The Magical World of ACA Funding

Congressional leaders just agreed to a budget that would keep the government open through September 2016. I was happy to hear the government was not going to shut down. I was much less happy to hear about the fate of provisions supposed to fund the Affordable Care Act (ACA). The ACA – costing $1.2 trillion over 10 years – was supposed to ‘mostly’ pay for itself.  Revenue was to be generated (in large part) by a series of taxes on a variety of different sources. These taxes did not fare so well in the current budget.

‘Cadillac’ Tax

The ACA took aim squarely at high cost employer-sponsored plans.  Economists believe that since employer health insurance is tax deductible, high cost plans proliferate as a mechanism to provide a tax free benefit to employees. These expensive plans are expensive because they cover most of the cost of medical care, insulating the patient from the actual cost of medical care. The ACA imposed an annual 40% tax on plans with annual premiums exceeding $10,200 for individuals and $27,500 for families to be paid by the insurers. The results were to be two fold: One, create a disincentive for employers to offer ‘cadillac’ plans, and two, generate revenue to pay for the ACA. A broad coalition composed of democrats and republicans lobbied to defeat this tax.

Medical Device tax

A tax was imposed on medical device companies, in part because expanded insurance coverage was believed to increase their revenue. This tax has also been ‘delayed’. It is estimated that this will cost the federal government $2 billion dollars per year. A quick review of stock prices of three dominant cardiac device companies show major increases since signing of the ACA into law in 2010. For reference, the S&P 500 gained 50% in the same period of time.


Health Insurance Provider tax

The insurance companies that were supposed to see more revenue as a result of taxpayer subsidized coverage had an annual fee they had to pay. This annual fee was related to the dollar amount of the net premiums written during the prior year. In 2016 that fee would have amounted to $11 billion dollars. The insurance companies argued that the fee would ‘have’ to be passed on to the consumer in the form of higher premiums. This is the same insurance industry that has seen significant stock gains and returns for their shareholders as well since the ACA was signed.


The White House obfuscates

No statement from the whitehouse has been forthcoming on how this revenue will be made up. I suspect the whitehouse team would point to healthcare savings because of the ACA. They would, of course, be wrong.

From the obamacare facts website:

“In 2015, due in part to the ACA, health care spending grew at the slowest rate on record (since 1960).  Meanwhile, health care price inflation is at its lowest rate in 50 years.” (accessed 12.16.2015)

 This hyperlink references CMS data from 2013 that healthcare costs were growing at the slowest rate since 1960. The whitehouse took credit for bending down the cost curve despite the fact that the slowdown predated the signing of the ACA. Despite the claims on the obama website, the actual 2014 health care cost data reflects quite a different story.
In 2014, Health care care expenditure is projected to have increased 5.5% (year over year), the first time growth would be higher than 5% since 2007. As a consequence, in 2014 health care expenditures are now projected to be 17.7% of GDP, the first increase in the health care share of the economy since 2008. Why did health care costs go up so much? As per the economists at CMS (Health Affairs) the rise in healthcare costs are mostly related to the expansion of healthcare coverage under the Affordable Care Act (ACA). Not surprisingly, expanding coverage to millions of people costs money. To reiterate, the ACA is largely responsible for changing the trajectory of the health care cost curve in the wrong direction
Of course, this was before the most recent iteration of the budget that deep-sixed revenue supposed to ‘self-fund’ the ACA. Don’t even get me started on the revenue that was supposed to come from reductions in overpayments to private Medicare Advantage plans.
The ACA, of course, continues to be funded. The White House quotes 2013 numbers when talking about 2015. It’s magical.  Maybe Santa Claus is for real.
Anish Koka is a cardiologist. He practices in Philadelphia.

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3 replies »

  1. I am skeptical that the Cadillac Tax would ever have raised much money. How hard would it be to chop down a $28.000 family health insurance policy to evade the tax? Especially if an employer had 7 years to figure out how to do it. (I know that other elements besides insurance premiums were taxed, but the base insurance premium is the key.)
    And it was always fanciful to think that reductions in health insurance premiums would immediately translate into higher taxable wages, as the ACA law assumed would happen.

    The Cadillac tax was also a kind of classic neo liberal pussy footing. It is a disturbing fact that well paid employees often have lavish tax free policies, whereas poorly paid employees in small businesses may have no employer coverage. So, there is a certain justice in taxing the well paid employees to help fund the tax credits that help the others.
    I approve.

    But that could be done in about five minutes. Pass a tax law which says that employer premiums on behalf of employees earning $100,000 a year are subject in part to income tax.

    Or, just raise income taxes on all persons making over $100,000 in cash wages. That would take about 6 minutes.

    But the ACA was passed in the Grover Norquist world of no tax increases, so you needed all these roundabout and semi-disguised and hoped-for taxes on tanning beds and what all.

  2. Relax President Obama. I was trying to take congress (I’m not sure but I think there are republicans and democrats in that body) to task for taking the ‘easy’ route and capitulating to special interests. Didn’t realize I needed a economics degree to do that. I only dinged the White House on their insistence (via their website) that the ACA is saving money in 2015…even though they are referencing data from 2013.
    I’m lamenting the loss of funding for the ACA via these various taxes. I would write more but I have to get back to over-surgicalizing patients.

  3. Dr Koka is apparently unfamiliar with the way the United States government operates. He has decided the current President has magical unilateral lawmaking powers, and that it could not be possible that reactionary congresspersons might be twiddling dials and knobs on ACA so as to strangle funding for risk corridors and, simultaneously mind you, continue the tax-favored treatment for preternaturally generous health plans offered by employers (lookin’ at you Rubio & Ryan).

    So please kindly stick to over-surgicalizing heart patients, Dr. Koka. You’re simply not qualified to comment – much less snarkily comment – on health policy.