OVERVIEW OF THE PATIENT
PROTECTION AND AFFORDABLE
CARE ACT 1
The 111th Congress passed major health reform legislation, the Patient Protection and Affordable
Care Act (ACA; P.L. 111-148), which was substantially amended by the health provisions in the
Health Care and Education Reconciliation Act of 2010 (HCERA; P.L. 111-152).
Overview of Health Reform Law
The primary goal of ACA is to increase access to affordable health insurance for the millions of
Americans without coverage and make health insurance more affordable for those already covered.
In addition, ACA makes numerous changes in the way health care is financed, organized, and
delivered. Among its many provisions, ACA restructures the private health insurance market, sets
minimum standards for health coverage, creates a mandate for most U.S. residents to obtain health
insurance coverage, and provides for the establishment by 2014 of state-based insurance
marketplaces (previously called exchanges) for the purchase of private health insurance. Certain
individuals and families will be able to receive federal subsidies to reduce the cost of purchasing
coverage through the insurance marketplaces. The new law also expands eligibility for Medicaid;
amends the Medicare program in ways that are intended to reduce the growth in Medicare spending;
imposes an excise tax on insurance plans found to have high premiums; and makes numerous other
changes to the tax code, Medicare, Medicaid, the State Children’s Health Insurance Program (CHIP),
and many other federal programs.
ACA is projected to have a significant impact on federal spending and revenues. The law
includes spending to subsidize the purchase of health insurance coverage through the state health
insurance marketplaces, as well as increased outlays for the expansion of the Medicaid program.
ACA also includes numerous mandatory appropriations to fund temporary programs to increase
access and funding for targeted groups, provide funding to states to plan and establish health
insurance marketplaces, and support many other research and demonstration programs and activities.
The costs of expanding public and private health insurance coverage and other spending are offset
by revenues from new taxes and fees, and by savings from payment and health care delivery system
reforms designed to reduce spending on Medicare and other federal health care programs.
Coverage Expansions and Market Reforms: Pre-2014
The law creates several temporary programs to increase access and funding for targeted groups.
They include (1) temporary high-risk pools for uninsured individuals with preexisting conditions; (2)
a reinsurance program to reimburse employers for a portion of the health insurance claims costs for
their 55- to 64-year-old retirees; and (3) small business tax credits for firms with fewer than 25
full-time equivalents (FTEs) and average wages below $50,000 that choose to offer health insurance.
Additionally, prior to 2014, states may choose voluntarily to expand their Medicaid programs.
Some private health insurance market reforms have already taken effect, such as extending
dependent coverage to children under age 26, and not allowing children under age 19 to be denied
insurance and benefits based on preexisting health conditions. Major medical plans can no longer
impose any lifetime dollar limits on essential health benefits, and plans may only restrict annual
dollar limits on essential benefits to defined amounts (such annual limits will be prohibited
Copyright 2016. Health Administration Press.
All rights reserved. May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S. or applicable copyright law.
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AN: 1340640 ; Beaufort Longest.; Health Policymaking in the United States, Sixth Edition
altogether beginning in 2014). Plans must cover preventive care with no cost-sharing, and they
cannot rescind coverage, except in cases of fraud. They must also establish an appeals process for
coverage and claims. Insurers must also limit the ratio of premiums spent on administrative costs
compared to medical costs, referred to as medical loss ratios, or MLRs.
Coverage Expansions and Market Reforms: Beginning in 2014
The major expansion and reform provisions in ACA take effect beginning in 2014. States are
expected to establish health insurance marketplaces that provide access to private health insurance
plans with standardized benefit and cost-sharing packages for eligible individuals and small
employers. In 2017, states may allow larger employers to purchase health insurance through the
marketplaces, but are not required to do so. The Secretary of Health and Human Services (HHS) will
establish marketplaces in states that do not create their own approved marketplace. Premium credits
and cost-sharing subsidies will be available to individuals who enroll in marketplace plans, provided
their income is generally at or above 100 percent and does not exceed 400 percent of the federal
poverty level (FPL) and they meet certain other requirements.
Also beginning in 2014, most individuals will be required to have insurance or pay a penalty
(an individual mandate). Certain employers with more than 50 employees who do not offer health
insurance may be subject to penalties. While most of these employers who offer health insurance
will meet the law’s requirements, some also may be required to pay a penalty if any of their full-time
workers enroll in marketplace plans and receive premium tax credits.
ACA’s market reforms are further expanded in 2014, with no annual dollar limits allowed on
essential health benefits, and no coverage exclusions for preexisting conditions allowed regardless of
age. Plans offered within the marketplaces and certain other plans must meet essential benefit
standards and cover emergency services, hospital care, physician services, preventive services,
prescription drugs, and mental health and substance use treatment, among other services. Premiums
for individual and small group coverage may vary by limited amounts, but only based on age, family
size, geographic area, and tobacco use. Additionally, plans must sell and renew policies to all
individuals and may not discriminate based on health status.
In addition to the expanding private health insurance coverage, ACA, as enacted, requires
state Medicaid programs to expand coverage to all eligible non-pregnant, non-elderly legal residents
with incomes up to 133 percent of the FPL, or risk losing their federal Medicaid matching funds.
The federal government will initially cover all the costs for this group, with the federal matching
percentage phased down to 90 percent of the costs by 2020. The law also requires states to maintain
the current CHIP structure through FY2019, and provides federal CHIP appropriations through
FY2015 (thus providing a two-year extension on CHIP funding).
In National Federation of Independent Business v. Sebelius, the Supreme Court found that the
Medicaid expansion violated the Constitution by threatening states with the loss of their existing
federal Medicaid matching funds if they fail to comply with the expansion (see discussion below
under U.S. Supreme Court Decision).
Health Care Quality and Payment Incentives
ACA incorporates numerous Medicare payment provisions intended to reduce the rate of growth in
spending. They include reductions in Medicare Advantage (MA) plan payments and a lowering of
the annual payment update for hospitals and certain other providers. ACA established an
Independent Payment Advisory Board (IPAB) to make recommendations for achieving specific
Medicare spending reductions if costs exceed a target growth rate. IPAB’s recommendations will
take effect unless Congress overrides them, in which case Congress would be responsible for
achieving the same level of savings. Also, ACA provides tools to help reduce fraud, waste, and
abuse in both Medicare and Medicaid.
Other provisions establish pilot, demonstration, and grant programs to test integrated models
of care, including accountable care organizations (ACOs), medical homes that provide coordinated
care for high-need individuals, and bundling payments for acute-care episodes (including
hospitalization and follow-up care). ACA creates the Center for Medicare and Medicaid Innovation
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(CMMI) to pilot payment and service delivery models, primarily for Medicare and Medicaid
beneficiaries. The law also and pay-for-performance programs
within Medicare that will pay providers based on the reporting of, or performance on, selected
Additionally, ACA creates incentives for promoting primary care and prevention; for example,
by increasing primary care payment rates under Medicare and Medicaid, covering some preventive
services without cost-sharing, and funding community-based prevention and employer wellness
programs, among other things. The law increases funding for community health centers and the
National Health Service Corps to expand access to primary care services in rural and medically
underserved areas and reduce health disparities. Finally, ACA requires the HHS Secretary to develop
a national strategy for health care quality to improve care delivery, patient outcomes, and population
Implementation and Oversight
Implementation of ACA, which began upon the law’s enactment in 2010 and will continue to unfold
over the next few years, involves all the major health care stakeholders, including the federal and
state governments, as well as employers, insurers, and health care providers. The HHS Secretary is
tasked with implementation and oversight of many of ACA’s key provisions. Other federal agencies,
notably the Internal Revenue Service (IRS), also have substantial regulatory and administrative
responsibilities under the new law. For many of ACA’s most significant reform provisions, the HHS
Secretary and other federal officials are required to take certain actions, such as issuing regulations
or interim final rules, by a specific date. As already noted, many of the key components of market
reform and coverage expansion do not take effect until 2014. Implementing some parts of the law
will entail extensive rulemaking and other actions by federal agencies; other changes will be largely
self-executing, pursuant to the new statutory requirements. ACA also creates a variety of new
commissions and advisory bodies, some with substantial decision-making authority (e.g., IPAB).
Under ACA, states are required to expand Medicaid coveragethough some may now elect
not to do so without risk of losing federal matching funds for their existing Medicaid programand
are expected to take the lead in establishing the health insurance marketplaces, even as many of them
struggle with budget shortfalls and weak economies. Employers, too, have a key role to play in ACA
implementation. The law made changes to the employer-based system under which more than half of
all Americans get health insurance coverage. Many small employers will face decisions on whether
to use the new incentives to provide coverage to their employees, while larger employers must
weigh the benefits and costs of continuing to offer coverage or paying the penalties for not doing so.
The federal subsidies and outlays for expanding insurance coverage represent mandatory
spending under the new law. In addition, ACA included numerous mandatory appropriations (and
transfers from the Medicare trust funds) that provide billions of dollars over the coming years to
support new and existing grant programs and other activities authorized under the law. For example,
funding is provided for states to plan and establish health insurance marketplaces (once established,
marketplaces must become self-sustaining), and for CMMI to test innovative payment and service
delivery models. ACA funded three multi-billion dollar trust funds to support health centers and
health workforce programs, comparative effectiveness research, and public health programs. It also
established the Health Insurance Reform Implementation Fund (HIRIF) and appropriated $1 billion
to the Fund to cover federal regulatory and other administrative costs associated with ACA’s
implementation. The HIRIF funds, which have largely been used by HHS and the IRS, will all have
been obligated by the end of FY2012. Consequently, the President’s FY2013 budget requested more
than $1 billion in new discretionary funding for HHS and the IRS to pay ACA-related administrative
costs. It remains unclear, however, whether congressional appropriators will provide some or all of
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Finally, the law established many new grant programs and provided for each an authorization
of appropriations, and reauthorized funding for numerous existing programs whose authorization of
appropriations had expired. Obtaining funding for all these discretionary programs requires action by
the congressional appropriators.
Rules and Guidance Documents
ACA is being implemented in a variety of ways, including new agency programs, grants,
demonstration projects, guidance documents, and regulations. Whereas regulations or rules have the
force and effect of law, agency guidance documents do not. The federal rulemaking process is
governed by the Administrative Procedure Act (APA), other statutes, and executive orders. Under
the APA’s informal rulemaking procedures, agencies generally are required to publish notice of a
proposed rulemaking, provide opportunity for the submission of comments by the public, and
publish a final rule and a general statement of basis and purpose in the Federal Register at least 30
days before the effective date of the rule. Agencies compliance with the APA is subject to judicial
review. The APA’s rulemaking requirements do not apply to guidance documents. More than 40
provisions in ACA require or permit agencies to issue rules, with some allowing the agencies to
prescribe such regulations as may be necessary.
Congress has a range of options as it oversees the implementation of ACA, including oversight
hearings, confirmation hearings for agency officials, letters to and meetings with agency officials
and the Office of Information and Regulatory Affairs regarding particular rules, comments on
proposed rules, and new legislation regarding specific rules. Congress, committees, and individual
Members can also request that the Government Accountability Office or federal offices of inspectors
general (OIGs) evaluate agencies actions to implement, or agency decisions not to implement,
certain provisions of ACA. Congress can also include provisions in the text of agencies
appropriations bills directing or preventing the development or enforcement of particular
regulations, or use the Congressional Review Act to disapprove an agency rule implementing ACA.
Following enactment of ACA, state attorneys general and others brought a number of lawsuits
challenging provisions of the act on constitutional grounds. While some of these cases were
dismissed for procedural reasons, others moved forward, eventually reaching the U.S. Supreme
Court. During the last week of March 2012, the Court heard arguments in HHS v. Florida, a case in
which attorneys general and governors in 26 states as well as others brought an action against the
Administration, seeking to invalidate the individual mandate and other provisions of ACA.
U.S. Supreme Court Decision
On June 28, 2012, the United States Supreme Court issued its decision in National Federation of
Independent Business v. Sebelius, finding that the individual mandate in ACA is a constitutional
exercise of Congress’s authority to levy taxes. However, the Court held that it was not a valid
exercise of Congress’s power under the Commerce Clause or the Necessary and Proper Clause.
With regard to the Medicaid expansion provision, the Court, in an opinion written by Chief
Justice Roberts, accepted an argument that the scope of the changes imposed by the Medicaid
expansion transformed the ACA requirements into a new Medicaid benefit program. As this
new program was to be enforced by the threat of withholding of existing federal Medicaid
matching funds, the Court found that the states were being coerced in violation of the Tenth
Amendment into administering this new program. Chief Justice Roberts opinion, however, went on
to note that the Medicaid requirement in question was subject to other statutory language providing
for severance of unconstitutional provisions. Since it was only the withholding of existing federal
Medicaid matching funds that was unconstitutional, the Chief Justice held that severance under the
statute could be limited to termination of those funds. Thus the federal government would still be
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allowed, under the statute and the Tenth Amendment, to provide federal matching funds associated
with the expansion. In other words, states can now decline to participate in the Medicaid expansion
without financial penalty, but, if they wish to participate, must comply with the new requirements in
order to receive the expansion-related funds.
It is unclear how many states may now decide not to participate in the Medicaid expansion. In
so doing, they would forgo a substantial amount of federal funding. As already noted, the federal
government will provide 100 percent of the costs of the expansion for the first three years, phasing
down to 90 percent in the years thereafter. Moreover, if a state were to decide not to implement the
Medicaid expansion, low-income adults below the poverty line (i.e., 100 percent FPL) who were not
covered by, or eligible for, the state’s existing Medicaid program would in general be ineligible for
the marketplace subsidies.
Source: Reprinted, with slight adaptation, from Redhead, C. S., H. Chaikind, B. Fernandez, and J. Staman. 2012.
ACA: A Brief Overview of the Law, Implementation, and Legal Challenges. Washington, DC: Congressional Research
The ACA can be read in Public Law form at www.congress.gov/111/plaws/publ148/PLAW-111publ148.pdf.
For additional information on the ACA, see:
Emanuel, E. J. 2014. Reinventing American Health Care. New York: PublicAffairs.
Kaiser Family Foundation. 2014. Health Reform. Accessed March 13, 2014. www.kff.org/health-reform.
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