The benefits of President Obama’s health care reform program, the Affordable Care Act, include:

What Will It Cost?

But nothing is free, so many wonder what it will cost and who will pay for it. Those who oppose it say that it will add to the national deficit,  and create tax increases for the middle class and small businesses. These assertions are untrue. To better understand the costs, it is helpful to bear in mind that much of the assertions about the ACA has been less than honest partisan political rhetoric. Now that the campaign season is over, let’s take a closer look at how and by whom the ACA is paid for.

Taxes and Credits

The Kaiser Family Foundation and www.irs.gov provide detailed lists of the tax credits and provisions of the Affordable Care Act. Most of the cost burden will be paid by:

  • The health care industry.
  • Employers that provide workers with insurance.
  • Wealthier individuals.

Mandi Woodruff of Business Insider provides a summary of some of the key taxes and credits:The Tan TaxTanning bed users have paid a 10% tax hike since 2o1o. It doesn’t apply to doctor-prescribed phototherapy services, some gym tanning services, or spray tans, but tanning salons, according to the Indoor Tanning Services Tax Center.Medicare surtaxesStarting Jan. 1, 2013, a 3.8 percent surtax will be payable against surplus investments reported by the following wealthier individuals:

  • Single filers reporting $200,000;
  • Married couples reporting $250,000;
  • Married couples filing separately reporting $125,000.

Also starting Jan. 1, 2013, the Medicare tax burden of wealthier individuals will increase by 0.9% on their earned income, according to the Kaiser Family Foundation.  This tax that will apply to:

  • Individuals earning more than $200,000;
  • Married couples filing jointly who make more than $250,000.

Consumer Penalties

As the law mandates coverage for all Americans, those who choose not to participate will be charged tiered penalties that will begin in 2014 and rise over a three-year period, according to the  National Center for Policy Analysis. The penalties (which have been called a “tax” by the Supreme Court) are as follows:

  • 2014: Families––$285 or 1% of total household income, whichever is greater. Individual adults––$95.
  • 2015: Families––$975 or 2% of income, whichever is greater. Individual adults––$325.
  • 2016: Families––$2,085 or 2.5% of income, whichever is greater. Individual adults––$695.

If you’re not covered by your employer, you’ll be able to choose from a list of government-mandated health insurance packages called “exchanges”at the state level. Exceptions apply to some, including low-income families who can prove financial hardship.

Flex Spending Account Limits

Flexible spending accounts will be capped at $2,500 in 2013, and new rules will limit what you can buy with flex accounts. They apply to non prescription medications, except insulin, or expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles, according to the IRS.

Employee Health Coverage

The Affordable Care Act’s aims to ensure that businesses choose low-cost plans, funded by an excise tax on “Cadillac plans” that cost more than $10,200 per individual or $27,500 per family, starting Jan. 1, 2018. However, these threshold amounts may be raised if health care costs rise more than expected before this provision is implemented in 2018, and for firms that may have higher health care costs because of the age or gender of their workers.The Pharmaceutical industryPharmaceutical manufacturers pay higher fees, phasing in on a tiered schedule beginning in 2012:

  • $2.8 billion in 2012-2013;
  • $3.0 billion in 2014-2016;
  • $4.0 billion in 2017;
  • $4.1 billion in 2018; and
  • $2.8 billion in 2019 and later.

Health Care Insurers

Insurers will also pay higher fees, to be phased in as follows:

  • $8 billion in 2014;
  • $11.3 billion in 2015-2016;
  • $13.9 billion in 2017;
  • $14.3 billion in 2018

Subsidies for Small Business Owners

Businesses will receive a tax credit to help subsidize the cost of health plan enrollment. The credit will be:

  • 35% of the employer’s insurance costs through 2013 for companies with fewer than 25 workers and an annual payroll of less than $50,000.
  • Full credit to employers with less than 10 employers with annual wages of less than $25,000.
  • Beyond 2014, the tax credit will extend to 50% if the businesses choose a plan under the health care exchanges.

Is It Affordable?

The political claim has been “We must rein in the skyrocketing cost of health care by repealing and replacing Obamacare.” However, according to Bloomberg,
Connecting current inflation in health care to the new law, which doesn’t take full effect until 2014, is a stretch. Health-care costs have been rising faster than prices in general for many years, though the pace has been slowing recently, in part because of the recession. Health costs rose 3.4% in 2010 from 2009, according to the Bureau of Labor Statistics, while the U.S. inflation rate was 1.6%.
Obama’s health-care law cuts future Medicare costs by more than $700 billion over 10 years, in part by reducing payments to hospitals and insurance companies, including [subsidies to them for] costlier Medicare Advantage plans. Romney says he would restore that money. The Congressional Budget Office has estimated that repeal of the law would increase the federal deficit by $100 billion over 10 years.

The CBO estimated that repealing health reform would:

  • Increase the federal deficit by $109 billion over the 2013-2022 period and
  • Cause 30 million people to lose health insurance coverage.

So the ACA is not only affordable, but an important reform that the economy probably can’t afford to do without.

While Republicans who oppose the ACA have not given full details of how they would replace the health-care law, they have discussed measures to limit compensation for patients injured by medical malpractice. According to a 2009 Congressional Budget Office report, a $250,000 cap on damages would reduce health costs by $54 billion over 10 years, but this is only 0.5% of annual health-care spending.

The ACA goes far beyond this in tackling health care spending, but not far enough. It’s only  a good first step. Independent conservative author Andrew Sullivan has recognized this, saying that he’d like to see conservatives make the ACA better instead of trying to turn back the clock on health care reform.

After all, the ACA began as a conservative proposal by the conservative Heritage Foundation, and it was only after President Obama and the Democrats adopted this Heritage Foundation model that it suddenly became problematic for Republicans pretending to be fiscal conservatives.

The good news is that this is much more likely to happen now that the contentious election is over. The 2012 election is widely assessed as a clear repudiation of partisan extremes, including the Tea Party and Senate Minority Leader Mitch McConnell, who have led an obstructionist and disruptive political agenda. President Obama’s decisive reelection, along with Speaker of the House John Boehner‘s more conciliatory posture bode well for nonpartisan cooperation and compromise on budgetary issues. The ACA will stand, and meaningful measures to discuss cost reduction will be more possible going forward.

The takeaway: Where there’s a will, there’s a way. There are ways to tackle the rising cost health care costs, which is the largest driver of the budget. The political will to get it done will follow, as the severity of the problem is increasingly understood.

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