ACA Financial Impact:
Premiums, Taxes, Fees and Market Stabilization
- The Affordable Care Act, commonly called Obamacare, was enacted in 2010, and its major individual-market reforms and Marketplace coverage began in 2014. In California, the law changed how individual and small-group health insurance is issued, priced and regulated. It also created financial programs intended to stabilize premiums while insurers adjusted to guaranteed-issue coverage and protections for people with pre-existing conditions.
- Because the ACA has now shaped the health insurance market for more than a decade, this page is primarily a historical reference. It explains which ACA taxes and fees remain, which were repealed, and how risk adjustment, reinsurance and risk corridors affected insurers and premiums during the law’s early years.
- Some older reports and articles are preserved below because they document the financial concerns, predictions and legal disputes that accompanied the ACA’s implementation. Dates are included so that readers can distinguish historical information from rules that remain in effect today.
ACA Financial Provisions: Current Status at a Glance
- Still active: premium tax credits, medical loss ratio rules and the permanent ACA risk-adjustment program.
- Temporary and completed: The original federal transitional reinsurance program and risk-corridor program were used during the early Marketplace years.
- Repealed: The Cadillac tax, medical-device excise tax and annual health-insurance-provider fee were later repealed.
- Changed: The federal penalty for not maintaining health insurance was reduced to zero beginning in 2019. California later established its own individual coverage mandate and state tax penalty.
The historical material below is retained to show how the ACA was originally financed and how Congress, federal agencies and the courts later changed or interpreted parts of that structure.
Risk Adjustment, Reinsurance and Risk Corridors:
Three Different Programs
The Affordable Care Act created three premium-stabilization programs that became known as the “Three Rs.” Although all three dealt with insurance risk, they served different purposes.
- Risk adjustment remains active. It generally transfers money from insurers with lower-risk enrollees to insurers with higher-risk enrollees. Its purpose is to reduce the incentive for insurance companies to avoid people who are likely to need more medical care.
- Transitional reinsurance was temporary. It helped individual-market insurers pay unusually large medical claims during the first years of the Marketplace.
- Risk corridors were temporary. They were intended to limit unexpectedly large insurer gains and losses during the first three years of the Marketplace, when insurers had little experience predicting who would enroll or how much medical care members would use.
After Congress limited the money available for risk-corridor payments, participating insurers received much less than the statutory calculations called for. Insurers sued the federal government, and in 2020 the United States Supreme Court held that the government was obligated to make the payments required by the ACA.
Risk adjustment, unlike the other two original programs, became a permanent part of the individual and small-group markets. CMS reported approximately $22.35 billion in nationwide risk-adjustment transfers across the 2025 market risk pools, demonstrating that the program remains financially significant.
The ACA Cadillac Tax Was Repealed Before It Took Effect
- The Affordable Care Act originally included a 40% excise tax on the value of certain high-cost employer-sponsored health benefits above statutory thresholds. It became commonly known as the “Cadillac tax.”
- Congress delayed the tax several times and then repealed Internal Revenue Code Section 4980I in December 2019, before the tax ever took effect. Employers therefore do not need to redesign current benefit programs to avoid a future Cadillac tax.
- The older articles, legislative proposals and employer discussions below are retained as historical information showing why the tax became controversial and how efforts to delay or repeal it developed.
Optional Deeper Details Below
The practical explanation is above. The section below includes supporting documents, background material, citations, examples, and technical details for readers who want more.
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Financial Impact of ACA
Links
- Overview of ACA Taxes & Fees
- Check out the Millman Study 4.2013 it’s the most comprehensive report and explanation that I’ve seen. Here’s a 2 page summary from Blue Cross.
- Major sources of deficit reduction include:[199]
- higher Medicare taxes on the wealthy;
- similar fees on the healthcare industry such as manufacturers and importers of brand-name pharmaceutical drugs and certain medical devices;
- limits on tax deductions of medical expenses and flexible spending accounts;
- a new 40% excise tax on “Cadillac” insurance policies – plans with annual insurance premiums in excess of $10,200 for an individual or $27,500 for a family;
- a 10% federal sales tax on indoor tanning services;
- and spending offsets such as a reduction in Medicare reimbursements to insurers and drug companies for private Medicare Advantage policies that the Government Accountability Office and Medicare Payment Advisory Commission found to be overpaid (relative to government Medicare);[252][253]
- and reductions in Medicare reimbursements to hospitals that do not meet standards of efficiency and care. Learn More Wikipedia
Resources & Links
Historical
- Forbes 11.7.2013 explanation of ObamaCare Charts – ACA – National Health Care Expedenture and the Uninsured
- IRS Summary of NEW taxes
- The limit of $6,350 for an Individual and $12,700 for a family out of pocket costs has been postponed for 1 year for some insurers. New York Times DOL FAQ’s Part of the justification is that some insurers have different parts of the coverage like Mental Health or Rx Drugs covered by other Insurance Companies. On the other hand CA has AB 639 pending to put limits in.
- Obama’s promise to save $2,500 to $3,000 Politico
- Restaurants adding surcharges so that they can get Health Insurance for Employees californiahealthline.org
Final Market Rules
This final rule sets forth payment parameters and provisions related to the risk adjustment, reinsurance, and risk corridors programs; cost sharing parameters and cost-sharing reductions; and user fees for Federally-facilitated Exchanges. It also finalizes additional standards for the individual market annual open enrollment period for the 2016 benefit year, essential health benefits, qualified health plans, network adequacy, quality improvement strategies, the Small Business Health Options Program, guaranteed availability, guaranteed renewability, minimum essential coverage, the rate review program, the medical loss ratio program, and other related topics.
Final Market Rules 45 CFR Parts 144, 147, 153, 154, 155, 156 and 158
- CMS: Insurers to make $10.3B in 2023 risk adjustment payments
- Our webpage on Risk Adjustment Fraud in Medicare Advantage
- The risk-corridor program was established under the Affordable Care Act to help stabilize the individual and small-group markets by offsetting insurer losses during the first three years of the insurance exchanges. The program, which expired at the end of 2016, was designed to discourage insurers from raising premiums because of uncertainty over who would enroll in their plans.The program works by collecting funds from profitable insurers, and paying out funds to health plans with losses that exceed a certain threshold. A similar program exists in Medicare Part D, which was created by Republican President George W. Bush.
- But in 2014, Congress passed a provision in the 2015 federal budget requiring risk corridors to be revenue-neutral. That meant that the CMS could only pay out what it takes in from health plans. That change led to a massive shortfall in the risk-corridor program. In October 2015, the CMS said it would pay just 12.6% of the risk-corridor requests for 2014, with the rest of the payments being pulled from 2015 and 2016 collections. Modern Health Care 11.14.2017
- California insurers have received nearly $1.2 billion through the Affordable Care Act’s reinsurance program, according to a Covered California analysis of a recent CMS report, Business Insurance reports (Geisel, Business Insurance, 7/6). The program requires insurers that offer exchange coverage to pay into a pool that can be used to reimburse them if they incur claims that exceed a certain threshold. In June, HHS said it will reimburse 100% of such costs between $45,000 and $250,000, up from 80% previously (California Healthline, 6/18). CA HealthLine 7.7.2015
- ACA risk adjustment payments are on the rise: CMS
Risk Corridor Litigation
- Risk corridor program” is an odd term that may be unfamiliar to those outside of the federal healthcare field. Essentially, the “risk corridor” concept is a way to share the risks between insurers and the Government when embarking upon a new health insurance endeavor. By sharing the risks, the Government intended to encourage more insurers to participate in the new ACA endeavor. The Government’s promise to reimburse certain revenue losses to insurers would allow the insurers to maintain health insurance premiums for consumers at a lower and more reasonable rate. The insurance companies voluntarily entered the program based upon the Government’s promised terms. actual 48 page ruling
- Maine Community Health Options v. United States
- The Supreme Court ruled 8-1 that the federal government has an obligation to pay insurers funds $12 Billion owed under the ACA temporary risk-corridor program. It reversed the judgments of the lower court and remanded the consolidated cases brought by four insurers for further proceedings. Modern Health Care *
- Appeals court rules that Trump violated the law when the Feds stopped paying the subsidies, however insurers are not entitled to the full amount as they raised premiums to cover the loss. Maine Community Health Options v. United States Modern Health Care *
- Trump freezes Risk Adjustment payments per July 7th 2018 announcement. The New Mexico ruling found fault with the formula used by the government to calculate the payments, saying it was “arbitrary and capricious.” But another district court in Massachusetts upheld the formula. * Modern Health Insurance * NPR * Larger Insurance Companies to be hurt the worst Modern Health *
- Payments started again! Modern Health Care 7.24.2018 *
- In Litigation 12.10.2019
- Blue Shield states in their 2017 Broker Cycle Guide that the loss of the reinsurance program alone adds 5% to the premiums!
- Worse than that, the Federal Government owes 12.3B!
- Court Rules $$$ not owed as ACA is supposed to be budget neutral. Modern Health Care 6.14.2018
- hat figure includes roughly $3.95 billion in payments to cover insurers’ losses in 2016 alone. The agency also owes insurers $5.8 billion in risk-corridor payments for 2015. That’s on top of the $2.5 billion shortfall for 2014 losses.
- olina won a judgement on 8.4.2017 for $52M from a federal court in Washington, DC actual 48 page ruling based on the ACA Risk Corridor program. Los Angeles Times
#Cadillac Tax Repealed on Really Nice Employer Health Plans
- Congress repealed the tax in legislation signed December 20, 2019 Very Well *
- The Cadillac Tax, set to begin in
2018– 2020 Word & Brown 8.20.2019 * CA Health Line 12.21.2015 as part of the ACA, is a 40% tax on benefits over certain thresholds. HRAs, HSAs, Major Medical coverage and other items are included in the coverage that counts towards this tax. The tax will hit insurance and related perks valued at more than $10,200 for singles and $27,500 for families. So for family benefits worth $30,000, the tax would apply to the $2,500 that’s above the limit. The administration has long argued it is a modest step to get health care costs under control. It “will affect only a small portion of the very highest-cost health plans — a total of 3 percent of premiums in 2013,” About one-third of employers will be hit by the tax in 2018 if they do nothing to change their plans 4.7.2015 Word & Brown from Politico CIGNA * - January 2017 – Senators Dean Heller (R-NV) and Martin Heinrich (D-NM) introduced S. 58, after Representatives Mike Kelly (R-PA) and Joe Courtney (D-CT) introduced H.R. 173, legislation to repeal the ACA’s Cadillac/excise Tax, which will impose a 40% excise tax on health plans that exceed certain cost thresholds beginning in 2020
- Health Net Update 1.19.2016
- Not the Cadillac Tax Los Angeles Times 8.27.2015
- Next Big ObamaCare Battle – Cadillac Tax CA Health Line 9.17.2015
- 4.29.2015 – Legislation introduced to eliminate Cadillac Tax
- 26 U.S. Code § 4980I – Excise tax on high cost employer-sponsored health coverage
- The Cadillac Tax, set to begin in
Looking for Current California Health Insurance Information?
This page explains the history of ACA financing, taxes and insurer market-stabilization programs. It is not intended to calculate a current premium or tax liability.