Health Care

How Is Obamacare Paid For?

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Photo illustration by MONEY—&#169 BigWest1

Tax increases play a big role.

The health reform law known as Obamacare (officially the Affordable Care Act) is paid for with a combination of cuts in government spending and new revenue from several sources, including tax increases.

On the spending side, cuts in Medicare payment rates and reductions in payments to the Medicare Advantage program will trim spending by more than $700 billion by 2025, according to the Congressional Budget Office’s most recent estimate.

The law raises revenue by imposing tax penalties on people who don’t have health insurance ($43 billion by 2025) and employers that don’t offer coverage to their workers ($167 billion), among other things.

High-income taxpayers also help pay for Obamacare. The health law requires workers to pay a tax equal to 0.9% of their wages over $200,000 if single or $250,000 if married filing jointly to finance Medicare’s hospital insurance. It also imposes a 3.8% surtax on various forms of investment income for taxpayers whose modified adjusted gross income is over $200,000 if single or $250,000 if married filing jointly. Those provisions will account for $346 billion in revenues by 2025, according to the CBO.

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