Affordable Care Act and Its Microeconomics

Subject: Healthcare Financing
Pages: 3
Words: 625
Reading time:
3 min
Study level: College


For more than seven decades, the U.S. health care system was dominated by market relations that determined the basic principles of the entire system. Namely, those were unregulated state voluntary medical insurance for the majority of the population, unregulated prices for medical services, and patient freedom of choice of medical care, doctor, and medical organization. As a result, at the end of the twentieth century, the United States health care system faced several serious problems: inefficiency, uncontrolled growth in healthcare costs, reduced access to medical care for the population, and disintegration of the process of providing medical care to patients.

Main body

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA), which introduces radical changes to the U.S. healthcare and health insurance system. The new law aims to implement four key areas of the U.S. health care reform such as introducing compulsory insurance practices for all citizens and creating conditions to facilitate the process of citizens choosing an insurance plan (Kilgour, 2015). In addition, it is crucial to ensure state regulation of insurance premium rates and insurance coverage, control of prices for medical services, and improving the quality of medical care.

Representatives of the Republican Party have repeatedly expressed the view that it is necessary to begin healthcare reform with a reduction in the cost of medical care. The experience of Massachusetts was rated as too expensive for use in large states. In California, a similar plan proposed by Arnold Schwarzenegger was blocked by lawmakers as the number of uninsured populations exceeded the entire population of Massachusetts (Caswell & Waidmann, 2019).

Republicans are committed to transforming the health care system on a state-by-state basis for each state. For medium-sized enterprises, the new federal legislation doubles the cost of health insurance from $5,000 to $10,000 per year per person. For employers with the number of employees from 51 to 200, the law created less favorable conditions, providing an annual fine for each employee from $750 to $2,000 for refusing to pay medical insurance except for the first 30 employees (Kilgour, 2015). Most employers of medium-sized enterprises prefer to pay this fine rather than increase their costs by about $10,000 per employee for health insurance.

The challenge of lowering healthcare costs remains key, and this industry is the largest sector of the American economy, accounting for one-sixth of it and having a turnover of $2.5 trillion per year (Kilgour, 2015). For many decades, health care spending has grown faster than the U.S. economy as a whole, from less than 5% of GDP in 1960 to 17.5% in 2010. In absolute terms, per capita, spending is twice as much as in the UK (Vincent & Reed, 2014). If this growth rate continues, the U.S. economy will go bankrupt in 2020.


In early February 2010, the Obama administration submitted to Congress a draft federal budget for the next fiscal year, which implies that soon, the US expects budget deficits of $1 to $1.5 trillion (Vincent & Reed, 2014). Nevertheless, at the end of February, President Obama formulated a plan for reforming the healthcare system, which required an increase in federal spending an additional $100 billion annually over the next ten years (Caswell & Waidmann, 2019).

However, Obama did not succeed at the time of the Clinton administration and due to most Democrats in Congress, health care reform was approved. On March 21, 2010, the U.S. House of Representatives, with 219 votes to 212, passed a bill to fundamentally restructure the American health care system in a more “Western European” fashion (Vincent & Reed, 2014). 34 democrats and the entire republican faction voted against it. On March 23, 2010, the reform bill and its amendment were signed by the President.


Caswell, K. J., & Waidmann, T. A. (2019). The Affordable Care Act Medicaid expansions and personal finance. Medical Care Research and Review, 76(5), 538-571.

Kilgour, J. G. (2015). The Affordable Care Act: An appraisal. Compensation & Benefits Review, 47(4), 166-172.

Vincent, D., & Reed, P. G. (2014). Affordable Care Act: Overview and implications for advancing nursing. Nursing Science Quarterly, 27(3), 254-259.