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The Affordable Care Act, Simplified
Prior to 2010 many Americans were left uninsured due to unaffordability and exclusions based on preexisting conditions. Other faced extremely high out-of-pocket cost and coverage limits. The Affordable Care Act (also known as the ACA) aimed to change this through three main initiatives.
First, to make health insurance more affordable to more people, the ACA provided subsidies that lower the cost of health coverage for certain households. Secondly, it expanded Medicaid to cover more adults with incomes below a certain level. Finally, it changed how medical care was given and delivered to patients, lowering the overall cost of health care.
Making Health Coverage Affordable
Before the ACA, health insurance companies had the right to turn people away and to deny coverage if they felt those people were too big a risk due to pre-existing conditions. Or, if they wanted, they could charge you more for your coverage, justifying it as a need to stay profitable. Additionally, the total out of pocket cost (deductibles, co-pays, and coinsurance) was left up to the insurance company. This all led to a lot of people being uninsured; they simply could not afford insurance or could not find a company to offer them insurance.
One of the things that stemmed from the ACA was the Marketplace. The Health Insurance Marketplace (sometimes called the exchange) is nothing more than a shopping and enrollment service for health insurance. In most states, the federal government runs the Marketplace, but some states offer their own website or platform for consumers to use.
When companies offer insurance plans through the marketplace for consumers to buy, they are now required to meet a few requirements. All plans offered through the Marketplace must offer these benefits to all who apply. The big one is the 10 essential health benefits which include prescription drugs, lab services, oral & vision care for pediatrics, and ambulatory services. Because these and other services are considered essential, they are the minimum requirement for all Marketplace plans.
On top of the minimum requirements, no Marketplace plan is allowed to deny you coverage or charge you more than someone else for the same plan, outside of a few reasons. This means that your current health and medical history are not considered when you buy coverage. Also, all health plans must cover treatment for pre-existing conditions.
Allowed reasons for increased premiums include where you live, if you use tobacco, if your plan also covers your family, your age, and the type of plan you chose. States are allowed to limit how much insurance companies can use these factors to affect premiums.
Finally, all those that purchase health insurance plans from the Marketplace are eligible to receive subsidies based on their income. These subsidies are in the form of tax credits designed to help lessen monthly premiums and in the form of reductions to the out-of-pocket cost incurred when care is needed. The amount of subsidy received is based on income, and not all those that purchase plans from the Marketplace will qualify.
Medicaid Expansion
Medicaid is joint federal and state program designed to cover medical cost for some people with limited income and resources. While the federal government matches at least 50% of the Medicaid funding provided by each state, it is up to the state, within a set of guidelines, to determine how that money is allocated.
With the ACA came a Medicaid expansion. The federal government allows states that chose to offer Medicaid to individuals that previously did not qualify for Medicaid. The federal government in turn helps offset the increased cost by upping it’s matching amount, covering 100% of the cost through 2016, and 90% after 2016.
To receive this extra funding, states must reduce the income requirements for Medicaid beneficiaries to 138% of the poverty level. 40 states have adopted the changes since the ACA was passed in 2010, with 10 states choosing to forgo the extra federal funding.
Expansion has allowed for states to lower their spending on programs aimed at mental health, increased the compensation of hospitals, and overall produced a net savings for most states. Between 2014 and 2017, Medicaid expansion is associated with a 4.6% reduction in state spending on traditional Medicaid.
The American Rescue Plan
The American Rescue Plan, passed in 2021, further expanded Medicaid by offering an additional 5% increase to federally matched funds. The remaining non-expansion states would gain some 13 billion combined federal funding from this provision if they expanded.
Changing the Health Care Delivery System
Health care delivery refers to how people receive their medical care. It includes providers, Insurance companies, and government regulators. It is measured in terms of cost and quality of health care received by patients.
Prior to the ACA, healthcare functioned under what is called a Fee-For-Service system, or FFS. Under the FFS system, people and insurance companies would pay the doctors and hospitals for services without much regard for the price. There was little say on how much the hospital charged and there was even less regard given to the quality of the care given. With poor care given, people needed to see the doctor more. This in turn allowed for providers to generate increased revenue, almost incentivizing the increase in services.
The ACA moved away from FFS transactions and instead focused on what is called value-based payments. Value-based payments incentivize doctors to focus on the quality of their services, as opposed to the quantity. This has led to providers taking a larger role in care-management, and the insurance companies making less health care decisions.
For beneficiaries of Medicare and Medicaid, the ACA penalized providers for health care-acquired conditions and penalties for preventable readmissions.
By incentivizing providers to make decision in the best interest of their patients, in combination with penalizing those providers for not doing so, has led to an overall decrease in medical care needed, and a drop in overall cost for the patient.
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