As the Republicans-controlled Congress races to repeal Obamacare (PPACA) piece-by-piece, Americans need to know some important information about Obamacare funding. Obamacare (PPACA) was designed to be budget neutral and therefore NOT add to the federal budget deficit—something most laws out of Washington cannot claim! This means that the costs associated with Obamacare (PPACA); namely, for Health Insurance Marketplace (also called the Exchange) subsidies and the expansion of Medicaid/CHIP, are almost exactly covered by tax/fee revenue and cost-reduction measures built into the law.
Estimates over the next 10 years show that Obamacare (PPACA) actually is expected to SAVE $250 billion in government spending and therefore, a full Obamacare (PPACA) repeal would result in an INCREASE in the federal budget deficit! If the Republicans choose to totally eliminate the Medicare cost reductions in Obamacare (PPACA), then they will be increasing the federal deficit by $250 billion over the next 10 years and reducing the solvency of the Medicare program to boot. The figure below shows the estimated Obamacare (PPACA) surplus generated for the federal budget (i.e., the difference between the savings and the costs).
The partial repeal that has been forwarded within the past two weeks through the Senate budget reconciliation process will INCREASE the federal budget deficit even more! Why? The Senate’s Obamacare budget reconciliation bill removes Obamacare funding, but does not remove its obligations (Exchange subsidies and Medicaid expansion) immediately. This means that the funding for these obligations must come from somewhere else and we all know that usually means the general fund (our income taxes).
Obamacare Funding—Revenue Sources
Obamacare (PPACA) revenue comes largely from three sources:
- The richest Americans with adjusted gross income greater than $200,000 single or $250,000 married couples filing joint
As you can see above, individual taxes in Obamacare funding targets the richest Americans only. They pay a 3.8 % net investment income tax (Medicare tax on unearned income) and an additional 0.9% Medicare Part A tax (on earned income). Obamacare (PPACA) repeal will eliminate these two taxes and millionaires (especially those with large investment portfolios) would be the overwhelming beneficiaries.
2. Individuals that choose NOT to share health insurance risk with other Americans (called the Individual Mandate) and employers who choose NOT to provide health insurance coverage for their employees (called the Employer Shared Responsibility Payment or simply Employer Mandate).
A central theme of Obamacare (PPACA) is universal health coverage (i.e., 0% uninsured) and the Individual Mandate and Employer Shared Responsibility Payment were integral components to achieve it. The individual Mandate is an incentive to get people to enroll in health coverage while they’re healthy. This penalty is similar to the income tax penalty charged for filing tax returns after April 15. When people who can afford to pay taxes (or health insurance) are allowed to “opt” out, then those who do pay (or buy health insurance) must pay more. Approximately 7.5 million Americans paid an average individual mandate penalty of $200 for not having health insurance (in 2014)
Achieving universal health coverage calls for ALL employers to offer their employees health insurance coverage. The United States healthcare system is built on the premise that either employers or the government provides health insurance for its citizens. If employers fall short, then the government (i.e., the taxpayer) is on the hook to make up for the non-participating employers. If employers choose not to contribute to the welfare of American citizens with employer-sponsored health insurance, then Obamacare (PPACA) demands that they contribute through an annual Employer Shared Responsibility Payment. Generally speaking, payments are due if a large employer (50 or more employees) fails to offer coverage that provides Essential Health Benefits (EHBs) or a small employer (less than 50 employees) fails to offer affordable Minimum Essential Coverage ( Minimum Essential Coverage is less coverage than EHBs).
3. Healthcare industry companies that profit from our healthcare spending, such as drug manufacturers, medical device manufacturers and insurance companies.
Without the political will to rein in healthcare costs directly (e.g., letting Medicare negotiate with drug companies for lower prices), Obamacare imposes various taxes on various healthcare industry businesses. Some examples are listed below:
- Branded Prescription Drug Fee–an annual fee on each prescription drug manufacturer or importer based on the fraction of total sales going to federal government programs (Medicare Parts B and D, Medicaid, Veterans Administration, and Department of Defense (DOD)). (started in 2011)
- 2.3% excise tax on medical devices (started in 2013 and suspended for 2016-17)
- Excise Tax on Indoor Tanning Services– A 10% excise tax on services provided by indoor tanning salons. ( started in 2010).
- Excise tax on Cadillac health plans (scheduled to take effect in 2020).
- Excise Tax on Health Insurance Provider–an annual fee based on the fraction of total sales going to federal government programs (Medicare Parts B and D, Medicaid, Veterans Administration, and DOD). Some health insurance providers are exempt from the tax like self-insured employers and certain nonprofit corporations. (began in 2014 and suspended for 2017)
There are many other revenue sources for Obamacare funding in addition to those listed above. Some of these sources are simply obtained by reducing the health insurance tax-subsidies given to various groups. For example, the $250 billion tax subsidy (2013) for private employer-sponsored health insurance is reduced through various measures that include removing the tax deduction for employer-provided retirement prescription drug coverage in coordination with Medicare Part D and removing non-prescription over-the-counter medicines from the list of medical expenses that can be paid with health savings accounts. If you are interesting in looking at a more detailed list of Obamacare funding sources from revenue, I have provided several website links below.
Obamacare Funding–Medicare Cost Reductions
Obamacare (PPACA) reform is aimed at reducing the cost and increasing the quality of health care. While the cost containment measures are largely implemented through government-sponsored programs (primarily Medicare), the reforms filter down to the private healthcare markets (employer-sponsored and non-group). Therefore, all Americans benefit from the Medicare Cost Reduction measures.
The Obamacare (PPACA) Medicare cost reductions are designed to constrain long-run growth in health care expenditures and are largely obtained through changes in
- payment policies like reducing overpayments to private Medicare Advantage and changing from a fee-for-service reimbursement model to one that is cost-effective (i.e., tied to quality of care delivered).
- how health care is delivered –reduces Medicare spending by improving the quality of care through coordination of care initiatives, quality reporting, and incorporating quality and efficiency into payment
- increased efforts to reduce fraud, waste, and abuse
Medicare cost reductions do NOT reduce Medicare’s guaranteed benefits. In fact, the Medicare cost reductions go hand-in-hand with several improvements to coverage (e.g., eliminating cost-sharing for preventive services, adding a yearly wellness visit, and closing the Part D “Donut Hole.”).
The Medicare cost reductions are designed to improve healthcare business productivity and efficiency just as the rest of the economy has done over the past several decades. The Centers for Medicare and Medicaid Services (CMS) has a goal of having 50% of all Medicare fee-for-service payments come from alternative payment models that are value-based by 2018. It should be noted that this goal is a pre-Obamacare repeal goal.
Obamacare funding is the glue that holds Obamacare (PPACA) healthcare quality and cost reform measures together. As of 2016, Obamacare (PPACA) was projected to SAVE $250 billion in government spending and improve Medicare solvency. All this was accomplished while also increasing Medicare benefits to the individual beneficiary.
As current repeal efforts play out over the next weeks and months, it will be interesting to see what Obamacare funding sources are eliminated and when. Repealing Obamacare (PPACA) will result in an increase in the federal budget over the next 10 years and decrease the solvency (i.e., increase costs) of the Medicare program. American taxpayers will have to pay the extra that results. The present and future efforts in Medicare cost reductions efforts will be guided (or not) by the new Secretary of the Department of Health and Human Services (HHS).
Additional Obamacare Funding Information
Affordable Care Act Tax Provisions, IRS
How the $938 Billion Health Care Bill Is Financed, Tax Foundation
Cost Containment in the Affordable Care Act: An Overview of Policies and Savings, Center for Healthcare Research & Transformation
Health Care Reform Does Not Cut Medicare Benefits, Center for Medicare Advocacy
The Affordable Care Act’s Payment and Delivery System Reforms: A Progress Report at Five Years, Commonwealth Fund