# Affordable Care Act (ACA): What It Is, Key Features, and Updates

![Affordable Care Act (ACA): A comprehensive healthcare reform signed into law in 2010 and commonly known as Obamacare.](https://www.investopedia.com/thmb/TdNFykbG-NYZ9eOxwmdQW9WbxR0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/affordable-care-act.asp-final-43c18941b07c4e49b29738891503d38d.png)

*— Investopedia / Zoe Hansen*

## What Is the Affordable Care Act (ACA)?

The Affordable Care Act (ACA) is the comprehensive healthcare reform that was signed into law by President Barack Obama in March 2010. It was formally known as the Patient Protection and Affordable Care Act and commonly referred to as Obamacare. The law includes a list of healthcare policies intended to expand access to [health insurance](https://www.investopedia.com/terms/h/healthinsurance.asp) to millions of uninsured Americans.

The law expanded Medicaid eligibility, created health insurance exchanges, mandated that Americans purchase or otherwise obtain health insurance, and prohibited insurance companies from denying coverage due to preexisting conditions.

### Key Takeaways

*   The Affordable Care Act was signed into law in March 2010 and is commonly known as Obamacare.
*   The ACA was designed to extend health coverage to millions of uninsured Americans.
*   The Act expanded Medicaid eligibility, created a Health Insurance Marketplace, and prevented insurance companies from denying coverage due to preexisting conditions.
*   The Affordable Care Act requires insurers to cover a list of essential health benefits.

## Understanding the Affordable Care Act (ACA)

The ACA was designed to reform the health insurance industry and help reduce the cost of health insurance coverage for individuals who qualify. The law includes premium tax credits and [cost-sharing reductions](https://www.investopedia.com/terms/c/costsharing-reductions.asp) to help lower expenses for lower-income individuals and families.

The ACA requires that most insurance plans including those sold on the [Health Insurance Marketplace](https://www.investopedia.com/terms/h/health-insurance-marketplace.asp) cover a list of preventive services at no cost to policyholders. The services include checkups, patient counseling, immunizations, and numerous health screenings.

All ACA-compliant health insurance plans must cover specific “essential health benefits” such as emergency services, family planning, maternity care, hospitalization, prescription medications, mental health services, and pediatric care.

The law allows states to extend Medicaid coverage to a wider range of people. As of November 2024, 41 states and the District of Columbia had exercised that option.

There's an open enrollment period on the Health Insurance Marketplace every year during which people can buy or switch insurance plans. Enrollment outside of the open season is allowed only for those whose circumstances change such as because they've married, divorced, become a parent, or lost a job that provided health insurance coverage.  

> **Important**
>
> The Inflation Reduction Act of 2022 extends the expanded ACA for three years through 2025 for those who need financial assistance. It also allows Medicare to negotiate the cost of prescription drugs and place an annual cap of $2,000 on the cost of drugs. The ACA extension is expected to cost an estimated $64 billion.

## Key Features of the Affordable Care Act

Provisions included in the ACA expand access to insurance, increase consumer protections, emphasize prevention and wellness, improve quality and system performance, expand the health workforce, and curb rising healthcare costs.

### Expand Access to Insurance

The ACA requires that employers cover their workers and it provides tax credits to certain [small businesses](https://www.investopedia.com/terms/s/smallandmidsizeenterprises.asp) that cover specified costs of health insurance for their employees. It created state- or multistate-based insurance exchanges to help individuals and small businesses purchase insurance. 

The law expanded Medicaid coverage for low-income individuals and it allows young adults to remain on parents’ policies until age 26.

Part of the ACA that existed until 2017 was the individual mandate, a provision requiring all Americans to have healthcare coverage either from an employer or through the ACA or another source. They would otherwise face tax penalties.

### Increase Consumer Insurance Protections

The ACA prohibits lifetime monetary caps on insurance coverage It limits the use of annual caps and establishes state rate reviews for [insurance premium](https://www.investopedia.com/terms/i/insurance-premium.asp) increases. It prohibits insurance plans from excluding coverage for children with preexisting conditions and canceling or rescinding coverage.

### Prevention and Wellness

The Prevention and Public Health Fund was established under the ACA and it provides grants to states for prevention activities such as disease screenings and immunizations. The National Prevention, Health Promotion, and Public Health Council addresses tobacco use, physical inactivity, and poor nutrition.

The ACA requires insurance plans to cover preventive care such as immunizations, preventive care for children, and screening for certain adults for conditions such as high blood pressure, high cholesterol, diabetes, and cancer. It also mandates a public education campaign for oral health.

### Improve Health Quality and Curb Costs

The ACA requested investments in health information technology. It addressed guidelines to reduce medical errors and create payment mechanisms to improve efficiency and results and improve care coordination among providers.

The law requires oversight of health insurance premiums and practices, reducing healthcare fraud and uncompensated care, to foster comparison shopping in insurance exchanges to increase competition and price transparency.  

## Pros and Cons of the Affordable Care Act

Pros

*   Expands healthcare availability to more citizens
    
*   Prevents insurers from making unreasonable rate increases
    
*   Individuals with preexisting health conditions cannot be denied
    
*   Coverage for additional screenings, immunizations, and preventive care
    

Cons

*   Those already insured saw an increase in premiums
    
*   Taxes were created to help supplement the ACA, including taxes on medical equipment and pharmaceutical sales
    
*   The enrollment period is limited for new enrollees
    
*   Many businesses curtailed employee hours to avoid providing medical insurance
    

## Updates to the Affordable Care Act

President Donald Trump launched efforts to repeal and replace the ACA during his first term. He stated that the United States should delay “the implementation of any provision or requirement of the \[Patient Protection and Affordable Care\] Act that would impose a fiscal burden on any state.”

The [Tax Cuts and Jobs Act (TCJA)](https://www.investopedia.com/taxes/how-gop-tax-bill-affects-you/) removed the penalty for individuals not having health insurance in December 2017. It substantially scaled back the outreach program to help Americans sign up for the ACA, cutting the enrollment period in half. The number of Americans covered under the ACA had dropped to 13.8 million in 2018 from 17.4 million in 2015, according to a report from KFF, formerly the Kaiser Family Foundation, a healthcare research organization.

Former President Biden signed an executive order to focus on the “rules and other policies that limit Americans’ access to health care” in 2021, prompting federal agencies to examine five areas: preexisting conditions, policies undermining the Health Insurance Marketplace, enrollment roadblocks, and affordability.

The [American Rescue Plan Act (ARPA)](https://www.investopedia.com/american-rescue-plan-definition-5095694) was COVID-19 relief legislation. It extended eligibility for ACA health insurance subsidies to those buying their health coverage on the Marketplace with incomes over 400% of poverty.

The [Inflation Reduction Act](https://www.investopedia.com/inflation-reduction-act-of-2022-6362263) was signed into law by former President Biden on Aug. 16, 2022. Financial assistance was extended for people enrolled in the ACA through 2025 instead of 2022. It also expanded eligibility, allowing more [middle-class](https://www.investopedia.com/terms/m/middle-class.asp) citizens to receive premium assistance. The legislation was passed in both the House of Representatives and the Senate.

President Trump began his second term by signing an executive order on Jan. 20, 2025, to [reverse several of the ACA protections](https://www.investopedia.com/people-will-lose-coverage-how-the-trump-big-bill-could-affect-your-aca-health-insurance-11770231) put in place by the Biden-Harris administration. Among other provisions, Executive Order 14087, which reduced prescription drug costs, has been revoked. President Trump has renewed his first term efforts to replace the ACA. He came up one vote short of doing so during his first term.

## What Are Common Arguments for and Against the Affordable Care Act (ACA)?

Opponents argue that the Affordable Care Act (ACA) hurts small businesses that are required to provide insurance, raises healthcare costs, and creates a reliance on government services by individuals.

Proponents state that those with health insurance get medical attention quickly and live a healthier lifestyle. They contend that the healthcare system will operate more efficiently when commercial insurers and their customers don't have to fund the uninsured.

## When Does the Yearly Enrollment Period Begin on the Marketplace?

The Health Insurance Marketplace is available for new enrollment on Nov. 1. Information is available on the [government website](https://www.healthcare.gov/get-coverage/).

## How Many Citizens Use the Health Insurance Marketplace?

More than 21 million citizens selected a coverage plan offered by the ACA’s Marketplace during the 2024 Open Enrollment Period.

## The Bottom Line

The Patient Protection and Affordable Care Act (ACA) was passed in 2010 and is commonly known as Obamacare. It extended healthcare coverage to millions of previously uninsured Americans. The ACA launched the Health Insurance Marketplace through which eligible people can find and buy health insurance policies.

All ACA-compliant health insurance plans, including those sold through the Marketplace, must cover several essential health benefits. The ACA has continued to evolve through three presidencies.  

> **Article Sources**
>
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>     
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>     
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>     
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>     
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>     
> 7.  Congress.gov, U.S. Congress. “[H.R.5376—Inflation Reduction Act of 2022: Actions](https://www.congress.gov/bill/117th-congress/house-bill/5376/actions).”
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> 9.  Federal Register. “[Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal](https://www.federalregister.gov/documents/2017/01/24/2017-01799/minimizing-the-economic-burden-of-the-patient-protection-and-affordable-care-act-pending-repeal).”
>     
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>      
> 11.  KFF. "[How the American Rescue Plan Affects Subsidies for Marketplace Shoppers and People Who Are Uninsured](https://www.kff.org/affordable-care-act/issue-brief/how-the-american-rescue-plan-act-affects-subsidies-for-marketplace-shoppers-and-people-who-are-uninsured/)."
>      
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>      
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