What’s the Affordable Care Act & how does it work?

A health care reform law that increased health insurance coverage, accessibility, and affordability

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Derek SilvaSenior Editor & Personal Finance ExpertDerek is a former senior editor and personal finance expert at Policygenius, where he specialized in financial data, taxes, estate planning, and investing. Previously, he was a staff writer at SmartAsset.

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Key takeaways

  • The Affordable Care Act is commonly called Obamacare or the ACA

  • It created the federal marketplace, healthcare.gov, where people can buy health insurance plans

  • Politicians continue to try and repeal Obamacare, but it looks safe for the near future

The Affordable Care Act, also called the ACA or Obamacare, is a health care reform law that went into effect in 2010. Obamacare's main goals were to make health insurance more affordable, more accessible, and overall more fair for consumers.

Many health insurance changes came out of the ACA. Some major ones were the creation of a central marketplace for people to buy plans (healthcare.gov), requiring all insurers to cover pre-existing conditions, the end of lifetime coverage limits, and the option to stay on a parent’s insurance until age 26. Obamacare also required all marketplace plans to cover at least 60% of health care costs and divided plans into four tiers, which made it easier to have apples-to-apples comparisons of plans.

What is the Affordable Care Act?

The Affordable Care Act is a health care reform that went in law in 2010. It’s officially called The Patient Protection and Affordable Care Act, but you'll probably see it referred to as the ACA, PPACA, or Obamacare.

The primary goals of the Affordable Care Act were to make health insurance more affordable, to institute consumer protections, and to increase the number of people covered by health insurance.

One significant product of the ACA was a health insurance marketplace (also called an exchange) run by the federal government. The federal marketplace, healthcare.gov, is a website where Americans can go to shop for, compare, and then buy individual insurance plans. Plans are available to anyone who isn’t on a group plan, including peolpe who are unemployed and self-employed. Some states have created their own marketplaces, but most still rely on healthcare.gov.

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To increase the number of people covered by health insurance, the ACA created a new fee for people who do not have a qualifying health insurance plan. The fee applied to your federal tax return, though it is not currently in effect. The ACA also expanded Medicaid and the Children's Health Insurance Program (CHIP) to increase health coverage for low-income Americans.

See in which state Obamacare plans cost the most.

10 changes instituted by the Affordable Care Act

The ACA made a number of changes to how individual health insurance plans work, and to the health insurance system overall:

  • Required all health insurance plans on the Obamacare marketplace to cover at least 60% of all medical expenses

  • Required all ACA-compliant health plans to cover preventive health services and 10 essential health benefits

  • Divided health plans on the marketplace into four tiers (called metal tiers) based on the cost-sharing split between customers and the insurance company

  • Created health insurance marketplaces, also called exchanges, where people can compare and buy insurance plans

  • Established the individual mandate, a penalty for not having health insurance (the individual mandate has been indefinitely suspended starting in 2018)

  • Extended young adult coverage to age 26 on family plans

  • Provided health insurance subsidies, like premium tax credits and cost-sharing reductions, to make health insurance premiums more affordable

  • Guaranteed coverage of pre-existing health conditions

  • Ended lifetime limits on coverage

  • Created a review process for premium increases, forcing health insurers to publicly justify rate increases

  • Expanded Medicaid and CHIP to more low income families

Getting a marketplace plan

To get insurance coverage with a marketplace plan, you first need to visit your marketplace website. Most states use healthcare.gov, but 12 states and the District of Columbia, have state marketplaces. Find your area’s marketplace with our state-by-state guide to insurance marketplaces.

The only time you can buy a new insurance plan is during an enrollment period. Open Enrollment is when anyone can get a plan, and it lasts from November 1 to December 15. Outside of that, you have to qualify for a Special Enrollment Period to get a new plan. Special Enrollment Periods are available to people who experience certain life events, like a divorce, the birth of a child, or quitting your job.

You will need to create a free account to search the marketplace plans. Not all insurance companies have plans in all areas, but you can see all the plans available to you. You can compare a plan’s health benefits and specific costs, so you have an idea what your out-of-pocket expenses will be. You can also buy a plan right through the online marketplace.

Obamacare only covers health insurance. For other types of insurance, such as life insurance, must be bought through a broker, such as Policygenius.

The future of the Affordable Care Act

The Affordable Care Act is still law, though its future is unclear. It has faced multiple challenges in court in an attempt to get it repealed. Specifically, people have challenged the individual mandate and the Medicaid expansion.

The 2017 tax reform law suspended the individual mandate. This can be overturned in the future, but for now there’s no tax penalty for going without health insurance. (Some states still have their own penalties.) The last few years have seen decreased funding for Open Enrollment advertising.

There has also been increased promotion of short-term health insurance plans instead of marketplace plans, but short-term plans don't offer the same consumer protections and may leave people without the coverage they need.

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