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Obamacare: Everyone's footing the bill

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Taxes and fees make up the bulk of Obamacare funding. (Source: Chris Potter/Flickr) Taxes and fees make up the bulk of Obamacare funding. (Source: Chris Potter/Flickr)

(RNN) - Republicans in Congress are threatening to shut down the government because they say Obamacare is too expensive and the government needs to rein in spending. But just who is paying for it?

The answer is complicated.

Depending on which part of the Affordable Care Act - otherwise dubbed Obamacare - that you're talking about, the funding will come from five sources: individuals, employers, states, the federal government and taxes and fees.

You

Individuals will be responsible for obtaining insurance, whether through their employer or the new healthcare exchanges set to open up on Oct. 1.

If you don't purchase healthcare insurance for yourself, your spouse and your dependents, you will have to pay a fine to the IRS, which starts at $95 per person or 1 percent of income, whichever is higher, in 2014. That number jumps to $695 per person or 2.5 percent of income by 2016.

But you don't have to shoulder the burden of your insurance premium alone.

Depending on how much money you make, the federal government will pay you a subsidy to purchase insurance. You're eligible for a subsidy if your income is between one and four times the federal poverty level.

These subsidies are factored based on your income and cost of the second lowest-priced, silver-tiered plan available on the exchange. Silver plans pay about 70 percent of your healthcare costs. Bronze plans pay 60 percent, gold plans pay 80 percent and platinum plans pay 90 percent.

You can take the subsidy the government gives you and use it along with your own money to purchase any level of plan you want, from bronze, which will be cheaper, to platinum which will be the most expensive.

Estimates of insurance premium cost have varied widely, but the U.S. Department of Health and Human Services estimates that 56 percent of uninsured Americans will be able to get coverage through the marketplace for less than $100 per month.

You can find out how much your insurance premiums could cost you here, with the Kaiser Family Foundation's subsidy calculator.

The premium you pay is based by law on your age, your location and whether or not you use tobacco. The Affordable Care Act has ruled that other factors can't be taken into consideration.

Employers

Beginning next year, all employers with 50 or more employees must provide a healthcare plan to their full-time employees or face a fine of $2,000 per employee, minus the first 30 employees, per year. (A company with exactly 50 full-time employees would pay a fine of 20 x $2,000, or $40,000.)

Employers are only responsible at this time for covering full-time employees. Part-time employees are exempt.

But that doesn't mean employers can offer bottom of the barrel, high-deductible plans and avoid the penalty. The insurance must meet federal requirements by equaling the same level as a bronze-tiered plan, or the employer will face even larger fines.

Small businesses, on the other hand, may receive tax credits for providing insurance. You can read more on the topic on the IRS' website.  

States

Originally, the ACA required all states to pay a percentage of mandatory Medicaid expansion, which the Congressional Budget Office estimated would provide coverage to an additional 11 million low-income people.

But the 2012 Supreme Court decision that affirmed the constitutionality of Obamacare also gave states the right to decide whether or not to expand Medicaid. About half the states have decided to expand.

Under the expanded Medicaid provisions, people with an income of 138 percent or lower than the federal poverty level would qualify for Medicaid coverage.

For example, an individual making the maximum 138 percent of federal poverty level income to qualify for the expansion makes $15,856 per year. For a family of four, that comes to $32,499.

But the Supreme Court decision has created a sticky situation for the states that aren't expanding. Under the Affordable Care Act, anyone who is eligible for public assistance such as Medicaid or Medicare cannot receive a subsidy for purchasing their own insurance.

So far, the government isn't making an exception for low-income earners in states that aren't expanding Medicaid, according to HealthCare.gov.

"If you live in a state that isn't expanding Medicaid you may not qualify for either Medicaid or reduced costs on a private insurance plan. It will depend on where your income falls," the site says.

Without the coverage, there will be large gaps in healthcare coverage eligibility for millions, according to a brief published by the Kaiser Commission on Medicaid and the Uninsured.

"In states not moving forward with the expansion, nearly all childless adults will remain ineligible for Medicaid as well as parents with incomes above current eligibility levels. Individuals with incomes below poverty are not eligible to receive subsidies to purchase coverage in the new marketplace," the brief states.

Federal government

The federal government is responsible for funding a major portion of expanded Medicaid coverage and insurance subsidies for those buying plans over the Exchange.

The government will pay states 100 percent of the cost of expanding Medicaid to newly eligible adults from 2014-2016, then at least 90 percent after. If states don't expand Medicaid now, then the amount of money they'll receive from the federal government could be much lower.

The federal government has also helped pay for states to set up their own exchanges - more than $3.8 billion so far. In some cases, the federal government will run exchanges in conjunction with states.

Taxes and fees

Assorted taxes and fees will offset the ACA costs.

The most direct is a Medicare tax rate hike for higher earners, which took effect this year. It increased the Medicare tax on income by .9 percent for households making more than $200,000 a year.

It also levies a 3.8 percent assessment on unearned income, such as from investments and stock sales.  

Beginning next year, the health insurance industry will have to pay a shared $8 billion, which increases to $14.3 billion in 2019, then continues to go up based on premiums their customers pay.

A few other taxes and fees have already taken effect.

  • In 2010 a 10 percent tax on indoor tanning services went into effect.
  • The following year saw a tax of 20 percent on distributions from health savings accounts that aren't for qualified medical purposes.
  • In 2012, pharmaceutical companies began having to pay an annual fee on certain manufacturers and importers of brand-name drugs and in 2013 a 2.3 percent tax was placed on the sale of any taxable medical device.
  • In 2018, there will be a tax placed on insurers of employer-provided plans that have premiums which cost more than $10,200 for individual coverage and $27,500 for family coverage per year.
  • You can find all of the taxes, provisions and more associated with the Affordable Care Act on the IRS' website.

Answer unclear, please ask again

What effect these changes will have on the cost of healthcare is nebulous, but one thing is clear - it's going to be expensive.

The U.S. already far outpaces healthcare spending per person by other first-world countries. In 2011 the U.S. spent almost $8,000 per person per year. That's $2,608 more per person than the next closet contender - Norway, which spent $5,352. For some reference, Canada spent about $4,363 per person and Australia spent $3,445, according to the Organization for Economic Cooperation and Development,

Healthcare costs are expected to continue to rise.

The Congressional Budget Office has estimated that healthcare spending will climb from 17.6 percent of the GDP, or total productivity of the entire country, to 19.8 percent by 2020.

The Congressional Budget Office cites increased government spending on insuring the uninsured through expanded Medicaid and the Health Insurance Exchanges as the reasons.

Whether this will lower the costs of treatment for those actually being treated - namely you - remains to be seen.

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