How the Affordable Care Act Changed Incentives

Topic: Accounting
Words: 549 Pages: 2

The patient Protection and Affordable Care Act was signed by President Obama on March 23, 2010. An amended version of the law is known as the Affordable Care Act. The law comprises multi-faceted health insurance reforms directed at increasing coverage of the insured population and making health insurance more affordable. Despite its undeniable advantages, the positive outcome of the reform is weakened by strategies developed by insurers to reduce the payouts of policyholder rebates. Meanwhile, The Affordable Care Act led to lower provider willingness to accept patients insured by Medicaid, one of the largest funding for health insurance among the low-income population of the U.S.

The Affordable Care Act requires an insurer to pay policyholder rebates in case of the inability to meet the required spending amount. Given that the law requires insurers to provide reports, evidence suggests the existence of incentive among them to overstate their self-reported estimates, leading to underpaid policyholder rebates. Since the law’s enactment, 10 percent of underpayment has been translated to almost $400 million in underpaid rebates (Eastman et al., 2021). In that connection, the most potent over-estimation is observed among publicly traded insurers, particularly those with low self-reporting quality. The possibility to overstate estimates is based on the infrequent examinations and on the fact that the examiners do not tend to consider overstated claims as mistakes that require correction and rebate adjustment. The misreporting could be overcome by incorporating clawback provisions based on the available data (Eastman et al., 2021). Thus, the reported manipulation leads to prominent economic consequences for policyholders and undermines the effectiveness of the Affordable Care Act.

The Affordable Care Act reform inevitably resulted in substantial changes in the functioning of health care providers. Despite the positive impact reflected in the prominent Medicaid expansion, reductions in uncompensated care, and improved care for patients with certain types of diseases, The Affordable Care Act provoked unwanted incentives among health care providers. Given that The Act increases demand in health care without improving the supply, Medicaid has been associated with the lowered reimbursement rates for Medicaid patients leading to the decreased willingness to accept Medicaid patients. Various studies show contradictory data on this matter: evidence exists for both increased and unchanged appointment wait time and availability (Gruber & Sommers, 2019). Collectively, the data suggest that Act improved overall health care insurance for the low-income population, although the system provides conditions undermining benefits for Medicaid patients in the environment of fast expansion of health care demand.

All things considered, the Act allowed to significantly improve the situation with health care insurance in the U.S., making it more affordable for elderly individuals, people with disabilities, children, and adults with low income. At the same time, shortcomings were also to be found in the law mechanisms executed to control rebate payments. This made it feasible to manipulate the system to lower the benefits of policyholders, thereby hindering the effectiveness of the Act. Meanwhile, providers have vastly experienced improvements due to the law, but at the same time, Medicaid patients could be associated by providers with the unprofitableness to serve them because of the lowered reimbursement rates. Thus, the Affordable Care Act might require the further elaboration of mechanisms controlling payment realization and collateral solutions to ensure equality in health care insurance for people with different incomes.


Eastman, E. M., Eckles, D. L., & Van Buskirk, A. (2021). Accounting-based regulation: Evidence from health insurers and the Affordable Care Act. The Accounting Review, 96(2), 231-259.

Gruber, J., & Sommers, B. D. (2019). The Affordable Care Act’s effects on patients, providers, and the economy: what we’ve learned so far. Journal of Policy Analysis and Management, 38(4), 1028-1052.

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