Legislation

Affordable Care Act (Obamacare)

Obverse of the Great Seal of the United States. (link)
Enacted:

2010

The Patient Protection and Affordable Care Act (commonly known as the ACA, Affordable Care Act, or Obamacare) is major health care legislation passed in 2010 by the 111th Congress and signed by President Barack Obama.

Over 900 pages long, the ACA includes a bundle of statues and regulations intended to overhaul the public and private health care markets in the United States to increase health care. The ACA expanded Medicaid eligibility, established state-based insurance exchanges for individual buyers, forced all citizens to buy health insurance through an “individual mandate,” required mid-sized and large companies to provide health insurance to full-time employees, and prohibited companies from denying health insurance to employees due to pre-existing conditions[1]

The ACA has had mixed results since its enactment. The number of uninsured Americans has been cut in half since 2010. The rise in annual average healthcare premiums has slowed, especially for low-tier plans, though the decline had begun before the enactment of the ACA. The ACA has also shifted the costs of health care premiums from the poor to the middle class. [2] Right-leaning opponents have criticized the ACA for overstepping Constitutional bounds with the individual mandate, raising taxes, and for interfering with market mechanisms. Left-leaning opponents have attacked the ACA for preserving a market structure and not pushing the American health system to a single-payer, socialized health care model. [3] [4]

In 2017, the 115th Congress considered the American Health Care Act to reform and repeal numerous components of the ACA in order to lower healthcare costs and provide states with more flexibility in providing health insurance. The AHCA would have abolished nearly all ACA taxes, eliminated the individual and company mandates, and loosened restrictions on states. [5] While AHCA cleared the House of Representatives, it did not pass the Senate or become law.

History of Government-Provided Health Care

The first socialized health care system was established in 1884 in Germany under the leadership of Chancellor Otto von Bismarck. While other European countries adopted similar policies over the next 50 years, the American government was more reluctant to place its health care system under government control, especially given such the association of government-controlled healthcare with burgeoning global socialist movements. [6]

Government-funded health care was first seriously suggested in the United States by President Theodore Roosevelt, who listed the policy in his campaign platform but took no action to establish such policies while in office. [7] In 1935, President Franklin Roosevelt attempted to add government-sponsored healthcare coverage to the Social Security Act, but the amendment was rejected by Congress, largely due to the influence of the American Medical Association (AMA). President Harry Truman made the passage of a government-sponsored healthcare package as a major goal of his presidency in 1945, but he failed to pass any legislation. [8]

In 1956, President Dwight Eisenhower signed the Dependents’ Medical Care Act, which provided government health insurance for family members of military personnel. [9] President John F. Kennedy later endorsed government-sponsored health care for Americans over 65, but was unable to pass any legislation. [10]

Medicare and Medicaid

In 1965, President Lyndon Johnson signed Medicare and Medicaid into law as amendments to the Social Security Act. Medicare provided single-payer government-sponsored health insurance to all Americans over 65 years old, though it was initially designed as a universal health care program. Medicaid provided partial-to-full funding for health care for low-income individuals. [11]

Since its establishment, Medicare has steadily expanded its scope. In 1971, U.S. Senator Edward “Ted” Kennedy (D-MA) proposed a new national socialized health care plan that would be financed by payroll taxes. The plan was voted down in Congress. [12]

In 1972, President Richard Nixon added coverage for disabled individuals and individuals with certain late-stage diseases. In 1982, President Ronald Reagan added coverage for hospice care. In 1988, Congress capped Medicare out-of-pocket expenses, though this provision was later repealed. [13]

Significant health care reform was not explored again until 1992 when President Bill Clinton campaigned on the establishment of a government-run health care system. Once President Clinton was elected, Congressional Democrats failed to put forth a popular compromise plan despite Clinton’s appointment of then-First Lady Hillary Clinton to lead the health care task force. In 1994, the final plan, which mostly consisted of government-subsidized insurance policies, was rejected in Congress. [14]

In 2003, President George W. Bush signed into law Medicare Part D to partially cover medication costs for those insured. Numerous other smaller provisions have adjusted the structure of Medicare over the last 30 years. [15]

As of 2019, Medicare provides insurance to about 60 million Americans[16] at a cost of $582 billion, or 14% of the total federal budget. [17]

Patient Protection and Affordable Care Act of 2010

President Obama signed the  Patient Protection and Affordable Care Act into law on March 23, 2010. [18]

Objectives

Democratic lawmakers intended the ACA to fulfill three objectives: to expand government-controlled health care coverage to more uninsured Americans, to change the private insurance market to make it more accessible, and to alter the incentives in the health care market. [19]

The ACA aimed to reverse or slow rising healthcare costs in the United States by expanding the size of existing insurance pools, especially among healthy Americans, and by increasing health care spending on preventative medicine. [20]

Key Provisions to Expand Insurance Access

The ACA’s individual mandate required all American citizens to purchase health insurance. Failure to purchase health insurance resulted in a tax penalty calculated as a flat dollar amount or as a percentage of family income, whichever was higher. In 2016, the penalty was set to $695 per adult and $347.50 per child (up to $2,085 per family), or 2.5% of the family’s income. [21] In 2012, the Supreme Court ruled that the individual mandate was a constitutional use of the federal government’s power to tax in a 5-to-4 ruling. [22]

The ACA also regulated the insurance business. The ACA prohibited insurance companies from denying health insurance to individuals on the basis of pre-existing conditions. [23] The ACA also required all companies with 50 or more full-time employees to provide healthcare coverage to their employees. [24] The ACA also required all insurance plans to cover the children of insured individuals up to the age of 27 if the children did not have their own insurance plans. [25]

The ACA imposed substantial restrictions on state-based health care programs, requiring state-based Medicaid systems to provide insurance coverage to all individuals with incomes at or below 133% of the federal poverty line. The ACA also increased federal subsidies to the states to cover these extra costs. [26]

The ACA required all states to create insurance exchanges with price caps on individual plans determined by individual or family income. These exchanges were intended to serve the minority of Americans who did not receive insurance through their employers. [27] The ACA also provided tax credits to individuals who purchased their own health insurance. [28]

Health and Wellness Provisions

The ACA established the federal Prevention and Public Health Fund to provide grants to state governments to be used for preventive care to reduce long-term health care expenditure. [29] The ACA also required insurance plans to cover individual preventative health care without cost-sharing provisions, including vaccines, cholesterol screenings, and diabetes tests. [30]

The ACA also engaged in market regulations to promote public health. The ACA required restaurant chains with 20 or more locations to provide calorie information on menus and nutritional information to customers on request. [31] The ACA also created numerous grant programs for combatting cigarette addiction, obesity, and oral health problems. [32]

Taxes

In addition to the individual mandate tax penalty, the ACA levied numerous other new taxes on American citizens, which amounted to an estimated $500 billion annually to pay for increased federal spending. [33]

For individuals earning $200,000 or more per year or families earning $250,000 or more per year, the ACA raised the capital gains tax from 15% to 23.8%, the dividend tax from 15% to 43.4%, and other investment taxes from 35% to 43.4%. [34] The ACA also increased the Medicare payroll tax for self-employed individuals (2.9% to 3.8%) and for companies on employee salaries over $200,000 (1.45% to 2.35%). [35]

The ACA also increased corporate taxes on health insurance companies, excise taxes on comprehensive health insurance plans, sales taxes on biofuel, sales taxes on pharmaceutical products, and sales taxes on medical devices, among others. [36]

Website Launch

On October 1, 2013, after three years of development, the federal government launched Healthcare.gov, the website which centralized the ACA-mandated state insurance exchanges. The launch has been called a “disaster” which “stemmed from extreme government incompetence.” [37] Website users have faced persistent technical problems, including crashes, delayed support, and payment processing errors. During the first week, only 1% of people who attempted to enroll in an insurance plan were able to successfully do so. [38]

The Obama administration blamed Healthcare.gov’s technical errors on unexpectedly high traffic during the first week. Problems persisted for two months, with only an estimated 90% of users being able to purchase health insurance by the end of November. [39]

Legislative Responses

In the 115th Congress, Republicans in the House of Representatives passed the American Health Care Act (AHCA) with the support of the Trump administration. The AHCA would have repealed or reformed numerous key provisions of the ACA with the intention of lowering health care costs, permitting more flexibility in the state-level provision of healthcare, and eliminating several individual and corporate mandates. [40] The legislation died in the United States Senate. [41]

The Tax Cuts and Jobs Act of 2017 included a provision lowering the individual mandate tax penalty to zero dollars, functionally repealing the mandate. [42]

Results

Impact on Prices

The impact of Obamacare on overall health care costs is ambiguous. By most estimates, the increasing average annual cost of insurance premiums declined after the passage of the ACA. According to the Department of Health Policy, from 2000-2009, the average annual increase in premiums was 5.9%. From 2010 to 2018, the average was 3.6%. However, the average annual premium increase was in decline through the 2000-2009 era and was below 3.6% in 2008 and 2009. Several experts have argued that this indicates that the ACA did not bring cost increases down, but merely continued an existing trend. [43]

The ACA’s largest cost-increase reductions occurred among lower-tier health insurance plans. The premiums on these plans rose by only 1% in 2013 and 2% in 2015, well below the average annual cost increases prior to the enactment of the ACA. The relatively slow cost increase has been largely attributed to competition introduced by the ACA-mandated state insurance exchanges. However, in 2014, the cost increase jumped to 6%. [44] The cost of prescription drugs provided through Medicare has fallen since the passage of the ACA, leading to an annual savings of $26.8 billion. [45]

While the ACA has likely benefited low-income Americans, it has done so at the expense of middle-class Americans by shifting the costs and benefits in the insurance system. For instance, prior to the passage of Obamacare, tax credit subsidies for individual insurance purchasers declined with income and ended at $98,400. Medicaid drove most efforts to support healthcare access. Meanwhile, due to numerous regulations and subsidies, health insurance providers had little incentive to offer affordable middle-class insurance plans. For instance, in Virginia in 2017, the cheapest available plan for a standard middle-class family of four cost $30,000 per year. [46][47]

Additionally, many of the cost cuts on low-tier insurance plans were financed by direct subsidies from the federal government to insurance companies. In 2017, insurance companies asked for $8 billion in subsidies. [48]

Benefits

According to proponents of the ACA, more than 16 million Americans had gained health insurance by 2016, thereby cutting the number of uninsured Americans before the ACA in half. This was largely accomplished due to the Medicaid expansion, though the prohibition on insurance denials for preexisting conditions and insurance exchange markets also contributed to the decline in uninsured Americans. [49]

Proponents also point to the removal of time and monetary limits on health insurance as a major benefit of the ACA. Individuals with long-term or expensive healthcare issues are protected by federal regulations which require indefinite healthcare provisions. [50]

Criticisms

The individual mandate has been one of the most controversial aspects of the ACA. Despite the 2012 Supreme Court ruling holding the mandate a tax, many right-leaning critics believe the individual mandate violates the U.S. Constitution by forcing individuals to purchase a service. [51] In 2017, the Tax Cuts and Jobs Act lowered the mandate tax penalty to zero, functionally eliminating the individual mandate. [52]

In response to the employer health insurance mandate, many mid-sized American businesses cut jobs or reduced full-time jobs to part-time. According to the National Bureau of Economic Research, 28,000 to 50,000 businesses cut up to 250,000 jobs by 2017. This resulted in a considerable market shift, with the share of companies with fewer than 50 employees growing from 37% in 2012 to 45% in 2016. [53]

The ACA has also been criticized for raising $500 billion in new taxes, including on medical devices and other goods which would improve the quality of healthcare in the long run. [54]

Despite President Obama’s promise that no Americans would lose their doctors due to the ACA, 50-75% of the 14 million consumers who purchased insurance individually before the ACA lost their insurance because their existing plans did not fit within ACA regulations. [55]

Left-wing critics like U.S. Senator Bernie Sanders (I-VT) have criticized the ACA for being heavily influenced by health insurance and pharmaceutical companies, and for retaining a profit motive in the healthcare industry. Sanders pushed for the United States to move toward a single-payer government-controlled health insurance model, such as Medicare-for-All. [56]

References

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  2. “How the ACA dented the health care cost curve.” Department of Health Policy. Accessed November 12, 2020. https://www.vumc.org/health-policy/affordable-care-act-effect-on-health-care-costs. ^
  3. “The Pros and Cons in Obamacare.” Healthline. Accessed November 12, 2020. https://www.healthline.com/health/consumer-healthcare-guide/pros-and-cons-obamacare#pros. ^
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  53. Passy, Jacob. “Businesses eliminated hundreds of thousands of full-time jobs to avoid Obamacare mandate.” Market Watch. November 24, 2017. Accessed November 12, 2020. https://www.marketwatch.com/story/businesses-eliminated-hundreds-of-thousands-of-full-time-jobs-to-avoid-obamacare-mandate-2017-11-24#:~:text=Up%20to%20250%2C000%20positions%20may,a%20new%20study%20has%20found.&text=While%20Obamacare%20has%20allowed%20millions,jobs%2C%20a%20new%20report%20estimates.. ^
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