Last week when the Obama administration announced that Obamacare premiums would rise an average of 22% for 2017, officials offered words of reassurance.
The steep Obamacare price increases aren't a problem, they said, because the majority of people who have healthcare insurance under the Affordable Care Act have most or all of their premiums covered by government subsidies.
But that begs a critical question: Who pays for Obamacare?
While the full answer is somewhat complicated, the short answer is easy: You do. Well, you do if you're an average middle-class American...
While the 2009 ACA law designated a variety of taxes and fees to pay for the massive cost of expanding healthcare to millions of uninsured Americans, nearly all of them -- one way or another -- land on the backs of middle-class taxpayers.
That may seem puzzling to some considering that Obamacare was supposed to save the U.S. government billions of dollars over its first decade.
"The Affordable Care Act reduces the deficit, saving over $200 billion over 10 years and more than $1 trillion in the second decade," the White House boasted on its website after the law was passed.
But if the government is saving money, why do we need new taxes to pay for Obamacare?
You have to understand how the government thinks. When Uncle Sam claims that Obamacare is saving money, it factors in the added revenue from those new taxes as well as other gimmicks, such as reductions in Medicare expenditures. From the government's perspective, then, Obamacare "saves" money.
But make no mistake. A lot of those "savings" are coming straight out of the hide of U.S. taxpayers. Some of these taxes you'll pay directly, but some are disguised. Many are here already.
These Obamacare taxes will come directly out of your pocket...
Paying for Obamacare: Taxes You'll See Directly
- Investment Income Tax: If you're truly "rich" (taxable income over $200,000 for singles and $250,000 for those filing joint returns), you're already paying a 3.8% Medicare surtax on your investment income. This group also is paying a higher Medicare income tax. This combo is expected to raise $318 billion over 10 years.
- No-insurance Penalty: The reason for this tax is to induce the young and the healthy to buy insurance policies they don't need or want. Money collected helps offset the subsidies. But those who buy insurance also contribute to the Obamacare cause. Since the young and healthy use less insurance, their premiums offset the higher costs to insurers of older, sicker customers. Estimated revenue: $55 billion.
- Medical Itemized Deduction Reduction: Before Obamacare, you could deduct medical expenses that exceeded 7.5% of your income. Now that threshold is 10%. Estimated revenue: $15.2 billion to $18.7 billion.
- Medicine Cabinet Tax: The use of a Health Savings Account (HSA) or flexible spending account (FSA) to purchase over-the-counter medications is no longer permitted. Estimated revenue: $5 billion.
- Limits on FSAs: Pre-tax contributions to Flexible Spending Accounts (FSAs) are now limited to $2,500. Previously there was no limit, although employers could set their own limit. Estimated revenue: $13 billion.
But paying for Obamacare will require much more money than will be raised in these taxes. So the ACA created another set of Obamacare taxes that, at first glance, don't appear to be targeted at the middle class.
Don't be fooled, though. The middle class will get stuck paying these "hidden" Obamacare taxes, too...
The Obamacare Taxes You Won't Realize You're Paying
- Medical Device Tax: A 2.3% tax on certain medical devices is aimed at the manufacturers of the devices, but few doubt that the cost of the tax will be passed through to customers. This tax is currently suspended until Jan. 1, 2018. Before the moratorium, this tax was expected to raise $20 billion.
- Fee on Insurers: The Obamacare tax on the health insurers is based on the insurance premiums they collect. It was $8 billion in its first year (2014) and rose to $11.3 billion this year. The Republican Congress put a one-year moratorium on this tax for 2017, surrendering $13.9 billion in revenue, one of many attempts to blunt the impact of the healthcare law. But in 2018, the fee will resume at $14.3 billion.
This tax is getting passed on to customers in the form of higher premiums, and not just for those on Obamacare plans. According to an actuarial review by management firm Oliver Wyman, this tax in 2015 added an estimated annual cost of $514 for individuals, $688 for those on small group policies, and $719 for families.
Even Medicaid enrollees faced an added cost of $152, although about half of that must be paid by the state the person resides in. The added costs to states may result in higher state taxes, however.
The costs from this tax could accelerate in a hurry if we continue to see steep premium increases every year. Over 10 years, it's expected to add about $5,000 to Americans' health insurance premiums. The government hopes to raise $102 billion from this tax.
- Cadillac Tax: This nasty little tax masquerades as another tax on the rich. It's a 40% excise tax on healthcare plans valued at over $10,200 for individuals and $27,500 for families. It was originally scheduled to go into effect in 2018, but late last year Congress delayed it to 2020.
The problem is that the threshold for the Cadillac Tax isn't especially high. A survey last year by the International Foundation of Employee Benefit Plans found that 60% of employers would have gotten hit in 2018 without making changes to their offerings - in other words, reducing benefits.
It gets worse. The Cadillac Tax is indexed to inflation, but we all know healthcare cost increases routinely exceed inflation. So more Americans will get snagged by this tax every year. This insidious design could do even more - it could spell the end of employer-sponsored health insurance, forcing everyone into Obamacare. Expected revenue: $90 billion.
Here Are 10 “One-Click” Ways to Earn 10% or Better on Your Money Every Quarter
Appreciation is great, but it’s possible to get even more out of the shares you own. A lot more: you can easily beat inflation and collect regular income to spare. There are no complicated trades to put on, no high-level options clearances necessary. In fact, you can do this with a couple of mouse clicks – passive income redefined. Click here for the report…
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.