ObamaCare and Associated Costs
The Patient Protection and Affordable Care Act (PPACA), also known as ObamaCare, was signed into law on March 23, 2010. It is the federal government’s most comprehensive overhaul of the country’s health care system since the creation of Medicare and Medicaid in 1965.
ObamaCare’s main goals are to:
- Increase the number of Americans covered by health insurance.
- Streamline the delivery of health care services.
- Reduce the overall costs of health care for everyone by restricting certain insurance company practices and providing tax credits and subsidies for individuals and businesses.
Various aspects of ObamaCare have already been enacted, including: regulations on insurance companies prohibiting them from placing lifetime limits on coverage and requiring them to provide coverage for all applicants, at similar rates, regardless of gender or any pre-existing conditions; and mandating that all existing health insurance plans extend coverage to non-dependent children up to age 26.
Two key features of the law that will begin in 2014 are the “individual mandate” and the “employer mandate.” The individual mandate will require anyone not covered by an employer-sponsored health plan or a public insurance program like Medicaid, Medicare or the Department of Defense’s TRICARE program, to purchase a private health insurance policy from a list of government-certified packages, or pay a penalty for not doing so.
The employer mandate will require businesses that employ more than 50 people to offer health insurance coverage for full-time employees or pay a penalty of $2,000 for each uninsured worker. It also provides for a fine of $3,000 for each low-income employee who is receiving a federal subsidy for insurance in those instances where the employer is already offering coverage.
Also beginning in 2014 are: caps on insurance costs as a percentage of a person’s income; premium subsidies and tax credits for individuals and families whose income is between 100 and 400 percent of the Federal Poverty Level (FPL); and the creation of state-based insurance exchanges to provide affordable policies for individuals and small businesses with up to 100 employees.
ObamaCare’s Government Costs and Funding Mechanisms
The original 10-year cost estimate for ObamaCare, made in 2010, was $940 billion. In 2012, the Congressional Budget Office (CBO) updated that amount to $1.8 trillion for the period between 2012-2022, offset in part by $510 billion in receipts and cost savings. By 2018, when the law is fully implemented, total expenses are estimated to be closer to $2.5 trillion.
ObamaCare’s provisions are intended to be covered over the next 10 years by a variety of new taxes on individuals and certain health care industries, changes in the Internal Revenue Service’s tax code, and offsets to some Medicare expenditures.
Income sources include:
- $210.2 billion to be raised by a 0.9 percent increase in the Medicare tax on earned income, and an additional tax of 3.8 percent on unearned income, for couples making more than $250,000 and individuals making more than $200,000.
- $60 billion to be raised via an annual fee paid by health insurance providers.
- $27 billion from fees on manufacturers and importers of brand-name drugs.
- $20 billion from a 2.3 percent excise tax on manufacturers and importers of certain medical devices.
- $32 billion from a 40 percent excise tax on so-called “Cadillac,” or high-cost, insurance plans (to be implemented in 2018).
- $15.2 billion from raising the 7.5 percent floor on the IRS’s medical expenses tax deduction to 10 percent.
- $13 billion from limiting the annual contributions to certain health care spending accounts to $2,500.
- $132 billion from reduced funding for Medicare Advantage policies.
- $40 billion from reduced Medicare home health care payments.
- $22 billion from reduced spending on certain Medicare hospital payments.
- $14.9 billion from all other sources (including a 10 percent tax on indoor tanning salons).
Penalties for Non-Coverage
Beginning in 2014, individuals and families with income over $9,500 will be required to buy insurance or pay an annual penalty of $95 for individuals and $285 for families, or up to 1 percent of total household income, whichever is greater. By 2016, the penalty will rise to a minimum of $695 for individuals and $2,085 for families, or 2.5 percent of income, whichever is greater. After 2016, penalties will be indexed for inflation.
Exemptions to the non-coverage penalty are permitted for those for whom the least expensive policy would exceed 8 percent of total income and for certain religious denominations that don’t pay Social Security taxes.
The CBO estimates that approximately 4 million individuals will pay penalties to the IRS in 2016, and up to $54 billion in total penalties will be assessed within the next 11 years because of the individual mandate.
Costs, Credits and Subsidies
Costs have yet to be determined for the planned policies. Insurance premiums, co-pays and out-of-pocket expenses will vary based on a policyholder’s income, the type of coverage purchased, and his or her place of residence. However, Americans will not be required to pay more than 12 percent of their incomes on the policies, and won’t be allowed to pay less than 1.5 percent.
The CBO estimates that the least expensive plan expected to be offered through the insurance exchanges in 2016 – the so-called “bronze-level health plan” – will cost $4,500-$5,000 per year for an individual, and $12,000-$12,500 per year for a family.
ObamaCare will provide tax credits and cost-sharing subsidies for an estimated 16 million Americans to help them pay for their health care coverage, totaling about $630 billion over the next decade. Individuals and families with annual incomes up to 133 percent of the Federal Poverty Level (FPL) – $15,302 for individuals, $31,155 for a family of four – will become eligible for Medicaid in 2014, in states that have not opted out of the Medicaid expansion provision of the law. Individuals and families with incomes between 133 and 400 percent of the FPL will receive subsidies on a sliding scale.
Small businesses that wish to offer health benefits will qualify for tax credits if they have no more than 25 employees and average wages of $50,000 per year. Through 2013, the credit will be worth 35 percent of insurance costs, rising to 50 percent in 2014 for a small, for-profit company (25 percent and 35 percent, respectively, for a nonprofit firm). Subsidies of 100 percent will be available for employers with less than 10 employees with annual wages of less than $25,000.
Because ObamaCare has not yet been fully implemented, cost comparisons between the status quo and the expected changes coming in 2014 are difficult to quantify. But proponents of the law claim that many American families making less than $250,000 will realize up to a $4,000 annual reduction in their health care costs, with more savings available to some.
In 2012, the average premium for an employer-insured family of four was a little over $15,000, with about $4,000 of that amount paid by the insured and the rest by the employer. Those numbers would change very little under ObamaCare, and only about 7 percent of employer-covered workers are expected to opt out of their company plans in favor of cheaper policies available on the exchanges.
However, a family that is self-insured could potentially realize significant savings – in some cases over 50 percent – by picking a plan through an insurance exchange and taking advantage of available subsidies. For example, a family of four, earning $60,000, could wind up paying only $5,000 per year. Single individuals covered at work would see little change, but could also save money over a privately purchased policy.
Of course, families and individuals with no coverage and now paying $0, would have to purchase a policy or pay the penalty. While their costs obviously will go up, having health insurance would arguably shield them from economic devastation should they be faced with an illness or accident.
Seniors on Medicare should see decreased costs for things like prescription drugs and medical devices, and ObamaCare will fully cover all of their preventive care. However, wealthy Medicare beneficiaries will pay higher Medicare premiums and taxes under the PPACA.
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it seven years ago, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering college and professional sports, which are the fantasy worlds of finance. His work has been published by the Associated Press, New York Times, Washington Post, Chicago Tribune, Sports Illustrated and Sporting News, among others. His interest in sports has waned some, but his interest in never reaching for his wallet is as passionate as ever. Bill can be reached at firstname.lastname@example.org.
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