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    What is the Affordable Care Act (ACA)? [Simple Explanation]

    7 mins

    In March of 2010, President Barack Obama signed the Patient Protection and Affordable Care Act into law. This policy--also known as the Affordable Care Act, ACA, or “Obamacare”--is a comprehensive healthcare reform policy that extends healthcare coverage to millions of previously uninsured Americans and ensures that all Americans have access to affordable health insurance.

    Key Takeaways

    • The Affordable Care Act (ACA) was signed into law by Barack Obama in March of 2010.

    • The Affordable Care Act is also known as the Patient Protection and Affordable Care Act or Obamacare.

    • The purpose of the Affordable Care Act is to extend healthcare coverage to previously uninsured Americans.

    • There are subsidies available in the form of tax credits that can help limit monthly premiums in the individual marketplace for those who do not have access to a group medical plan offered through an employer.

    What is the Affordable Care Act?

    Healthcare and health insurance have always been hotly debated topics in the United States. The terms “Affordable Care Act'' and “Obamacare” have become mainstays of policy discussions in the US. But what is the Affordable Care Act? 

    In simple terms, it is a piece of policy that requires all large employers (in general, companies with over 50 full-time employees in most states) to offer health insurance to their employees. In addition to this, all Americans have access to the individual marketplace where they may elect coverage with an individual health plan on an annual basis should they not have access to a group plan through their employer. 

    Another facet of the Affordable Care Act is the maximum that is placed on out-of-pocket expenses for a calendar year. This number changes annually, but it is always kept in place to limit how much any individual is liable for paying out of pocket in a year. 

    Once you hit this maximum - which you can do while paying for copays, deductibles, and coinsurance for your in-network care - your health plan will pay 100% of the costs of any further covered benefits for the rest of the year. For the 2021 plan year, this out-of-pocket maximum is $8,500 for an individual and $17,100 for a family. 

    It is worth noting that your particular health plan may have an out-of-pocket maximum that is lower than the mandated $8,500 for individuals; however, no ACA-compliant plan can exceed those limits.

    What Does the Affordable Care Act Cover?

    Along with comprehensive coverage, the Affordable Care Act has improved how health care laws in the United States protect you and your family. Insurance plans are required to cover people with pre-existing conditions without charging higher premiums to those individuals. 

    Moreover, ACA put an end to lifetime and annual dollar limits on coverage for essential health benefits, ensuring that anyone who wants health insurance has access to it at a fair price with no limitations on their coverage.

    Under the Affordable Care Act, Preventive Care services are cost-free--meaning they do not come with a copayment or coinsurance. This means that services such as immunizations, birth control, well-women visits, numerous cancer screenings, and many other preventative services come with no cost to the individual. A comprehensive list of covered Preventive Care services is available at healthcare.gov.

    Who is Eligible Under the Affordable Care Act?

    Upon learning about the ACA and its promise of comprehensive healthcare, you may ask yourself, “Who is eligible for the ACA?” As long as you are a citizen of the United States (or legal resident) and currently live in the United States, you are eligible and able to enroll in a plan so long as you are not currently incarcerated. An employer is required to offer ACA-compliant health plans once they exceed 50 full-time employees in size. 

    Back in 2010, when the Affordable Care Act was first signed into law, a piece of that legislation was the Individual Mandate--which mandated that all individuals who were eligible for health plan coverage (meaning they were US citizens or legal residents who live in the US and are not in jail) were required to enroll in health insurance. Otherwise, they would face a fine from the federal government. 

    This has since been repealed; however, you may still be subject to a penalty depending on the state you live in, so it is in your best interest to enroll in a health insurance plan in order to avoid any potential penalties for failing to do so.

    Despite being eligible for benefits under the Affordable Care Act, many have stated that premiums are still unaffordable. To assist with the payment of medical premiums in the individual marketplace--meaning you are not enrolled in an employer-sponsored group health plan--the Affordable Care Act has outlined subsidies in the form of tax credits to limit premiums. 

    To be eligible for subsidies to help reduce costs associated with health insurance:

    • You must be a US citizen or legal resident

    • You must reside in the US

    • You cannot be presently incarcerated

    • Your income cannot exceed 400% of the federal poverty level.

    If you meet all of these requirements, then you may qualify for subsidies that can limit your monthly premiums. 

    If you are in a situation where your income has fallen below the federal poverty level, you would very likely qualify for Medicaid-- a federal healthcare program specifically for low-income individuals and families.

    A female doctor holding and reading a tablet that contains a medical report.
    Ridofranz via Getty Images

    Is My Plan an ACA Plan?

    If you are reading this and wondering if your current health plan is compliant with the Affordable Care Act, there is no need to worry. If you have purchased this plan through the individual marketplace--meaning you do not receive insurance through your employer--you were selecting a plan from the numerous ACA-compliant plans offered through your state. 

    If you have comprehensive health insurance coverage provided to you by your employer, this is also typically considered to be an ACA plan. There are certain plans employers can offer that don’t count as ACA plans, so if there is any question it is best to confirm with your employer.

    All health insurance companies are required to offer ACA-compliant policies to their customers. Therefore, your coverage would also be considered compliant and would abide by the regulations set forth by the Affordable Care Act. 

    Are Short Term Health Plans ACA Compliant?

    If you are currently enrolled on a long-term or short-term plan--meaning it is a plan with a duration of more or less than twelve months--as long as the benefits being offered are all ACA-compliant then these long or short-term plans are also ACA compliant.

    Conclusion

    So what does the Affordable Care Act do for you? It expands the reach of health care coverage in the United States and helps limit the amount of money a person spends on healthcare in a given year. This means that--due to the Affordable Care Act--individuals in the United States all have access to health insurance regardless of whether or not it is offered to him or her through an employer. It also means that the amount of money you will ever be liable to pay in a given year is capped.

    Whether you are looking for an individual plan or are covered under an employer-sponsored plan, there are an abundance of options available to you--all of which are considered ACA-compliant and place maximums on the total out of pocket expenses any individual in the US can be liable for in a calendar year. 

    Coverage must be offered to everyone--even people who have a pre-existing condition--and children can remain on their parents’ plans until they are 26 years old. So if you currently do not have a health plan and are interested in enrolling, check out your available options now!

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    Kelsey Archer
    Consultant at Bennie

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