The Complete Guide to The Affordable Care Act

The Affordable Care Act was the one of the most important pieces of healthcare policy in decades. Despite all the controversy, the law was passed. In the post, we will go over the specifics of the law and its impact on the American healthcare system.

affordable care act

Timeline of the Affordable Care Act

1. 2005

The American Medical Association, American Hospital Association, the health insurance industry and the pharmaceutical industry began to realize that the current healthcare system wasn’t working. The industry was a significant drag on the American economy.

2. 2006

Mitt Romney passed a broad health reform law in Massachusetts (healthcare for all). This included insurance market reforms, insurance subsidies and he also created a mandate for individuals to buy insurance. The law was passed by leadership in both parties.

3. 2009

President Barack Obama assumed office. A major part of his campaign was healthcare reform. There was a strong Democrat majority in the House and Senate. There was a sense of commitment to achieve healthcare reform.

4. Late 2009

The first signs of resistance emerged. The Tea Party made opposition to “Obamacare”, which they wanted to defeat. They made Republicans change their stance. They forced healthcare reform to be seen as a democratic law. The House and Senate passed bills and the Democrats of both tried to reconcile the bills.

5. Jan 2010

Democrats lost a 60 seat majority. They could no longer move the final legislation between the House and the Senate. The Republicans could filibuster the voting. A filibuster is when a debate is extended, allowing one or more members to delay or entirely prevent a vote on a given proposal.

6. March 2010

The House passed the bill through the filibuster by accepting the Senate bill as is, which President Obama then signed into law. The law was called the Affordable Care Act. The following week the House and the Senate approved a follow up bill, a budget bill called the Health Care & Education Reconciliation Act. This bill contained the changes to the ACA that the House wanted but couldn’t change because it wouldn’t have passed through the filibuster.

The Ten Titles of the Affordable Care Act (ACA)

The Affordable Care Act (ACA) was passed in 2010, but only in 2014 did it go into full effect. The ACA is comprised of 10 titles. You can think of each titles as a chapters. Each title or chapter deals with different health policy issues.

10 titles of the aca

1. Title I Affordable and Available Coverage

This title is all about private health insurance. Title I was implemented on January 1 2014.

2. Title II Medicaid & CHIP

The policies in Title II were aimed at reforming the Medicaid program. It was intended to be a revolution, however the US supreme court (in 2012) ruled that the Medicaid expansions would be optional for the states.

3. Title III Delivery System Reform & Medicare

This title was designed to make changes to Medicare program. It is a significant title, in that it lowers the cost of the program and changes the way care is delivered in the Medicare program.

4. Title IV Prevention, Wellness & Public Health

This title created a system that is tasked with coming up with public health policies that will prevent people from getting sick.

5. Title V Workforce Initiatives

This title deals with healthcare workforce and the upcoming challenges of physician shortage and how to allocate resources efficiently.

6. Title VI Fraud, Abuse, Transparency & More

This title deals with fraud, waste and abuse in the healthcare system. The goal is to make healthcare more efficient and transparent and of course reduce fraud.

7. Title VII Pathway for Biological Similar

This title has created the opportunity for the FDA to approve biopharmaceutical drugs called biosimilars (what generic drugs is to prescription drugs).

8. Title VIII CLASS (Community Living Assistance Services & Support)

This title built on the American Disabilities Act but it was repealed in 2013.

9. Title IX Revenue Measures

This title discusses programs and tax increases to finance the ACA.

10. Title X Manager’s Amendments

This title includes all the changes to Titles 1-9. Remember the House passed the ACA bill as is to get it passed through the Senate. This title deals with all the changes that they wanted to make initially but if they were done individually it would’ve taken years to pass because of the political friction at the time.

Title I Affordable & Available Coverage

Some of the provisions of this title took effect in 2010 and 2011, like the ability of young adults to stay on their parents coverage till 26, which resulted in 3 millions individuals being covered.

Annual/lifetime limits were removed – With the limits, even if you paid your premiums your coverage could be limited if you fell really sick.

How much your insurance company can spend on anything but your medical costs were limited, this is referred to as the medical loss ratio. This ratio is capped at 15-20%. Even as small  of a provision this was in comparison to the entire bill,  passing just this would’ve been significant in health reform history.

Four major parts of reform that came into play on January 1 2014:

  • Since the 1940s, health insurance was based on medical underwriting. This relied on your answers to the questionnaire; your premium was really high or your expensive medical conditions were excluded from coverage. This is now illegal.
  • The Individual Mandate – all Americans who can afford insurance have to buy it. if they don’t then they have to pay a fine. This was done to ensure that the younger healthier population signs up (diversifies risk).
  • Subsidies were implemented to make the insurance affordable. There are income related subsidies for people above Medicaid (which is four times the poverty level of $15,000).
  • Creation of health insurance exchanges (marketplaces). These are websites to compare policies. States can either set up their own exchange or they use the federally facilitated marketplace.

Title II Medicaid & CHIP

Title II is equally as important as Title I, in expanding the Medicaid program. Until the ACA, the Medicaid program did not cover most poor adults without dependents and disabilities. The expansion of Medicaid is important as it is the only avenue for most low income individuals.

Prior to the ACA, the Federal government subsidized 50-80% of the state’s’ Medicaid program but for the first 3 years of the ACA Medicaid expansion program, the Federal government is willing to pay 100% for any new enrollees. The average reimbursement from the Federal government used to be about 56c on $1 nationwide, but it will bottom out to 90c on $ after the first 3 years of the Medicaid expansion program. This has resulted in everyone having health insurance except low income in states that have chosen not to expand Medicaid.

ACA Titles Explained

Title III Delivery System Reform & Medicare

Title III deals with Medicare and improvements to medical delivery system. Medicare covers over 48 million Americans. Some changes include free annual wellness exams, preventive care services with no cost sharing, and the closing of Part D (referred to as the Donut Hole, which created a gap in coverage).

They also lowered the rate of payment growth rate for hospitals, insurance companies and home health care companies. They did not change reimbursement for physicians. The reductions are expected to save about $450 billion over 10 years.

Other reforms to improve efficiency:

  • Creation of the National Quality Strategy
  • Creation of the Patient Centered Medical Home (PCMH) -a delivery system which assumes patient care responsibility for all primary care needs.
  • Creation of Accountable Care Organizations (ACOs) – these are provider organizations that integrate the delivery of care together. This addresses the lack of coordinated care.
  • Introduction of penalties on hospitals for readmissions and hospital acquired infections for patients discharged in the past 30 days.
  • Using bundled payments to pay for episodes of care.

Title IV Prevention, Wellness & Public Health

  • This title created policies to work on keeping people healthy. It created the National Prevention Strategy, the Commission and Trust Fund. The goal is to care for people to take care of people before they get sick.
  • It includes the coverage of clinical preventive services such as colonoscopy, mammograms, which insurance companies have to take on with zero cost sharing.
  • Other initiatives include calorie labels on food items (restaurants with more than 20 chains). This is a part of growing strategies to change the nutrition in food.

Title V Workforce Initiatives

Title V deals with the healthcare workforce and coming up with policies to address the shortage of healthcare workers. They increase funding for community health centers.

The Congressional Budget Office (CBO) is a nonpartisan federal agency that provides budget and economic information to Congress. They usually model estimates for the 10 year periods, such as 2010-2019. They have estimated that over 16 million previously uninsured Americans would be covered by Title I and II each. However, after the Supreme Court rules that the individual mandate was constitutional, the number for Title I was estimated to be closer to 20-22 million and the number for Title II would be close to 12 million since it became optional for states.

A closer look at the Affordable Care Act (ACA) financing

The spent column shows where the money is going, which is expected to be close to $960 billion. Most of this money is spent on Title I and II. The $54 billion in the Title III addresses the Medicare Part D coverage known as the Donut Hole.

ACA Financing

Where does the money come from?

Since the law needed to be self-financed, Congress introduced changes to Medicare and Title IX. Title IX, which addresses financing, contributes $437 billion, from which the majority comes in the form of taxes added on to high income earners (individuals with incomes above $200,000 or families with household incomes above $250,000). This is expected to contribute $200 billion to the ACA. Over the 10 year period, the CBO along with the Joint Committee on Taxation has estimated that the new law will actually lower the federal budget. It is estimated that the Affordable Care Act will produce a net decrease in the federal deficit by $210 billion as a result of changes in direct spending and revenues in this period.

Link to the entire ACA bill

Market Challenges to the Affordable Care Act

The Affordable Care Act created health insurance market exchanges:

  • Makes insurance more competitive
  • Makes it easier for consumers to understand their options
  • Requires everyone to have coverage (reduces risk of adverse selection)
  • Insurance companies have to issue coverage for everyone who applies
  • Have standardized benefits
  • That have no more pre-existing conditions/medical underwriting
  • Insurers can set higher premiums for older people, but cannot be more than 3x the premiums for younger people
  • Insurers can set a slightly higher premium for smokers (1.5x)
  • Insurance companies can appeal to states for funds if they believe they have received the sickest population i.e. the costs were too high

Insurance Marketplace Implementation Challenges

  • There are too many plan choices (wide vary of cost sharing options).
  • Insurers have created a narrower network of providers. It is unclear if this will reduce the quality of care. Younger people don’t have specific preferences for providers so they are happier to pay a lower premium for a narrow network.
  • Some states have higher proportions of previously uninsured people (larger number of people=less risky pool). The states with smaller populations have come together to create regional exchanges.
  • “Bronze Trap”  – people (typically younger people) who buy the bronze health insurance plan – premiums are expected to be the lowest. Here the insurance company covers 60% of out of pocket costs while the enrollee pays the remaining 40%. While the out of pocket is limited, they may incur a large bill compared to their income. Underinsured – this happens when they incur an unexpectedly high medical expense if they fall sick.
  • Disparities across states happens when states don’t expand Medicaid programs. Some people remain uninsured and don’t receive insurance subsidies.
  • Access to health care providers – if policies restrict people to certain specialties, there will be differences in access to care. Primary Care Providers may be in network but his referrals are not and individuals might not know that.

The Affordable Care Act and Medicaid

In the Introduction the Medicaid, we went over the basics of the Medicaid program like its history and the impact of the Medicaid program prior to the Affordable Care Act (ACA). The ACA has made many changes to the Medicaid program, which is likely to make it one of the biggest programs in the United States.

A. Changes to the Medicaid Program

  • The ACA limits income eligibility to up to 138% of the Federal Poverty Line (an annual income of $15,000)
  • There is no longer a category of eligibility (pregnant women, children requirement, disabilities)
  • Federal match rate is now at generous at 90% vs the previous 50-70%. This is the amount of money the Federal government pays to state government.
  • The Supreme Court made the ACA expansion optional for the states.

B. Other Provisions of the ACA

  • Removal of the asset test (it used to be difficult/expensive for people without any assets to prove that they didn’t have any assets).
  • The expansion of benefits (added addiction facilities and prescription drug coverage is now mandatory).
  • The creation of a new office to focus on the needs of dual eligibles of Medicare and Medicaid. These individuals account for the highest costs in the program.
  • Increase in payment rates for Medicaid services (as compared to what Medicare pays).
  • Reduction in a hospital funding safety net (since more people will be covered, states won’t have to pay for uninsured people visiting the hospital).
  • Medicaid Primary Care Physician payment rates were matched with Medicare reimbursement rates.
  • Signing up for Medicaid

The process of signing up for Medicaid is not automatic. There are significant barriers to signing up like the lack of information (not knowing they are eligible), the stigma of receiving welfare, the lack of time to apply and not valuing the coverage (saying they will apply when they need it).

C. Staying enrolled in Medicaid

The program used to requires people to check eligibility every 3-6 months. People will now receive tax credit on exchanges if their eligibility changes under medicaid.

D. Optional Changes to Medicaid

  • Coverage lasts for 12 months regardless of small changes (like an increase in income).
  • They have made the renewal process less frequent (not more than once a year).
  • The program can now use information from other programs (taxes, food stamps) to reduce the burden on the enrollee.
  • They are putting Medicaid plans on the market place so that if people switch from Medicaid to exchange plans, they can still keep the same providers.

Market Challenges to the Affordable Care Act


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