The future of the Affordable Care Act (ACA) was front and center in U.S. politics for the better part of a decade after Congress approved it in March 2010 mainly because many in the GOP pledged to “repeal and replace” the law at the first opportunity. Yet after failing to do so in 2017—despite controlling both Congress and the White House—Republicans backed off and mostly avoided the subject during the rest of President Trump’s term in office.
Now, with a Biden-Trump rematch set, the ACA fight is reemerging. The Biden White House is attacking Trump for suggesting recently he might still replace the ACA—a position he subsequently amended by saying he planned to improve the law not repeal it.
Beyond its past and present politics, however, there is still the question of how well the ACA delivered on its original policy objectives. In short, after 14 years, the law that was a signature initiative of President Obama has a mixed record, albeit one that its supporters will not find overly difficult to defend even as critics can also point to many of the law’s provisions that never panned out.
What did the ACA do?
While the ACA is a sprawling measure with scores of disparate provisions addressing the nation’s vast health system, its core changes were relatively few.
Perhaps most notably, the law pushed states to expand their Medicaid programs to cover everyone with incomes below 138 percent of the federal poverty line, or FPL. (For a four-person household, the FPL is $31,200 in 2024). In states that didn’t expand Medicaid, the law’s new subsidy structure for private coverage outside of the employer setting would be available starting at 100 percent of the FPL.
Initially the federal penalty for noncompliance with the Medicaid expansion was so steep—full loss of all federal Medicaid support—that no state could have absorbed it. But after the Supreme Court ruled in June 2012 that this sanction was excessive and unconstitutional, Medicaid expansion became voluntary. To date, 40 states plus the District of Columbia have expanded Medicaid. Among the 10 states still holding out are Texas, Florida, and Georgia.
Moreover, the ACA made it much easier for less-healthy Americans to secure and retain insurance by outlawing premium adjustments based on health status. Insurers can still charge more for older enrollees (within limits) and for smokers. The law also required insurance plans to conform to minimum benefit standards. These changes lowered premiums for people with pre-existing conditions and raised them for everyone else. A requirement to purchase coverage (the “individual mandate”) was originally included in the measure to prevent the healthy from waiting until they were sick to enroll in health insurance plans.
As noted, for people without employer coverage and with incomes above Medicaid eligibility (and no lower than 100 percent of the FPL) but below 400 percent of the FPL, the ACA created a new premium and cost-sharing subsidy system to make coverage less expensive. The law also created a new online insurance enrollment system that effectively displaced much of the old individual insurance market. The administration of the new subsidy system is built into the enrollment process facilitated by the online marketplaces, or “exchanges” as they are sometimes called. Twenty-nine states rely on the exchange platform built and run by the federal government, while the rest have developed their own versions or have partially modified the federal exchange to suit their needs.
Most Americans did not benefit from the Medicaid expansion or the new premium subsidies because they were already enrolled in coverage, often through their employers, and were therefore not the primary targets of the ACA’s coverage expansion changes. For this population, ACA’s proponents offered the prospect of a more efficient and accountable system of service delivery, which would then translate into lower out-of-pocket costs.
How exactly these service delivery improvements would work was always vague, and that proved to be a problem. The main levers were a series of incentives in Medicare encouraging hospital and physician groups to reorganize into more efficiently managed entities called accountable care organizations (ACOs). Because of Medicare’s size, ACA proponents hoped these reforms would catalyze changes throughout the entire health insurance market. In addition to ACOs, the law called for experimentation with other cost-saving models and imposed a new penalty on high-cost employer plans (the “Cadillac tax”).
Critics argued that the ACA’s large expansion of subsidized coverage would prove to be a budgetary threat. At enactment, however, the Congressional Budget Office (CBO) estimated that the law would produce modest net savings. That estimate assumed significant new taxes and permanent cuts in provider and Medicare Advantage plan payments would more than offset the costs of the Medicaid expansion and insurance enrollment subsidies.
What changes has Congress made to the ACA since?
As is often the case with significant legislative changes, the ACA today differs significantly from the original 2010 law. In addition to the Medicaid expansion now being optional to states, Congress also amended the law in four notable ways.
First, Congress repealed the individual mandate tax. In the same 2012 decision invalidating the Medicaid penalty, the Supreme Court upheld the constitutionality of the individual mandate by holding that it was a legitimate use of Congress’ taxing power. That proved to be its undoing too, as it allowed congressional Republicans to use the budget reconciliation process to repeal the tax penalty tied to the individual mandate when they had unified control of the elective branches in 2017. As a result, enrollment in health insurance in the U.S. remains voluntary.
Second, the ACA originally imposed three health-related tax hikes targeting high-cost employer plans, health insurance premiums, and the medical device industry. All three were unpopular from the start and subject to repeated delays. In 2019, Congress, on a bipartisan basis, repealed them entirely and permanently.
Third, Congress repealed the Independent Payment Advisory Board (IPAB). One of the original provisions aimed at cost control, the IPAB ran into bipartisan opposition soon after the legislation was approved as it was widely seen as shifting substantial legislative power to an unelected and unaccountable bureaucracy. Congressional opposition made it impossible to stand up the new entity until it was finally repealed in 2018.
And fourth, Congress expanded subsidies for the ACA. In the 2021 American Rescue Plan Act and the 2022 Inflation Reduction Act, the Democratic majority in Congress approved a large expansion in ACA premium and cost-sharing support for enrollees in plans offered on the ACA exchanges and then an extension of those subsidies through 2025. Among other things, the changes made insurance enrollment mostly free for households with incomes below 150 percent of the FPL and offered new subsidies for the first time to households with incomes exceeding 400 percent of the FPL.
The ACA’s major effects.
The ACA’s main objectives were to provide a realistic insurance enrollment option for all American citizens and legal U.S. residents, more discipline on costs through efficiency improvements, and no deterioration in the fiscal outlook owing to the expanded federal support. The evidence shows the ACA mostly succeeded in reaching the first goal, but the record for the other two is less favorable.
The ACA has increased the percentage of the U.S. population enrolled in health insurance. The Census Bureau reported in September 2023 that just 9.6 percent of people under 65 lacked health insurance, a historic low in 2022. (Those 65 and older are almost all eligible for Medicare or Medicaid.) That was substantially below the uninsured rate of 16.8 percent in 2013.
Furthermore, 80 percent of the remaining uninsured are eligible for an affordable plan (measured by the cost of the premium falling below a legal threshold, set at about 8.4 percent in 2024), either through enrollment in Medicaid, a private insurance plan purchased with ACA premium assistance, or employer coverage. An additional 3.8 million people who are included in the uninsured group are ineligible for a subsidized plan because they are residing in the U.S. without legal authorization to do so. That leaves only about 1.5 million people in the U.S. who are uninsured, have incomes below the poverty line, and are ineligible for Medicaid because their states have not taken up the ACA eligibility expansion.
The effects of the ACA on overall costs are far less clear. Its proponents hoped that the combined effect of the provisions pushing providers to do more with less would lead to less waste and more efficient care arrangements. However, given that much of what was supposed to deliver this transformation was either repealed (such as the Cadillac tax and the IPAB) or has not worked as planned (as is the case with the many experimental “value-based” models advanced by the Center for Medicare and Medicaid Innovation), it’s hard to argue the law has met this objective.
On the other hand, spending on Medicare and Medicaid has been below what was projected at the time of the ACA’s enactment. That drop may reflect any number of trends that were not set in motion by the ACA. However, disentangling the law from other forces at work in the health system is not straightforward. There is room for all sides to make their case about the effects of the ACA on overall cost growth.
Those with budgetary concerns about the ACA were right that the spending was near certain to occur (and likely would be expanded) and that the offsets were on much shakier political ground. Since 2010, many provisions in the original ACA that would have imposed more budgetary discipline have been repealed. Congress also increased the generosity of the premium and cost-sharing subsidies and made millions of additional households eligible for assistance. These changes point clearly toward higher long-term budgetary costs.
That is not the full story, though, as the Supreme Court decision making the Medicaid expansion voluntary reduced the costs of the expansion relative to what was projected at enactment, and Medicare spending is well below projections from 2010.
CBO long ago decided it’s no longer possible, or even meaningful, to precisely assess whether the ACA increased or decreased current and projected budget deficits. Even so, given how much of the original law has been repealed, the concern that the law would repeat the pattern seen so often in recent decades—with upward pressure on entitlement spending and downward pressure on real offsets—seems to have been repeated once again. The law’s defenders argue that the ACA’s long-term savings are still in place, largely tied to deep and compounding cuts in Medicare’s payments to hospitals and other providers. But the trustees overseeing Medicare have long warned that those cuts are also unrealistic, and will need to be relaxed sooner or later to avoid harming access to care for patients.
What’s next?
Heading into the 2024 election, both parties are playing it safe on health care, so the ACA will largely look similar regardless of who wins.
President Biden and other Democrats are content to push for the permanent extension of the expanded ACA subsidies now scheduled to expire after 2025 and to extend the reach of the government’s new drug pricing powers approved in 2022. They will also argue that a second Trump term would pose a serious threat to the ACA’s continuation. All of these positions poll very well with voters, but they do not set up the administration to advance significant new reforms in a second term.
The Republicans’ game plan is less clear. Former President Trump still speaks occasionally about “replacing” or improving the ACA if given a second chance in office, but there are no details to go along with the bravado. A similar scenario as 2017—when there was much talk about replacing the ACA but little action—may repeat itself. That might include less risky proposals like codifying price transparency requirements, new restrictions on pharmacy benefit managers (PBMs), and limiting what the U.S. pays for drugs to resemble other high-income countries.
Neither party, however, has offered a clear theory of what the country should do to ensure permanent cost control without compromising access and quality. Many Democratic governors and members of Congress favor government price-setting to meet this objective. Among other things, they support creating a fully regulated public option insurance plan to compete with private plans. But such policies are highly controversial among hospitals and physicians, which makes them difficult to pass and enforce. The safer course is even more generous government financial support for insurance enrollment, and application of price-setting in the unpopular drug industry, which accounts for less than 10 percent of all health care spending.
On the Republican side, there is no prevailing theory of enduring cost control. Many in the party say they favor less regulation and a “free market,” but they have little appetite for actually moving in a market-oriented direction.
In this political environment, the ACA is all but certain to continue as it operates currently, most likely with the subsidy expansion extended beyond 2025. For those who invested so much to get the law passed in 2010, that outcome will surely be viewed as a victory.
James C. Capretta is a resident fellow and holds the Milton Friedman chair at the American Enterprise Institute.
https://thedispatch.com/author/james-capretta/
