Affordable Care Act (ACA) Explained

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Natasha McLachlan is a writer who currently lives in Southern California. She is an alumna of California College of the Arts, where she obtained her B.A. in Writing and Literature. Her current work revolves around insurance guides and informational articles. She truly enjoys helping others learn more about everyday, practical matters through her work.

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Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance for 10 years. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate...

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Reviewed by Laura Walker
Former Licensed Agent

UPDATED: Sep 24, 2020

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The Affordable Care Act, called the ACA, is a broad set of laws that are intended to reform healthcare in America. Originally passed in 2010, some portions of the ACA have already gone into effect, and others are set to become effective between now and the year 2020. The ACA will have some effect on all Americans, but the majority of the changes are designed to give aid to those who are not able to afford traditional health insurance, or cannot get insurance based on preexisting conditions that exclude them from coverage.

The law has been controversial with opponents mostly arguing that it would raise costs while proponents of the ACA have stated that costs, in the long term, will actually be lower. The name itself even stirred up controversy being labeled Obamacare and was shortened from it's original name, Patient Protection and Affordable Care Act, due to many people confusing the abbreviated version, PPACA for alpaca.

Your Rights Under the ACA

Approximately 1 out of every 12 Americans, including children, have a preexisting condition which has been excluded by major health insurance plans. One of the most popular aspects of the healthcare overhaul is that health insurance companies will not be allowed to exclude people from coverage based on preexisting conditions. This portion of the law will be mandatory on January 1, 2014, but some insurance companies are already taking it to heart, so you may be able to get coverage even sooner.

Another aspect of the law which will be mandatory in 2014 is the abolishment of dollar limits on essential health care. Currently, approximately 105 million Americans, or more than 1 in 4 people, have either reached the treatment limits of the policies or have policies with such limits in place.

Under traditional health insurance, your coverage could be terminated due to a minor mistake on your application, such as entering an incorrect age or birth date. The ACA will prevent insurance companies from canceling your policy due to such errors. Deliberately entering false information is still considered fraud and could be prosecuted.

Making Health Care Affordable

The Affordable Care Act includes what is referred to as the 80/20 rule, which is intended to reduce health insurance costs, and may even result in refunds for some currently insured people. Insurance companies will be required to invest at least 80% of the premiums they collect into healthcare, leaving 20% of premiums to be used for overhead. Refunds will begin in mid-2012.

Until the ACA was passed, there has never been any regulations which required insurance companies to provide justification before raising your rates. Under the law, rates cannot be increased by 10% or more without providing policyholders with justification for the increase.

Traditionally, a small business might pay as much as 18% more for a health insurance plan than a large corporation. By offering tax credits to small businesses who provide health insurance plans to employees, the ACA should be able to make health insurance available to millions of workers. This aspect of the law has already gone into effect.

Increased Access to Health Care

Along with requiring insurers to provide coverage for preexisting conditions, the new laws also require insurers to allow young adults to remain on the policy of their parents for a longer period of time. The new law extends the age to 26. This change has already gone into effect, and has increased coverage for more than 3 million young adults.

Under the ACA, preventive services for many things are now covered, including screening for cancer and diabetes. This portion of the law also eliminates copays and coinsurance on covered preventive procedures, and has already affected about 1 in 6 Americans.

To make health insurance easier to get, the ACA includes the formation of health insurance exchanges in each state, either sponsored by the state or by the federal government. These exchanges are described as a one stop place to find insurance, information or customer assistance. The law is not mandatory until 2014, but more than half of the states have already begun setting up health insurance exchanges.

Improving Government Programs

Government programs such as Medicare and Medicaid will also see some improvements under the ACA. This portion of the law first went into effect in 2010, but the full extent of it will not be effective until 2020. Reducing the cost of prescription drugs for seniors was the first priority, first by issuing refunds and implementing discounts for seniors who were in the group affected by what is known as the "donut hole."

Additionally, preventive services for those receiving Medicare and Medicaid will be free, as described above. An annual wellness visit is included in the plan to allow seniors to be examined for continuing health status each year. And to increase the quality of care available, a new office is being established, called the Center for Medicare and Medicaid Innovation. This office will use advances in technology and processing to reduce fraud, increase patient reach, and improve the level of care available to seniors and others.

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