Affordable Care Act is affordable

Since it was signed into law almost four years ago, the Patient Protection and Affordable Care Act (also known as the Affordable Care Act, the ACA, or Obamacare), has been a prime target for political spin and misinformation through three national elections, a Supreme Court Challenge and fifty attempts by the House of Representatives to repeal the law. It is thus no surprise that many Americans are confused about what the ACA actually does.

One oft-repeated fallacy has been that the ACA would add to the deficit. When rejecting the federal Medicaid dollars for Oklahomans, Governor Fallin cited “the nation’s growing deficit crisis” and predicted that the federal money may not be available in the future. She reiterated the claim during her 2014 State of the State address, arguing that Medicaid expansion is “unaffordable” and “unsustainable.”

This claim makes a glaring omission — the fact that all of the increased spending by the Affordable Care Act is paid for, and then some. The law includes a combination of spending cuts and tax increases that, on net, are in fact reducing the deficit by billions of dollars.

So how is the law funded? The primary revenue sources are as follows:

• A 3.8 percent tax on investment income for individuals earning more than $200,000 annually. Only investment income over $200,000 is taxed – so if you earn $210,000 every year, the tax only applies to the additional $10,000.
• A 10 percent tax on indoor tanning. This tax doesn’t apply to spray tans or tanning services included with the cost of membership for fitness clubs.
• A 2.3 percent tax on the sale of medical devices. This tax applies only to industrial medical devices such as MRI machines and CAT scanners. Consumer items like hearing aids, wheelchairs, and contact lenses aren’t affected. The businesses that it does affect will enjoy a major boost in sales due to the increased use of healthcare from expanding coverage, so this tax was designed to recoup some of those windfall profits for the public.
• A higher medical deduction threshold when filing taxes, raising the percentage of gross adjusted income a taxpayer has to spend on medical expenses in order to deduct them from 7 ½ percent to 10 percent. Americans turning 65 in the next four years are exempt.
• Taxes on “Cadillac” health insurance plans. Employers who provide the most expensive health insurance plans — paying more than about $10,200 for an individual or $27,500 for a family each year — must pay a 40 percent tax on those plans beginning in 2018.
• A reduction in Medicare reimbursements penalizing hospitals with an excessive number of patients readmitted within a month of discharge with heart attacks, heart failure and pneumonia.
• A tax penalty on those who don’t purchase insurance. This effectively enforces the individual mandate, or the requirement that nearly all Americans must be covered by health insurance. In 2014, individuals who choose not to purchase insurance are taxed either $95 or 1 percent of annual income. The penalty increases to 2 percent of annual income or $325/individual in 2015, and to 2.5 percent or $695/individual. After that, it is adjusted for inflation. Some groups are exempt from the individual mandate and so will not be fined if they do not purchase insurance.

Oklahomans are subject to all of these taxes and other federal taxes whether or not we accept the federal funds expand coverage. This is why, as we’ve discussed before, continuing to refuse the federal dollars means Oklahomans send a huge tax transfer to Washington and get nothing in return. 

Were the state government to accept Medicaid expansion, Oklahoma would eventually be responsible for up 10 percent of the costs of coverage expansion. However, this would be dwarfed by the benefits of billions of federal dollars flowing into our economy and helping our citizens stay healthy and financially secure. Furthermore, the Leavitt Report, which was commissioned by the Governor’s office, estimated that, at the low end, expanding Medicaid would have a net positive impact to the tune of over $13 billion. And to assuage the fears of those still skittish about the reliability of federal funds, we could follow the examples of Nevada and Arizona, which are expanding Medicaid with built-in “circuit breakers” to freeze coverage for new populations if federal matching funds decrease.

It comes down to this: the Affordable Care Act is fully paid for, and Oklahomans are helping to pay for it. That will continue to be true, no matter how long state politicians block Oklahomans from receiving the benefits.