What led up to the passage of the Affordable Care Act?

When you're up to your ears in alligators, it's hard to remember why you drained the swamp. In the current contentious political environment, it is easy to forget the circumstances that led up to the passage of the Affordable Care Act. By the late 1900s, many economists, business leaders, politicians, and citizens understood that America's healthcare system was broken. Since the 1970s, different congresses and presidents - Republican and Democrat - had introduced legislation to change healthcare, but met with little success.

Today, healthcare costs equal almost 18  percent of the nation's GDP, almost twice as much per person as any other country. Despite its cost, however, the quality of care as compared to other countries is considered mediocre - and millions of citizens have no coverage at all.

The need to reform healthcare remains critical due to its impact upon several factors:

• America's Competitiveness. CEOs of the "big three" U.S. automakers released a joint statement in 2006 about "the serious competitive disadvantage that upwardly spiraling healthcare costs are placing on our industry and America's manufacturing base." The American Electronics Association claimed in the same year that "rising healthcare costs are a huge burden for American businesses" and the Manufacturing Council said that "healthcare is the single most important external cost element for manufacturers - significantly above other countries because of their respective national healthcare policies." If anything, the situation since that time has grown more dire.
• America's Ability to Deal With Other Issues. The cost of healthcare for the nation as a whole limits funds that might otherwise be available to pay down federal, state, and local government debt, rebuild infrastructure, invest in research, and improve education. Without change, the cost of healthcare by 2021 will equal one-fifth of the GDP.
• Wages and Salaries. A 2011 study concluded that companies reduce total compensation by $0.52 for each dollar increase in health insurance costs. Economists generally agree that a firm's compensation for its workers is relatively static - if more goes into healthcare, less goes into wages and vice versa. There also appears to be a correlation between healthcare costs and a company's willingness to add new employees, but that relationship has not been fully studied.
• State and Local Government Budgets. According to a January 2014 report by the Pew Charitable Trusts, healthcare spending by state and local governments in 2012 equaled 31 percent of their revenues, more than double the  percentage in 1987. As a consequence, taxes must be raised, services cut, or a combination of both. By 2020, state and local government costs for healthcare are projected to be almost as high as non-healthcare expenses.
• Individual Citizens. According to one study, 1.7 million Americans are expected to declare bankruptcy this year because of medical debts. Another 10 million will be unable to pay for basic necessities like rent, food, and heat due to medical bills, and 56 million citizens under the age of 65 are going to have general difficulty paying their healthcare bills, including some who have insurance.

The roll-out of the ACA, specifically its online marketplace, has been controversial, particularly with those who resisted the legislation initially. According to a recent poll, however, 59 percent of Americans as of January 2014 have yet to feel any impact from the law. Nevertheless, perhaps influenced by the constant attacks, a larger proportion of citizens expect to be negatively affected more than they expect to benefit.

Despite their negative feelings, the majority of Americans also want the political parties to work together to improve the law rather than argue over its repeal. We should all remember that the ACA is now the law of the land, its legality tested in the Supreme Court, and it is sure to be improved as time goes by. In the meantime, we would all do well to remember the circumstances that prompted past legislatures and presidents to seek healthcare reform in the first place - continuing down the same path was not an option.

Are you ready to implement the ACA's requirements?

About the author

Michael Lewis is a retired business exec who writes and discusses topics related to government, politics, economic policy, and investing strategies.