How Is Obamacare Funded?

Since the implementation of Obamacare (the Affordable Care Act/PPACA), and even before, people wanted to know how healthcare reform would be funded. Conceived as a means of helping to insure roughly 30 million Americans unable to receive health insurance coverage for one reason or another (low income, preexisting conditions, etc.), the costs have long been in question. Billed as a “self-funded” program, detractors nonetheless cried foul, proclaiming that there was no way this expensive undertaking could be entirely self-sustaining. And with costs estimated to reach over $1.2 trillion dollars by 2025, it did seem rather likely that some form of subsidizing by the federal (and/or state) government was in order. However, provisions were built into the plan to curb this type of spending. Here’s how the plan works.

How do you think uninsured patients received medical care before Obamacare? If they couldn’t afford insurance, how could they reasonably be expected to pay for outrageously expensive emergency medical care? With so few uninsured patients using preventive services (annual check-ups, testing, dental visits, etc.), the instances of serious and expensive healthcare needs down the road seemed inevitable. And taxpayers, by and large, were covering these expenses. The Obamacare system took these costs, which were anticipated to decline following the implementation of the ACA, into account. Assuming that previously uninsured Americans would now take advantage of affordable preventive care, thus curbing the need for significantly more expensive emergency medical care, the funds previously intended for emergency services would simply be applied to the ACA.

Of course, taxes are also needed to fund the program, so saying that it is self-funded is probably something of a falsehood. Both federal and state tax dollars provide for partial funding of Obamacare, along with the pre-Obamacare spending attributed to healthcare for the uninsured. So although the program was referred to as self-funded due to the use of funds that were already being used to cover medical costs for the uninsured, the truth is that more funding (from taxes) was ultimately needed to support the program.

The real concern about Obamacare isn’t its source of funding. Instead, most people are wondering if it will truly reduce costs for taxpayers. Like any reform of this magnitude, there are bound to be bumps in the road. One need only recall that fateful day the Healthcare.gov website launched (and the days following). But in short order the system was up and running, meeting its goal of providing affordable healthcare to the public. And the same curve will likely apply to spending.

Although the initial expense of reform is high, it is very likely that a changing trend in favor of preventive services will result in lower overall costs for taxpayers that no longer have to cover the costs of emergency care for the millions of Americans that were uninsured prior to Obamacare. Of course, this remains to be seen, and it may be several years before studies can show the impact of the ACA. In the meantime, taxpayers will bear some of the burden while patients themselves will cover the rest, thanks to mandatory minimum coverage. Eventually, the program may become self-funded, so to speak.