Learn how Obamacare works, before it's repealed! This is part one of a series outlining health care reform and the debate surrounding it. This post aims to explain the basics: the context surrounding Obamacare, and what Obamacare does.

What is Obamacare, exactly?

“Obamacare” is a colloquial term used to describe a healthcare reform law passed in 2010, whose official title is the Patient Protection and Affordable Care Act. Proponents of the law usually refer to it by a shortened version of its title, the Affordable Care Act, and its abbreviation, ACA. The terms “Obamacare,” “Affordable Care Act,” and “ACA” all describe the same thing and are used interchangeably in this article.

The ACA is, essentially, a large package of reforms to US law on healthcare policy, particularly when it comes to health insurance. This package includes a number of changes, like new rules for health insurance companies intended to make the health insurance industry cheaper and more consumer-friendly, as well as new programs intended to make it easier for low-income people to gain access to quality health insurance.

Why was Obamacare passed?

To really understand how all this works, you first have to understand how and where Americans get their health insurance. Most Americans get their coverage through their employer—if you worked for a medium-to-large company prior to 2010, chances are that you received or were eligible for health insurance as a part of the benefits you got for working there.

Others, meanwhile, received their health insurance through government programs like Medicare and Medicaid, where the federal government provides your coverage if you’re part of a certain group of people (generally, Medicare is for elderly people, Medicaid is for low-income people, and other programs exist for other groups like veterans).

Still, others purchase healthcare on their own, directly from insurance companies. These people are considered to be on the individual marketplace because they’re in the market for health care coverage that they buy without going through an employer.

Prior to 2010, there were many people who neither qualified for programs like Medicaid nor received insurance through their employer and couldn’t afford to purchase individual insurance. Many of these people had expensive long-term conditions like cancer, who were often turned away by insurance companies due to the cost that their care would incur. The cost of healthcare and health insurance, meanwhile, was steadily rising over the years, leaving lawmakers concerned that more and more people would be left uninsured.

So what exactly does Obamacare do?

Before we try to answer this question, we have to go over the basics of how health insurance works. Imagine insurance as a pot that a large number of people put some money into each month. Paying for medical bills can be expensive, but most people are only sick occasionally, so with millions of people paying, say, $200 per month into the pot, there’s money for individuals to draw on if there’s a sudden medical expense costing thousands of dollars. The money provided by all the healthy people is like a pool of savings that any person paying into the pot can draw upon when they get sick.

These monthly payments into the insurance pot are called premiums, which provides a pool of cash to draw on when someone gets sick. Each insurance company manages their own pool of people that pay in regularly and draw out occasionally. However, insurance companies don’t want people drawing from the pot for all of their expenses, else the premium payments would have to be very high, so they have something called a deductible.

The deductible is the amount of money you have to pay on your own for your medical expenses before your insurance kicks in. So say, for example, that you have a health insurance plan with a $1000 deductible. One day, you have a sudden illness. You go to the emergency room, and your hospital bill costs $1200. Because you have a $1000 deductible, you pay the first $1000, and the insurance company covers the final $200 in the bill.

If you’re healthy, and if most other people that have plans with your insurance company are also healthy, then everything runs smoothly. Healthcare expenses are occasional and infrequent, and there’s a large pool of money available. Things get difficult when you start introducing people with expensive long-term conditions. In order to pay for their medical expenses, people with long-term conditions have to draw much more money out of the pool than they’re able to put in. For insurance companies, this poses a problem, because it means that healthy customers have to pay more to ensure that more money is going into the insurance pool than leaving it.

Consequently, prior to Obamacare, insurance companies would often put people with long-term conditions on plans with high deductibles and high premiums. Other rules included lifetime limits, which basically said that the insurance company would only cover so much money for their care over the course of their life before cutting them off entirely. Worse, companies would often just refuse to sign them on, period. This posed a big problem for these people because it left them largely footing the bill for their own care, something which they all too often couldn’t afford to do. With these problems in focus, the American healthcare system seemed inhumane.

Okay, so how does this relate to how Obamacare works?

Because of these many problems, the authors of the ACA decided to create new regulations to make the health insurance industry more consumer friendly. Children can now stay on their parents’ healthcare plans until they’re 26. Insurance plans are required to provide benefits that they hadn’t provided before, like mental health help and drug rehabilitation. Insurance companies can no longer kick people off their plans when they get sick, nor can they impose lifetime limits on their health care spending.

Most important to the law, insurance companies cannot deny coverage to a person just because they had an illness when they signed up. This last rule, which allowed people with pre-existing conditions to get healthcare coverage, is called guaranteed issue.

However, think back to how the insurance system works. People can only get coverage for their health expenses if more people are paying into the pot than there are taking out of it. With guaranteed issue, people could wait until they were sick to sign up for health insurance. That would mean that they weren’t paying premiums into the pot beforehand. If enough people take that strategy, then there’s not enough money in the pool to pay for the people who are sick, and the whole system falls apart.

As a result, Obamacare’s authors added a provision that required people by law to purchase health insurance. This provision, called the individual mandate, imposes a fine on anyone who doesn’t buy healthcare coverage.

Lawmakers realized, however, that many people wouldn’t be able to afford health insurance on their own. To try and help low-income people afford their coverage, they created subsidies, cash assistance to help pay for private insurance. They required that all businesses above a certain size provide health insurance to their full-time employees, known as the employer mandate. They expanded the Medicaid program to cover more low-income people, and they set up exchanges, government-run online marketplaces for people and businesses to easily buy health insurance.

Thus, you have the three main pillars of Obamacare: new regulations, the individual mandate, and programs to help people get health insurance. Health policy experts who support the law sometimes refer to these three pieces as the “three-legged stool,” where each piece is necessary for the law to remain intact.

This has been a lot of information. Give me a brief summary.

Prior to Obamacare, there were many people who were uninsured. Many of these people had long-term pre-existing conditions and were ineligible for insurance because of that fact. Lawmakers passed the ACA to try and solve some of these problems. What we got were three main provisions: new regulations to improve the insurance industry, the individual mandate to keep the insurance markets intact, and government assistance to help people meet the mandate when they couldn’t afford it.

Whether the law has been successful, and why, is another question. More on that next week.