CBO Report on Obamacare Costs, Savings, and Impact on Economy
Who really pays for Obamacare?
The Congressional Budget Office analyzed the impact of the Patient Protection and Affordable Care Act of 2010 in March 2010. The CBO report covered both laws that enacted the ACA. It examined the Patient Protection and Affordable Care Act (Public Law 111-148) and the Health Care and Education Reconciliation Act (Public Law 111-152).
The CBO report said the ACA reduced the budget deficit by $143 billion between 2010 and 2019. Skeptics said a $940 billion program that expanded services could not also save money.
But most of Obamacare's savings come from making sure 95% of U.S. citizens had health insurance. It reduced health care costs by making preventive health care affordable for the 33 million who had no coverage. They didn't have to wait until their illness became so critical that they used the hospital emergency room as their primary care provider. That slowed the increase in national health care costs for everyone.
Obamacare taxes and other fees also offset the cost of the program. Here's a summary of all the ways the CBO estimated that the ACA saved money.
Reduce Medicare Payments by $335 Billion
Every year, Medicare agrees on certain payment rates for covered services to health care providers. These annual updates were reduced by 21% saving $196 billion. Hospital groups agreed to give up their portion of $155 billion. They expected to make $170 billion by having to treat fewer uninsured patients.
Another $136 billion was saved by reducing Medicare Advantage overpayments. This private health plan covers one in five seniors. Medicare Advantage costs 13% more than traditional Medicare. Savings started in 2011.
Charge Extra Fees to Drug Companies Net $107 Billion
Drug companies would be charged higher fees to help cover the "doughnut hole" in Medicare Prescription Drug Part D benefits. Medicare only covered the first $2,840 in prescription drug costs. Before Obamacare, the patient paid 100% up to $4,550, before Medicare coverage kicked in again. The ACA helped cover the costs of the doughnut hole: $250 per patient in 2010, 50% in 2011, and 100%in 2020.
The extra drug company fees were projected to add $84.8 billion in revenue over 10 years. They subsidized the cost of prescription drugs, saving Medicaid $38 billion.
Impose Excise Tax on High Premium Insurance Plans Add $32 Billion
In 2022, insurance companies will pay a 40% excise tax on so-called "Cadillac" high-end health insurance plans. The tax was supposed to go into effect in 2018. The Trump administration delayed it until 2022.
Tax High-Income Families Add $210 Billion
Medicare taxes on income and capital gains were raised for 5 million high-income families in 2013. That includes 1 million people who make more than $200,000 and 4 million couples filing jointly who make more than $250,000. They will pay 3.8% in Medicare taxes on dividends, capital gains, rent, and royalties. They will also pay 2.35% in Medicare income taxes, up from 1.45%.
Tax Employers Add $65 Billion
Employers with more than 50 employees must provide health insurance. Otherwise, they pay a tax of $2,000 per worker each year if any of them receives federal subsidies to purchase health insurance. Individuals must buy coverage or face an additional tax fine. That started in 2015.
Education Savings of $19 Billion
The ACA eliminated Sallie Mae as the middleman administering federal funding for student loans. Instead, the Department of Education lends directly to students. Since then, the number of loans owned by the federal government quadrupled. There were enough savings to boost the Pell Grant program by $36 billion.
March 2012 Update
In March 2012, the CBO issued an update that showed the ACA would cost $50 billion less than initially thought. The CBO was looking at 2012 through 2021, a 10-year period that was two years out from the initial analysis. The revenue from the ACA increases over time, outweighing any further costs.
Effect of Supreme Court Decision
On June 28, 2012, the Supreme Court upheld most of the ACA. It allowed states to reject federal funds to expand Medicaid to include more low-income residents. As a result, the CBO estimated that 3 million fewer people would have insurance. That saved $84 billion between 2012 and 2022.
For more on who really pays for Obamacare, see my book "The Ultimate Obamacare Handbook."