Tutorial: A Quick and Dirty Guide to the Affordable Care Act (Obamacare)

Part 1:  Seven Ways the ACA Is Expected to Reduce the Federal Deficit

The Takeaway

The Congressional Office of Management and Budget (OMB) projects that Obamacare will shave $140 billion off the federal deficit in its first decade, and over one trillion dollars in the decade after that. There are no drastic cuts, instead, a number of incremental cost-savings measures have been put together which are expected to add up over time. Some of the most important ones:

1) A 40% excise tax on high-cost health care plans (so-called Cadillac plans). The idea is to reverse the perverse incentives now in place that encourage over-utilization, and shift consumers to lower-cost plans. High-cost plans will be defined as costing over $10,200 for an individual, or $27,500 for a family, in 2018.

2) An increase in Medicare payroll tax by .9%.

3) New excise taxes on pharmaceutical companies, health insurance companies and medical device makers.

4) A reduction in the inflation adjustments for Medicare payments to hospitals.

5) A reduction in payments to Medicare Advantage (the private alternative to Medicare for seniors).

6) Small businesses (under 100 employees) are actually expected to save money on health insurance and pass on those savings to their employees in the form of higher wages. Those wages would then be taxed, providing the government revenue. [This one sounds optimistic to me.]

There are also number of experimental projects included in the legislation that aim to save money by reducing the amount spent on inefficiencies such as medical mistakes, or treatments that don't provide benefit.  These measures include:

• Creation of Accountable Care Organizations (ACOs) designed to improve the efficiency and delivery of care
• Creation of an Independent Advisory Board to oversee Medicare payment reductions in the event that expenditures exceed guidelines
• Replacing fee-for-service payments with bundled payments 
• Creation of the Patient-Centered Outcomes Research Institute to study comparative effectiveness of medicines, tests and procedures

Read the reports: Impacts of the Affordable Care Act: How Reasonable are the Projections? (free)

by Jonathan Gruber for the New England Center for Economic Research

Despite Criticism, The Affordable Care Act Does Much to Contain Health Care Costs (free)
by Stephen Zuckerman and John Holahan at the Urban Institute