Obamacare’s Funding: Where the money comes from and where it goes?

PPACA is a health care reform law that requires individuals to buy and maintain insurance or pay a penalty/tax. The law is funded in part by this penatly/tax and also by increased taxes on other health and non-health related items and services.

Story: Where Does the Money Come From? Besides the Individual Mandate penalty/tax, there are numerous NEW or INCREASED taxes and fees to fund all that is required by this law.

  • +.9% Increase in Medicare Tax Rate (plus next item…)  
  • 3.8% New Tax on unearned income for high-income taxpayers= $210.2 billion ($200,000 for individual and $250,000 for joint filers) 
  • New Annual Fee on health insurance providers = $60 billion (For calculation - Sec 9010 (b) of the PPACA.)[1]
  • 40% New Tax on health insurance policies which cost more than $10,200 for an individual or $27,500 for a family, per year = $32 billion (inland tax as opposed to an importation tax)
  • New Annual Fee on manufacturers and importers of branded drugs = $27 billion (For calculation - Sec 9008 (b) of the PPACA)[2]
  • 2.3% New Tax on manufacturers and importers of certain medical devices = $20 billion
  • +2.5% Increase (7.5% to 10%) in the Adjusted Gross Income floor on medical expenses deduction = $15.2 billion
  • Limit annual contributions to $2,500 on flexible spending arrangements in cafeteria plans (plans that allow employees to choose between different types of benefits) = $13 billion
  • All other revenue sources = $14.9 billion
    • 10% New Tax imposed on each individual for whom “indoor tanning services” are performed.
    • 3.8% New Tax on investment income. Includes: gross income from interest, dividends, royalties, rents, and net capital gains. Investment income does not include interest on tax-exempt bonds, veterans’ benefits, excluded gain from the sale of a principle residence, distributions from retirement plans, or amounts subject to self-employment taxes. (The lesser of net investment income or the excess of modified Adjusted Gross Income over a the dollar amount at which the highest income tax bracket, typically $250,000 for married filing jointly and $200,000 filing as an individual). 

Where Does the Money Go? Below is a non-inclusive list of ways the federal government will spend your tax dollars according to the PPACA.

Medicaid Expansion: The PPACA gives money to States to expand Medicaid eligibility to Americans under the age of 65 who are below 133% of the federal poverty limit, but states can decline without losing existing funding. The Act gives States 100% Federal funding for the first 3 years for newly eligible individuals, beginning January 1, 2014 and ending December 31, 2016. January 1, 2017 the funding will be decreased to 95% with the next 2 years each decreasing by 1% until the year 2020 which will be decreased to 90%. [3]

Tax Credits: Tax credits will be available for individuals and families with incomes up to 400 percent of the federal poverty level ($43,420 for an individual or $88,200 for a family of four) that are not eligible for Medicaid, employer sponsored insurance, or other acceptable coverage.[4] Other types of acceptable coverage would be Medicare, military insurance, grandfathered plans, and CHIP (Children’s Health Insurance Plan). This means that these tax credits are for individuals and families who obtain health insurance from the state run Health Insurance Exchanges. These are state-run bodies not to be confused as insurers that will regulate the private insurance companies to comply with the consumer protection set forth in the PPACA.
“Individuals with incomes below 400 percent FPL who purchases coverage in the Exchange are not required to spend more than a set percentage of their income on health insurance. If they cannot find coverage at a price that falls below this threshold, they are then eligible for a premium credit to ensure they do not spend more than a certain percentage of their income on health insurance coverage.”[5]   The tax credit is calculated on a sliding scale based upon income an individual or family’s income; from 2%-9.5% of their income. The amount of tax credit is reduced as individual and family income increases phasing out at 400 percent of the federal poverty level. Refer to chart below.


Cost-Sharing Subsidies: The cost-sharing subsidy applies to individuals and families who enroll in a qualified health plan in the silver level of coverage in the individual market offered through an exchange and whose household income is between 100 - 400 percent of the poverty level for a family.[7]  (Persons who are offered coverage through their employer also may be eligible for the subsidies provided through the exchange if their employer’s plan premium would exceed 9.5 percent of the employee’s income.) [8]
These subsidies are meant to limit out of pocket costs before the insurance companies pay for all medical expenses. It helps reduce out of pocket cost significantly for low to middle class. If you are 200% below the Federal Poverty Level, your out of pocket costs will be reduced by two-thirds. They’ll be decreased by half for persons below 300% and one-third for persons below 400% FPL. [9]
Both premium credits and cost-sharing subsidies are refundable tax credits paid in advance directly to the health insurer. Any costs above and beyond what the credits and subsidies do not cover are the responsibility of the individual or family. [10]

New High-Risk Insurance Pool: $5 billion will be designated to create a federal program which provides stopgap coverage to the medically uninsurable, due to a pre-existing condition, until the Health Care Reform is completely in place and Insurance Exchanges are created. [11]

Federal Agencies’ Administrative Costs: Beyond the expenditures listed above, another significant overhead cost will be the excess work required at the various federal agencies, for example, the IRS which will now be responsible for processing this new individual mandate fee/tax. Also, the new workforces and insurance exchanges which will be formed will also incur costs.

Proponents of the PPACA see this law as a guarantee that all Americans will be insured and as a way to decrease the National deficit.

Opponents of the law see this as a huge tax increase that will further hurt the economy by taxing small businesses and job creators, and a government takeover of our personal healthcare.

Ask Yourself:
-Should the Federal Government’s be involved in the private run health insurance sector?
-Will you choose to be insured or choose to pay the tax/penalty instead?
-Do you think that this will affect our National deficit negatively, positively, or have no effect?
-Take action by contacting your congressman and give them your opinion, and by voting for candidates who support your point of view.

UP NEXT… More information on the PPACA – How is it run? Who will police the tax? What are “Death Panels”?

[2] NATIONAL FEDERATION OF INDEPENDENT BUSINESS ET AL. v. SEBELIUS, SECRETARY OF HEALTH AND HUMAN SERVICES, ET AL. (2012), pg 806[3][3] http://www.medicaid.gov/AffordableCareAct/Provisions/Financing.html
[4] “Health Insurance Reform at a Glance: Shared Responsibility,” House Committees on Ways and Means, Energy and Commerce, and Education and Labor, MARCH 18, 2010, Pg 1.
[5] http://www.bcbsm.com/healthreform/pubs/premium_credits_and_cost-sharing_subsidies.pdf, pg 1
[6] http://www.bcbsm.com/healthreform/pubs/premium_credits_and_cost-sharing_subsidies.pdf, pg 2
[8] http://www.lao.ca.gov/reports/2010/hlth/fed_healthcare/fed_healthcare_051310.aspx
[9] http://www.acscan.org/pdf/healthcare/implementation/background/HealthReformPremiumCostSharingSubsidies.pdf
[10] http://www.bcbsm.com/healthreform/pubs/premium_credits_and_cost-sharing_subsidies.pdf
[11] http://www.lao.ca.gov/reports/2010/hlth/fed_healthcare/fed_healthcare_051310.aspx