The Affordable Care Act includes many changes that affect individuals, families, businesses, insurers and tax-exempt organizations. These changes include taxes, subsidies and costs.
The ACA provides premium and cost-sharing subsidies to individuals who purchase coverage through state-based health insurance marketplaces, called Exchanges. These subsidies help lower-income people cover the costs of their plans.
Taxes
Taxes are one of the main ways that governments raise revenue. They are collected from taxpayers to pay for government spending and public expenditures such as roads and infrastructure, schools, a social safety net, public health systems, national defense and law enforcement.
The provision of these public goods increases the economic welfare of society. In addition, they reduce inflation and increase land value and the economic efficiency of the economy.
Some people advocate a Pigovian tax, a form of ‘tax choice’ that would allow people to allocate their taxes to any government organization that they believe provides the public goods that they most value. In this way, taxpayers would be more likely to allocate their taxes to public goods they believe are most important for improving their quality of life and reducing inequality.
Subsidies
The ACA provides subsidies to help make coverage more affordable for Americans who buy plans on the health insurance exchanges. These subsidies are in the form of premium tax credits and cost-sharing reductions (CSRs) paid by insurers to reduce the out-of-pocket costs for a given plan.
For most people buying coverage in the marketplace, the subsidized rate for their benchmark Silver plan is 8.5% of their household income. Those with lower incomes pay much less of their income – as low as $0 for those with income that doesn’t exceed 150% of the poverty level.
These subsidies have a strong impact on coverage rates. The nonpartisan Kaiser Family Foundation estimates that the share of households with unsubsidized coverage has declined in most areas since the ACA began.
These subsidies also reduce the amount of debt incurred by hospitals whose patients file for bankruptcy. They can also increase the value of health savings accounts and pre-tax retirement plans.
Costs
The ACA has made health insurance much more affordable for millions of people. But for many others, including those with health conditions and incomes above the federal poverty level, coverage is more expensive than it was before the law took effect.
According to eHealth, an online insurance broker, the average premium and deductible for a family of four in the individual market was more than $25,000. This is more than a third of a year’s worth of premium payments and a significant portion of a person’s total medical costs.
The ACA also reduced out-of-pocket costs for beneficiaries, eliminated copayments and other cost sharing for preventive care services like annual physicals and screenings for cancer, cholesterol, blood pressure, and other conditions, and allowed beneficiaries to choose free or low-cost prescription drugs. It also regulated the pricing of biologic drugs by requiring the Food and Drug Administration to speed up the approval process for biosimilars, biologics that are similar to branded drugs.
Benefits
The Affordable Care Act offers a variety of benefits to its beneficiaries. It protects people with preexisting conditions, expands coverage for low-income children, and strengthens primary health care in underserved communities.
Insurers also have to offer basic benefits in health plans that cover people without requiring them to pay a deductible or co-payments. They must include prescription drugs, maternity care, and mental health services in their coverage offerings.
For women, the ACA removed gender rating and banned insurers from denying coverage based on pregnancy. It also expanded access to essential health benefits, including contraception, for 61 million women nationwide.
The ACA also provides cost-sharing reductions to help consumers reduce out-of-pocket costs. This financial help makes it easier for lower-income Americans to purchase health insurance. It also increases the number of people who qualify for Medicaid expansion and helps families afford coverage. It has helped states reduce their uninsured rates and hospital uncompensated care costs, compared to non-expansion states.
