How Congress paid for Obamacare (in two charts)

August 30, 2012

Paul Ryan devoted a party of his speech Wednesday to tweaking the Affordable Care Act's funding sources, taking on the "hidden taxes" needed to pay for the insurance expansion:

Even with all the hidden taxes to pay for the health care takeover, even with new taxes on nearly a million small businesses, the planners in Washington still didn’t have enough money.  They needed more. They needed hundreds of billions more. So, they just took it all away from Medicare. Seven hundred and sixteen billion dollars, funneled out of Medicare by President Obama.

We're probably going to be talking about the Affordable Care Act a lot between now and November. So it's worth taking a look at what actually pays for the health-care law and what that means for the future of Medicare and other programs.

There are two broad ways that Congress paid for the health-care law: It cut into government spending and created provisions that raise revenue, giving it the funds necessary to expand insurance to an estimated 32 million Americans. All of those changes are outlined in a July 24 Congressional Budget Office report.

The first category, the cuts to government spending, accounts for $741 billion of the health law's financing. It's mostly changes to how the government pays the doctors and hospitals who provide care to Medicaid and Medicare patients. Here's how those changes break down, per the CBO:

The health law cuts into government spending, but that's not its only source of funding. The law also raises new revenues as it expands insurance. Some of it comes from the provisions you've probably heard a lot about: A tax penalty for those who do not purchase coverage generates $55 billion over the course of a decade. An excise tax on the most expensive, so-called "Cadillac" insurance plans, nets $111 billion.

But a lot of the money comes from less exciting parts of the law. The CBO expects to see $216 billion saved from the positive side effects of expanding insurance, like less reductions in uncompensated care. Another $318 billion is generated by having those who earn a gross income over $200,000 pay 3.8 percent of investment income toward Medicare's hospital insurance. Here's how it all breaks down:

There are some other, smaller taxes here and there in the health-care law. There's the 10 percent tax on indoor tanning, much despised by reality star Snooki, expected to generate about $3 billion in revenue.

Most of the taxes, indoor tanning included, are not on small businesses. They're either on individuals -- those who decide to go tanning, or decide not to purchase health insurance -- or on large employers, those with more than 50 workers who decide not to offer coverage. Taken together, those are the more big-ticket items that netted the government the revenue it needed to significantly expand health-insurance coverage starting in 2014.

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Ezra Klein · August 30, 2012