibility at any time.

Quality Improvement Measures

The ACA contains measures to improve the quality of care at both the individual patient level and for the population in general by encouraging primary care, prevention, new models of integrated care, the use of comparative effectiveness information by providers, quality measurement, the reporting of information about quality to consumers, and improved medical care (Commonwealth Fund, 2010b; Kaiser Family Foundation, 2011). It also discouraged the overuse of medical care (Jacobs & Skocpol, 2010) and set forth a national strategy for quality improvement. In addition, increased reimbursement for primary care providers were included to encourage medical students to choose these specialties.

Accountable Care Organizations (ACOs) aim to improve quality and reduce costs in the Medicare program and private sector by promoting integrated healthcare and including various methods of linking payment to outcomes. As a result, ACOs in the United States have seen significant growth, from fewer than 100 organizations in 2011 to over 1000 in 2018, while the proportion of the population enrolled in a policy with an ACO contract has grown from a few million to over 32 million, covering 10% of the population (Muhlestein et al., 2017, 2018).

The ACA funds comparative effectiveness research. In 2011 the National Health Care Quality Strategy and Plan was prepared, and the resulting recommendations were reported to Congress for action (Agency for Healthcare Research and Quality [AHRQ], 2011). The ACA authorizes the collection of data on healthcare disparities, including race, ethnicity, gender, linguistic minorities, the disabled, and those who are underserved because of geographical location (rural and frontier populations). It sets up and funds the Patient-Centered Outcomes Research Institute (PCORI), a non-profit research organization tasked with providing the information patients and the public need to make informed decisions about their health.

In 2011, a Center for Medicare and Medicaid Innovation Program was set up to undertake pilot programs and demonstration projects that reward doctors and hospitals for quality healthcare (Zezza et al., 2011). Starting in 2015, the ACA began denying federal payments for Medicare services associated with some hospital-acquired infections. For hospitals with excessive preventable hospital readmissions, Medicare reimbursements are reduced. Value-based Medicare payments link payment with results for physicians, hospitals, skilled nursing facilities, home health agencies, and ambulatory surgical centers. The goal was for Medicare to become an active purchaser of higher-quality health services, which could both reduce costs and improve the quality of care (CMS, n.d.-b). 

The ACA includes nursing home transparency regulations designed to improve protective services for elderly residents through closer oversight, which could result in better quality nursing home care if consumers and their representatives are vigilant and monitor the information available to them. Unfortunately, many health plans do not do a sufficient job of monitoring the quality of the nursing homes in their network (Graham et al., 2018). The ACA gave nursing home patients broader rights to internal and external appeal of decisions by insurers, including coverage denials. In addition, Medicare obtained the right to collect and distribute data about nursing home staffing levels. The success of these measures depends in part on the appropriation of adequate funds; such funds are not assured.

Control Rising Healthcare Costs

The financial impact of the ACA was fiercely disputed from the beginning. Opponents argued it would cost too much and cause many employers to drop employee insurance coverage, preferring to pay the penalty. Proponents contended it would be revenue neutral or the rate of increase in national health expenditures would slow (Cutler et al., 2009). The Congressional Budget Office estimated that an overall reduction in the US deficit would result from the passage of the ACA (CBO, 2010a, 2010b).

One of the major concerns regarding the financial impact of the ACA was that it would increase the price of premiums. While average premium increases vary year to year, overall marketplace premiums increased by 75% between 2014 and 2019 (Kaiser Family Foundation, 2019b). There were, however, wide variations across the states because pricing decisions are made by insurers, for the most part, at the state level. In 2019, for example, premiums dropped 26% in Tennessee but increased 16% in Delaware. 

Items in the ACA intended to protect against increases in the national deficit include productivity improvement incentives, reductions in subsidies to Medicare Advantage programs (Biles et al., 2011), and penalties paid by hospitals for poor performance (e.g., inappropriate readmissions) and by large employers who fail to provide workers with adequate insurance. The law also includes bundled hospital payment systems and revenue from a surtax imposed on unearned investment income on wealthy taxpayers to reduce costs. Finally, other financing mechanisms in the law include a 40% excise tax (i.e., the ‘Cadillac tax’) on high-premium insurance plans typically characterized by low or no deductibles and co-payments (now repealed); health industry fees; rate reviews; and increased Medicare payroll taxes for the wealthy (CBO, 2010b).

Key Term

Episode of Illness. A specific medical condition or problem of expected limited duration.

The ACA Bundled Payments for Care Improvement Initiative is another policy intended to control costs. It is voluntary and offers physicians, hospitals, and other providers a single payment to cover all medical services required to care for a patient for a specific episode of illness. Traditionally, providers have been paid separately for each service received by a patient, a practice that some believe increases costs (U.S. Department of Health and Human Services, 2011).

An ACA provision requires insurers to spend a minimum of 80% (for individuals in the small group markets) and 85% (for those in the large group market) of sales revenue from premiums on medical care for policyholders and quality improvement (Tolbert, 2015). This requirement is known as the medical loss ratio (MLR). The MLR refers to the fact that money spent on medical care, rather than administration, represents a ‘loss’ to insurers. The MLR encourages health insurance companies to “eliminate wasteful administrative spending and increase the value consumers receive for their premium dollars” (Harrington et al., 2012).

Some administrative provisions of the ACA include measures designed to reduce administrative costs, encourage accurate accounting and promote careful and efficient record-keeping. They establish compliance and certification rules that reduce fraud, and penalties for violations of administrative record-keeping (CMS, n.d.-c).

Review report (Tolbert, 2015): Coverage Provisions in the Affordable Care Act, An Update

5.2.3 Current Status

Review survey brief (Commonwealth Fund, 2019): Health Insurance Coverage Eight Years After the ACA

Knowledge Check

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Exploring the U.S. Healthcare System Copyright © 2023 by Karen Valaitis is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.

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