Print Сite this

Economic Impact of the ACA Analysis


On March 23, 2010, President Obama signed the Patient Protection and Affordable Act (ACA) effectively making it a law. The ACA is one of the most influential, controversial and comprehensive piece of social legislation that has been passed in recent times. The legislation aims at expanding health care to reach an additional thirty million Americans. The legislation further hopes to eliminate some of the rules and regulations that are unfair to the US system. The ACA was a result of a lot of political lobbying and compromises. The ACA introduces a significant increase in the public insurance plan, it6 further offers subsidies tom private insurers, and it also introduces new revenues as well as introduces a paradigm shift in terms of government spending in Medicare.

We will write a
custom essay
specifically for you

for only $16.05 $11/page
308 certified writers online
Learn More

Given the significance of this reform, it is difficult to determine or agree on the full economic impact of the reform initiative. The Congressional Budget Office had undertaken these predictions during the legislation process. The CBO’s position was that the ACA would increase the number of American citizens under insurance coverage by 32 million. The other projection is that government spending would go up by $ 1 trillion over the next ten years. However, the projections showed that the ACA will increase revenue, as well as cut down government spending by a bigger margin thus mitigating the federal budget deficit. However, there is a lot of debate even at the Congress on these predictions. This paper aims at contributing to this debate by assessing the economic impact Of one reform initiative on each of the years beginning 2011 to 2014.

Year 2011

In the year 2011, the most visible reform initiative will be the review of the Medicare program. To analyze the economic impacts of this reform initiative, it is imperative that we have a clear outline of what the law and what it practically entails. Health care accounts for 17% of the total Gross Domestic Product (GDP) of the United States. This makes it the biggest spender on health care. Further, the cost of health care is increasingly going up. Some scholars have projected that, by 2080, health care will consume about 40 percent of the US budget. Despite the high level of spending on health care, there exist major disparities as far as access to health care is concerned in the United States. The US government does not have universal health care for its citizens as the case with other developed nations. Those who are mainly disenfranchised are the minorities such as blacks and the elderly.

The estimates indicate that in the year 2011, the estimated savings that will have occurred from the ACA total at $0.7billion. This total expenditure will include $4.6 billion in 2011, which will be used to cover the extra population and another $3.2 billion in implementing the reforms. The government will be able to save $4.7 billion from the Medicare program and another 0.9 billion from the Medicaid program. However, as early as 2011, the ACA appeared to be well on course with 600,000 Americans being insured. This meant that the profits for insurance companies went up and lowered the premiums.

Insurance coverage in the US is provided by employer-sponsored insurers. The principle of risk-pooling informs this decision given the number of employees that are in the workplace. The federal government further provides subsidies to these insurers. According to Getzen & Allen (2007), the federal government forgoes about a quarter trillion ($250 billion) every year. This is achieved through the exclusion of compensation that is related to health insurance from any income or payroll taxes. Essentially, this means that those who purchase health insurers at the workplace will do so before their money is taxed. On the other hand, those who buy insurance from outside the employment will do so through monies that have already been taxed.

Year 2012

In the year 2012, the major and most influential initiative was the introduction of the CLASS program. For the year 2012, the government has saved a total of $12.6. These savings occurred from the CLASS program, which saved $4.5 billion and $14.9 billion from Medicare. The total costs will be much lesser than the savings. In this case, the costs will include: $4.9 billion in covering the new citizens; $0.8 billion in Medicaid; and another $1.2 billion to cater for the immediate reforms.

Public insurance is provided through two major avenues: the Medicare program, that is a universal insurance program intended to cover the elderly people, and the Medicaid program. The Medicaid program provides insurance coverage for the poor while putting emphases on children from low-income families. This means that a majority of those of those who are uninsured are not necessarily poor. However, this includes those who are working with a minimum income, as well as those whose age makes them disqualified for insurance coverage. Another group is those working citizens who are not provided with insurance at their workplace. The alternative for these citizens is normally the outside insurance provider. However, these insurers discriminate against the sick often disqualifying those with pre-existing conditions. Further, the number of these insurers is very low, and the few that are available charge very high prices. Thus, it is clear that, prior to the enactment of ACA, those who were not covered by the public insurance or the employer insurance were vulnerable from financial losses in the vent that they became sick.

Get your
100% original paper
on any topic

done in as little as
3 hours
Learn More

Year 2013

The ACA intends that, in the year 2013, several major reform initiatives will take place. In 2013, the Medicaid program to citizens whose income is below $10,830 for an individual and $22,050 for a family of four is expected to be expanded. These figures represent 133 percent of the poverty line. In the year 2013, the federal government will have saved a whopping $22.3 billion. The federal costs will include: $ 5.2 billion for the increased coverage; and another $4.5 billion for Medicaid. However, these costs will be less than the dollars that the government will have saved which will total to $22.3 billion: $26.3 billion, and $5.6 billion which the reforms will not cost the government in the year 2013.

Given this background, the ACA aimed at reforming the three sectors insurance. The non-group insurance, which has been indicated, was the most problematic one. The public insurance system and the employer insurance system also had loopholes by neglecting the low income earners and those of advanced age. The first reform is in relation to the non-group insurance sector. The reforms outlaw exclusion of citizens on the basis of a pre-existing condition, as well as other practices that were discriminatory. Therefore, the reform meant opening access to the non-group insurance to all Americans. The other reform included the curtailing on the amount insurers could charge. The ACA required insurance companies to charge different prices independent of the health status of the client. This meant that the price charged for a certain product can only vary depending on the age of the client, as well as the smoking status of the client. The ACA also provides guidelines ion the minimum benefits that can be provided in an insurance package, as well as the total spending that will be required for such a package.

The reforms were seen as long overdue and have been welcomed in many quarters. However, critics have argued that the reforms are not feasible and will not survive. One of the areas of concern is the provision of insurance coverage at a price that is independent of the health status of the client. The danger here is that some mischievous citizens may wait until they are sick and still purchase the cover at the average price. To mitigate this risk, the insurance providers will then have to increase the prices for those who are pooling will be more than they have been in the past (before ACA). This is not a hypothetical prediction, but one that has been tried. In the 1990s, five states undertook a reform initiative such as this one. By 2006, the states led in the prices of buying Non-group insurance (Santerre & Neun, 2010).

However, the ACA in anticipation of this risk requires that all American citizens purchase an insurance cover. Those who are unable to pay are required to pay a penalty. Given that this rule may be impossible to implement, the ACA introduced the third pillar of the reform. This required the government to offer subsidies and tax credits so as the poor could easily access the insurance coverage. Tax credits are aimed at reducing the minimum amount of money that one will need to be covered by insurance. The ACA begins by capping 3 percent of income of those earning below 133 percent of the poverty line. Further, if the cheapest program that is available to a citizen costs him more than 8 percent of income, such an individual will not be required to provide a penalty.

ACA intends to finance these subsidies using six sources of finance. The first one is through the reduction of reimbursement to private programs that have hitherto provided alternatives to the government’s Medicare program for the elderly. Secondly, it can be through reductions in the amount of reimbursements for the Medicare program. This will be done by reducing inflation adjustment that is given to hospitals annually for their reimbursement under the Medicare program. Thirdly, it can be done through increasing the payroll tax charged on Medicare by 0.9 percent. Taxes will also be increased on the capital income of singles with earning more that $200,000 annually, as well as to families that make more than $250,000 annually.

Year 2014

For the year 2014, the most significant reform initiative under ACA will be the expansion of the insurance coverage. The law will require that all Americans must have an insurance cover and this increased coverage will have a major impact on the economy. The government will save a total of $ 16.8 billion. The increased coverage will cost the federal government a total of $82.9 billion. Medicaid will cost the government an extra $8.6 billion. The savings will include $68.8 billion from the Medicare program and an additional $5.9 billion from the CLASS program. The immediate reforms will not cost the federal government since the assumption is that, by 2014, American citizens will have been covered by a health insurance. Further, the year 2014 will include the biggest budget for new coverage given that it is the last year, and the individual will be rushing to get cover so as to avoid the penalty.

From the discussion, it is clear that the effect is a modest erosion of employer-sponsored insurance. The other impact is that there will be increased numbers of citizens of insured citizens thus reducing the number of uninsured that stood at 32 million in 2010. In addition, another $940 billion can be expected in new spending. This will be offset by the $1,080 billion from the spending reductions and increases in revenue. To understand the implications of the ACA in the economic sense, it is important to look at the budgetary implication that it will have. The assumption here is that the estimated costs and savings that will be used will be based on the dates that are stipulated in the law. The second assumption is that employers and employees will take three to five years from the date of legislation to adapt to the regulations stipulated fully.

We will write a custom
for you!
Get your first paper with
15% OFF
Learn More

The predictions by the CBO indicate that the county will be saving substantially in the years 2011, 2012, 2013, and 2014. Critics often refuted this trend of a reduction in deficit arguing that it is going to be front-loaded and not back-loaded as the CBO postulates. The argument of the critics is that the cuts predicted in the plan might never materialize. Gruber and Lettau (2004) argued that, over the years, the trend is that Congress has tried to reduce Medicare through legislation, but the physician-payment cut has never succeeded. In addition, the full effect of this program cannot be well understood since it depends on how future Congresses will uphold its feasibility. This is with respect to reductions in reimbursement for the Medicare and Medicaid programs, as well as the actualization of the tax increases that have been stipulated in the ACA (Gruber and Lettau, 2004).

However, looking at the cost of the ACA, it can be concluded that the increases in terms of the health care budget are very small. By the year 2014, the country will have 32 million more insured citizens. The assumption here is that each American who had been uninsured at the time of this legislation will have complied with the provisions made in the law. This new coverage is expected to increase the total health care expenditure of roughly 2 percent, which translates to a mere 0.2 percent of the national budget. It is also important to note that, without this law, several scholars have argued that the country’s health care cost would go up by up to 6.6 percent by the year 2014.

The ACA will have an impact on each state in the United States. To get a clear picture of this economic impact, it is important to look at the economic effect that the ACA will have on some of the States. After the passage of the ACA, the North Carolina Institute of Medicine (NCIOM) began the process of examining the impact of the new law to the economy of the state. This was done in cooperation with many other stakeholders to ensure the relevance of their assessment. The report was done conclusively, and the results indicated that the prediction of the impacts of the ACA was very hard. This was attributed to the high number of factors that come into play. However, all the groups indicated that the ACA was a positive step away from the policies, which had hitherto guided health care in the (United States North Carolina Institute of Medicine, 2012).

Another report was written by Haveman & Weinberg (2012) and attempted to analyze the economic impact of the ACA on the California economy. The report weighs all the factors that relate to cost, as well as those that will lead to the creation of jobs in the state. The analysis is done by analyzing how different the economy was in the year 2011 from the year 2010. In 2010, California generated 98,861 jobs (0.6 percent) and a total of $4.4 billion was spent on health care. After the enactment, the state witnessed more jobs being created. There was a 0.7 increment in the number of jobs created in the southern region, a 1.3 percent increment in the Sacramento Valley and another 0.2 in the Bay area. It is clear that the ACA introduced an expansion of the economy by $3 billion (Haveman & Weinberg, 2012).

Looking at the results in the two states, there is no evidence to indicate that the results were unique to the two states. Therefore, it can be assumed that results in the two states are a microcosm of the picture in the whole country. Going by this assumption, the ACA will not have a negative effect on the economy in any of the years between 2011 and 2014 and will most likely have a positive impact on the economy.


Getzen, T. E., & Allen, B. (2007). Health care economics. Hoboken, NJ: Wiley.

Gruber, J., and Lettau, M. (2004). How Elastic Is The Firm’s Demand For Health Insurance?” Journal of Public Economics 88 (7–8), 1273–1293.

Haveman, J. &Weinberg, M. (2012). The Economic Impact of the Affordable Care Act on California. Web.

Need a
100% original paper
written from scratch

by professional
specifically for you?
308 certified writers online
Learn More

North Carolina Institute of Medicine (2012). Examining the Impact of the Patient Protection and Affordable Care Act in North Carolina. Morrisville, NC: North Carolina Institute of Medicine.

Santerre, R. E., & Neun, S. P. (2010). Health economics: Theories, insights, and industry studies. Mason Ohio: South-Western Cengage Learning.

Cite this paper

Select style


StudyCorgi. (2022, September 17). Economic Impact of the ACA Analysis. Retrieved from


StudyCorgi. (2022, September 17). Economic Impact of the ACA Analysis.

Work Cited

"Economic Impact of the ACA Analysis." StudyCorgi, 17 Sept. 2022,

* Hyperlink the URL after pasting it to your document

1. StudyCorgi. "Economic Impact of the ACA Analysis." September 17, 2022.


StudyCorgi. "Economic Impact of the ACA Analysis." September 17, 2022.


StudyCorgi. 2022. "Economic Impact of the ACA Analysis." September 17, 2022.


StudyCorgi. (2022) 'Economic Impact of the ACA Analysis'. 17 September.

This paper was written and submitted to our database by a student to assist your with your own studies. You are free to use it to write your own assignment, however you must reference it properly.

If you are the original creator of this paper and no longer wish to have it published on StudyCorgi, request the removal.