Budget Analysis of Affordable Care Act Research Paper

  • Length: 9 pages
  • Sources: 10
  • Subject: Healthcare
  • Type: Research Paper
  • Paper: #40836351

Excerpt from Research Paper :

Affordable Care Act decreased the number of Americans without health insurance by the millions, which was its primary objective. It used three different mechanisms to achieve this goal -- the expansion of Medicaid, the insurance exchanges, and the extension of coverage to young adults up to age 26. These changes have also helped to stem the growth of health care costs, and have delivered greater health care savings throughout the system, even private insurance customers, than was originally expected. There were some initial costs to the ACA, running from 2014-2019 but after the point the Congressional Budget Office expects the ACA will have a net benefit in terms of its impact on the budget, because of the new taxes it created.

The incoming government is expected to unwind the ACA, as this has been a stated goal of Trump, and of the Republican party. What this means has been studied. There will be a cost associated with this. While some ACA spending will be eliminated, so, too, will the new taxes and other fiscal benefits of the law. Further, the healthier workforce will not be as healthy without care, ultimately harming productivity. Whatever new plan comes in is uncertain, so its fiscal benefits cannot be estimated -- but the loss of benefits given by the ACA starting in 2019 will be $137 billion per year.

The number of uninsured Americans will increase substantially with the repeal of the ACA as well. This is more of a social issue than a fiscal one, but it is interesting that the likely outcomes of ACA repeal will be negative both in human and financial terms. There may be individual beneficiaries, but America as a whole will pay more and get less with repeal. If there were grievous flaws with the ACA, the time to deal with them was before the implementation was done, not after, at the point when the benefits are about to kick in.


The American health care system is based on a highly-regulated version of the free market. The providers of health care are medical facilities, of which there are many different types, usually differentiated on the basis of the type of care that they provide. These range from family physicians to emergency wards to long-term care facilities and everything in between. The users are diverse -- most Americans would be considered end users of the system. There are basically four major pay models for health care in America, and these are the focal point of the Affordable Care Act. These are federal government programs such as Medicare and Medicaid; the Veteran's Affairs Department, which runs its own parallel health care system; insurance companies and cash payers. The latter are a small group of those who are uninsured either by economic constraint or by choice. The federal government is a major payer through its programs -- Medicare covers those 65 and older, while Medicaid covers many poor. Private insurance payers are a major part of the health care system. They are paid either by employers or by private individuals, and organize and pay for the provision of medical services to their clients.

The Affordable Care Act was created as a means of shifting the economics of the health care system. The problem is sought to solve was that some forty-five million Americans had no health care insurance, and the majority of these were uninsured because they could not afford insurance. Many employers do not provide insurance, and many people are for whatever reason not working. Decreasing the number of uninsured was always a stated goal of the ACA, and this was accomplished through a couple of different means (Kaiser, 2016).

The ACA's provisions include an increase in Medicaid coverage, extending benefits to many who previously lacked them. This is one of the bigger increases to spending under the ACA. The Congressional Budget Office estimates annual spending to subsidize insurance premiums costs $1.156 trillion over the next ten years. However, this is countered by savings brought on by caps on payments to hospitals ($879 billion) and the hospital payroll tax ($631 billion). Thus, the ACA is saving money over the course of the next ten years. Only in the next couple of years does the ACA actually have a net negative effect on the federal budget (CBO, 2016).

Who is Now Covered by the ACA

The ACA extended coverage to some individuals, primarily through expansion of Medicaid. This expansion included granting coverage to young adults under parental plans, up to the age of 26. Further expansion of coverage was achieved through the provision of subsidies to help people buy insurance. This assistance was aimed at making insurance more affordable, and was coupled with the individual mandate. In the three years that the provisions of the ACA have been in place, 16.4 million Americans have acquired coverage who did not have coverage before. This is about one-third of the total number of uninsured Americans at the time the Act was passed.

These gains have come from three main sources. First, they come from the extension of coverage to young adults under 26 on their parental plans. Second, they come from expansions of Medicaid available, intended to cover the more vulnerable members of American society. And third, these gains come from the number of people buying healthcare on the insurance marketplace exchanges (HHS.gov, 2016).

The Congressional Budget Office (2016) has estimated the costs associated with this increase in coverage. It estimates that over the next ten years, exchange subsidies were going to cost $822 billion, that federal outlays for CHIP and for Medicaid were going to total $824 billion and that a further $11 billion would be saved in the form of a small business tax credit to help small business owners offset the cost associated with providing health insurance for their employees. As noted, there would be reductions in certain revenues with repeal. The CBO also notes that 24 million Americans would no longer be insured, so the basic math on that is that each American removed from the ranks of the uninsured costs $69,041 over the course of ten years. That is $575 per month, not counting the revenue opportunities created by the ACA.

Pros of the ACA

The Affordable Care Act was created with two main objectives. The first was to reduce the number of uninsured Americans. This was the central focus of the Act. Most developed nations provide health care for their citizens, as a human right. But there is also an economic case for this as well -- healthy workers are more productive workers, and access to health care is one of the corollaries with good health. It is economically silly that seniors -- unlikely to contribute positively to the economy -- get near limitless health care coverage regardless of financial need, while workers get nothing. So there are a couple of compelling arguments for increasing the amount of Americans with health insurance. In many nations, the insurance system is not used, but rather health care is nationalized. This was not political possible, so the ACA was adapted to fit within the current system.

The ACA has been successful at reducing the number of uninsured Americans. There are a variety of figures out there, but the Congressional Budget Office (2016) estimates that the repeal of the ACA would put 24 million Americans back among the ranks of the uninsured. The ACA has resulted in tremendous successes at improving access to health care for Americans. This was the main objective and it was successful.

There were other objectives as well. One was to curb the rapid growth of costs in health care. The federal government, through the ACA capped some spending in an effort to lower the overall cost of providing health care. Versus original projections, the ACA is saving Americans an additional $2.6 trillion on health care over five years. Health care spending spiked in 2014, the first year of full provisions, but through 2019 is going to result in massive cost savings in health care, and the declines will affect private insurance care as well as federally-paid care. By slowing the growth of costs, the ACA will also cost less, as estimates of how much it will cost in the first five years have also fallen (Lorenzetti, 2016). It is interesting to think about why this savings is occurring, and it ties into the need for government intervention in the health care market.

The health care market is not a free market, and not just because of the role government plays as regulator and payer. An individual consumer does not know when they will need to buy health care. Further, they usually lack basic information about health care -- if doctors go to school for years to learn this information, how can consumers match that knowledge? So when people need to consume health care, they enter the system knowing pretty much nothing about what treatment of ailments cost, what equipment costs and what drugs cost. But…

Sources Used in Document:


Abbott, R. K. (2015). The Impact of the Affordable Care Act on Large Employers: A Retrospective. Benefits Quarterly, 31(1), 8-14.

CBO (2016) Budgetary and economic effects of repealing the Affordable Care Act Congressional Budget Office. Retrieved December 4, 2016 from https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/50252-Effects_of_ACA_Repeal.pdf

CBO (2016) Payment of penalties for being uninsured under the Affordable Care Act Congressional Budget Office. Retrieved December 4, 2016 from https://www.cbo.gov/publication/45397

HHS.gov (2016). The Affordable Care Act is working. Department of Health and Human Services. Retrieved December 4, 2016 from http://www.hhs.gov/healthcare/facts-and-features/fact-sheets/aca-is-working/

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