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After we posted our video on "How Obamacare works" tons of commenters asked how Obamacare is paid for. Often, the question was NSFW. But you ask, we answer.

In this episode, we will explain how much Obamacare costs, and what spending cuts and revenue increases (ie taxes) were passed to pay for it. You'll get to see why it really is "deficit reducing".

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Read more on Aaron's blog: http://theincidentaleconomist.com/

Here are two great sources for this data. The first is The Tax Foundation: http://taxfoundation.org/article/how-938-billion-health-care-bill-financed. The second is the CBO: http://www.cbo.gov/publication/21351.

John Green -- Executive Producer
Stan Muller -- Director, Producer
Aaron Carroll -- Writer
Mark Olsen - Graphics

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So after our first video we got lots of comments which asked us how ObamaCare could possibly be paid for. Lots of them weren’t very polite about it. But because of the new YouTube-Google+ commenting system we can’t go back and answer the comments on the old video so we thought we’d make a new one right now. Welcome to Healthcare Triage.

(Intro)

Let’s start with the fact that the cost of ObamaCare and its effects on the budget change from year to year. Also anything in the future is just a projection, it’s a best guess. Also, the more years you look at the more it’s gonna cost. For the purposes of this video we’re going back to the beginning. When the law was first passed, all the calculations looked at its first decade. In other words, the numbers were valid from 2010 to 2019. They were calculated by the Congressional Budget Office or CBO, a non-partisan organization which works for congress. All of congress not one party or the other.

As many of you noticed, there are a lot of goodies in ObamaCare. The Medicaid expansion, for example, was projected to give free health insurance to about sixteen million people. That wouldn’t come cheap. In fact, the CBO projected that the Medicaid expansion would cost about 434 billion dollars over a decade. The subsidies and the exchanges cost money too. Sixteen or so million people receiving subsidies would cost the federal government another 464 billion dollars. There were also some small business tax credits in the law for the first few years. Those cost 40 billion dollars. Add them up and the projected ten year cost to the ACA was 938 billion dollars and 938 billion dollars is a lot of money but that doesn’t mean there wasn’t a plan to pay for it, there was. We were going to get the money from grandma. Probably with some advice about not diving into the shallow end of the pool.

In all seriousness, the first big source of money is Medicare, specifically it was in the Medicare Advantage program. You see, back in the Bush administration a lot of people thought the private insurance companies could do a better job at providing Medicare insurance to elderly Americans than the government could. In fact this had been an ongoing debate for a long time. President Bush signed into law a new program to have the private insurance companies give it a try. Qualifying companies could receive the same amount of money that we would spend on government Medicare. If they could provide the benefits for less money they could keep the extra in profit. Sounds fair right? Well it quickly became apparent that they couldn’t do it. After all, there are lots of expenses in private insurance that aren’t needed for government insurance. The government doesn’t have to advertise or pay executives and the government doesn’t care about profit. So the private insurance companies got the government to start paying them extra. Eventually it was costing us 14 cents on the dollar more for Medicare Advantage than for Medicare itself. ObamaCare ended that practice. Private companies could continue to provide Medicare to elderly citizens but we went back to the original deal. They got the cost of government Medicare and not one dime more. After all, that was the original intent of President Bush’s program. The savings for this change, 136 billion dollars.

Alterations were also made to the way that Medicare would update the fee for service payment rates for care. Fees for services has always been a problem because it incentivizes you to do more even if that more is unnecessary. That’s a bad model. Savings, 196 billion dollars. Medicare also used to pay what's called a disproportionate hospital share payment to providers who take care of the uninsured. But ObamaCare is going to reduce the number of uninsured. Those DSH payments are no longer needed. Savings, 22 billion dollars. There’s some changes to how Medicare reimburses home health care for 40 billion dollars. Some changes in how they pay for senior’s drugs which actually cost 43 billion dollars more. A revision to the Medical Improvement Fund for 21 billion dollars. Some reductions in subsidies to rich people who get the Medicare prescription drug program for 11 billion dollars. And finally some changes were made in how some Medicare programs relate to each other for a 29 billion dollar savings. Add all that up and we save 417 billion dollars alone from changes to Medicare over a decade.

But grandma can’t foot all the bill. Remember the individual mandate and employer penalty, people in companies are gonna pay them. That’ll net the government 69 billion dollars. There are also some new taxes and fees on health insurance companies, medical device companies, indoor tanning and other providers. Those will bring in 107 billion dollars. There are some cuts to Medicaid including cuts to its disproportionate hospital share payments. Those are worth 45 billion dollars. And taxes. A new Medicare tax of 0.9% was passed on individuals making over $200,000 and couples making more than $250,000. Regular old Medicare tax was also added to unearned income over those amounts. That’ll bring in 210 billion dollars. Starting in ’17, there’s also a 40% excise tax, or the Cadillac tax, on insurance on the amount paid above $10,200 for individual coverage and $27,500 for family coverage. Granted, not many plans are that expensive but even so, this’ll brings in 32 billion dollars.

What’s left? First some miscellaneous health care provisions. These included increased tax revenue from coverage provisions, 46 billion dollars, ending the cellulosic biofuel producer credit, is that really a thing? Oh, OK. Anyway, 24 billion dollars. Changes in how payments to corporations are reported, 17 billion dollars, a change to medical expense reductions, 15 billion dollars and some changes to health savings accounts and flex spending accounts, 19 billion dollars. Total for these, 149 billion dollars. Finally there are some changes to other programs whose savings were applied to ObamaCare. These included education reforms including the student loan program and Pell grants, community living assistance services and supports and public health programs and community health centers. Add those up for a final 52 billion dollars in savings. I’m still not convinced about that cellulosic biofuel thing, are you sure it’s real? Add that up together and you get 1.08 trillion dollars in revenue and savings. In other words, that’s an increase in funds available in the federal budget of more than a trillion dollars to pay for ObamaCare. Since it was projected to cost only 938 billion dollars. That means that ObamaCare reduces the deficit.

I know, it’s hard to believe, but you have to remember that the law is more than just the good stuff. It’s so long and complicated because it also includes all these taxes and savings. That’s how we pay for ObamaCare. What’s even better is that as we move forward, the taxes and savings get larger faster than the expenses so it reduces the deficit even more in the future. You will hear people say that this isn’t true. Most of them say so because they believe the government will repeal the taxes or stop the savings. Maybe, but that'll take an act of congress and congress isn’t doing much lately. But if you don’t want ObamaCare to cost more, don’t let them make the changes. Tell them to keep the medical device tax, don’t repeal the excise tax, keep the tax on tanning. If we do, and we pretty much have so far, ObamaCare will be paid for. But not cellulosic biofuel evidently. Thanks Obama.