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SPEA policy brief examines health-care reform law

The Affordable Care Act of 2010 is an ambitious attempt to address vexing problems in the U.S. health care system, including rising costs and the large number of people without insurance, according to a recent policy brief by an Indiana University health policy expert.

But it will be a challenge to implement provisions that expand coverage, control costs and improve quality without stifling innovation, writes Professor Kosali Simon in "Health Reform in a Nutshell," the latest issue of SPEA Insights from the IU School of Public and Environmental Affairs.

"Reforming health care will be an ongoing conversation this nation will engage in for the foreseeable future, even after ACA is implemented," she writes.

Simon is a professor in the School of Public and Environmental Affairs at Indiana University Bloomington. Her research includes investigation of the impact of state and federal regulations on the availability of private and public health insurance for vulnerable populations.

The SPEA Insights policy brief provides a short summary of the law's main features from an economist's perspective and comments on its likely impacts and issues. The Affordable Care Act (ACA) was passed by Congress in December 2009 and signed into law by President Obama in March 2010. Its main provisions take effect in 2014.

It seeks to expand coverage by helping workers buy insurance in regulated "exchanges," expanding the Medicaid program and requiring large employers to provide employees with health insurance or pay fines. At the same time, it attempts to balance costs and improve quality by restructuring payments for Medicare services, levying taxes on "Cadillac" insurance plans, establishing an independent board to suggest cost-control measures, and imposing certain new taxes and fees.

Simon cites Congressional Budget Office estimates that the law will cause 32 million people to gain health coverage, reducing the rate of uninsured Americans to 6 percent from the current 17 percent. But she adds that the numbers are uncertain and unintended consequences may come into play.

For example, some large employers may drop their health plans for low-skilled workers, allowing employees to qualify for government-subsidized coverage. (Companies could tolerate the fines for failing to provide coverage, because they're less expensive than the cost of employee health insurance). Also, there may be a shift in the low-skilled labor force from large companies to small firms, which won't be required to provide health insurance.

"Depending on the assumptions made about how employers and employees adjust to the incentives created by the law, the number of Americans for whom coverage will change could be several times larger than the CBO estimates," Simon writes.

She suggests consideration of two policy alternatives that were not included in the law: 1) expanding Medicaid coverage more broadly -- for example, to families and individuals making up to 200 percent of the federal poverty level; 2) eliminating tax deductions for employer-provided health insurance, which, according to some economists, contribute to health-care cost increases.

To read the complete policy brief, see