The Affordable Care Act: "Obamacare" Explained

Simple Enough to Explain to Your Kids

Obamacare explained
Obamacare raises healthcare costs for some, and lowers it for others. Photo: Rob Lewine/Getty Images

In 2010, the President and Congress signed Obamacare into law. Why? They wanted to make sure all Americans were able to get health insurance. More important, they wanted to lower the cost of healthcare. That would reduce the growing cost of Medicare and Medicaid. Those two programs threatened to take over the entire federal budget.

That's important because going to the doctor or the hospital has now become very expensive.

 In fact, health care costs are the #1 cause of bankruptcy in this country. Just one visit to the emergency room costs $1,265 on average. A broken foot costs around $16,000 while cancer treatment can cost $30,000. For more, see Healthcare Blue Book.

Families with health insurance don't have to worry about these costs since their insurance pays most of them. Family members only pay a small fee per visit, called a co-payment. Most people get health insurance as a benefit from their employer. The company usually splits the monthly cost, known as a premium.

What happens to the people whose jobs don't provide health insurance and people without jobs? Some of them are poor enough to qualify for Medicaid, paid for by state and the Federal governments. Those who are older than 65 go on Medicare. They pay premiums that the Federal government subsidizes. 

What happens to people who make too much money for Medicaid, are too young for Medicare, but are self-employed or don't get insurance from their jobs?

They have to pay for their insurance, and it's usually very expensive. Before Obamacare, many just did without it and took their chances. Some had a chronic illness, called a "pre-existing condition," and the insurance companies wouldn't even offer them coverage.

There were anywhere from 32 - 50 million people who didn't have health insurance.

If something happened, and they had to go to the hospital, they often just didn't pay the bill. The hospital charged it to an emergency Medicaid plan. That raised the cost of healthcare for everyone. (Source: "Health Facts," EBRI.)

The official name for Obamacare is the Patient Protection and Affordable Care Act of 2010. It's so complicated that it was phased in over five years. Here's how it affects your family and people you know. Also find out how that changes under Trump's plan to repeal and replace Obamacare.

Changes That Have Already Happened

Anyone can compare plans on the exchanges, which is a website run by the state or the Federal government. These exchanges also let people know when they qualify for tax credits. Obamacare is paying for most of the cost to operate these exchanges.

All health insurance plans must provide ten essential health benefits. The only exceptions are plans that existed on March 23, 2010, and were "grandfathered in."

Families With Health Insurance - Here's six ways Obamacare improved your family's health insurance already.

  1. Parents can add their adult children (up to age 26) to their plans.
  2. If anyone gets sick, the insurance company can't drop them from the plan or limit how much insurance your family uses.
  1. If any children are chronically ill, a new insurance company can't deny coverage.
  2. Most families will find that wellness or pregnancy exams are now free. In other words, they no longer have to make co-payments.
  3. Insurance companies can't raise premium payments without getting the OK from the state government.
  4. Some families received a check from the insurance company. That's because Obamacare says that companies must spend at least 80% of premiums on providing actual medical services. If they spent it on advertising or executive salaries, they have to pay the excess back to policy-holders.

Families Without Health Insurance - Open enrollment on the health care exchanges is from November 1, 2016, to January 31, 2017

Obamacare prohibits insurance companies from denying coverage to anyone who has a pre-existing condition

Obamacare allows more people to get Medicaid. The eligible income is 138% of the Federal poverty level. The exact income level varies by state. See if you qualify for lower costs. The Federal government paid all the additional cost for the first three years. After that, the states pay 10%. However, not all states expanded Medicaid, despite the federal subsidy. Find out more about Medicaid.

Most families that make too much to get Medicaid will still get help.They can get subsidies every month or even reduced copayments and deductibles. This eligible income is 400% of the poverty level, and it increases with inflation each year. Find out How to Get Obamacare.

Obamacare required everyone to enroll in health insurance by January 31, 2017. Those that didn't, face a 2.5 percent tax on their 2016 Adjusted Gross Income. The minimum is $625 per adult. To find out more, see Obamacare Taxes.

However, many people can avoid the tax if they qualify for exemptions. Find out more in How Much Will It Cost Me? 

Many people don't think the Federal government should have the right to force people to get insurance. Why is the Federal government requiring it? If everyone has insurance, more people will go to the doctor when they are getting sick, instead of waiting until their illness turns into an expensive emergency. That lowers healthcare costs for everyone. Over time, health insurance should cost your family less. That's because more healthy people will pay more premiums to insurance companies, who will then make more money. They will compete with each other in the exchanges, so will want to charge less to get more business. Older people on Medicare will have more of their drug costs covered, meaning they can afford to take all their medicine as they should, and stay out of the hospital -- again, lowering costs for everyone. For more, see Obamacare Pros and Cons.

People on Medicare - Obamacare allows seniors with Medicare to receive wellness and preventive care visits for free. See Medicare Preventive Services for the full list.

Those who have Medicare Part D, which paid for some but not all the costs of prescription drugs, received $250 in 2010 if they needed it. In 2011, they received 50 percent off of brand-name prescription drugs, and a 7 percent discount for generic medicines. For more, see Drug Discounts. By 2020, Obamacare will pay 100 percent of prescription drug costs for those who have Medicare Part D.

Small Business Owners - Owners of small businesses (25 employees or less) that provide health insurance can get a tax credit for 50 percent of the cost of Obamacare. They can also get Federal financial assistance if they offer health insurance to early retirees 55-64. For details, go to ERRP and Helping Small Businesses with Obamacare.

Those Who Earn $200,000 a Year or More - Taxes increased for individuals who earn $200,000 or more, and families who earn $250,000 or more. To find out more, see Obamacare Taxes.

Members and staff of Congress - They are required to get their insurance through the same exchanges, instead of the government-provided health insurance they got before. However, they continue to receive subsidies to pay for their insurance: $4,900 for individuals and $10,000 for family coverage. For more, see When Does Obamacare Start? (Source: "Members Only," The Wall Street Journal, August 8, 2013. Affordable Care Act.)

Families With Health Insurance - Many people with good health insurance are worried that their companies will cancel their existing plans. In fact, a government study said that this might happen to 3-5 million employees. Why? Some companies will find it cheaper to pay the penalties and allow their workers to get insurance on the exchanges. Most companies will keep offering health insurance as a benefit to attract the best workers. It's less expensive for them than offering higher wages, because insurance isn't taxed. (Source: "The Effects of the Affordable Care Act on Employment-Based Health Insurance," Congressional Budget Office, March 15, 2012.)

Small Businesses - Companies with 100 or more employees were required to provide health insurance by 2015. If they can't or won't, they will be taxed $2,000 per employee, except for the first 30 employees. Businesses with 50-99 employees have until January 2016. To help them find the cheapest plans, businesses with fewer than 50 employees can shop on the health insurance exchanges. For more, see Treasury Press Release. (Source: "Small Business Exchange," 

More on Obamacare

To save money on Obamacare, see my book The Ultimate Obamacare Handbook (2015 - 2016).