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Podcast: How the Health Reform Law Reduces the Deficit, Part 2

In this podcast, we will discuss some of the major provisions in the health reform law that will help reduce the deficit. Today we will talk about the law’s major sources of revenue. I’m Shannon Spillane and I’m joined by Paul Van de Water, a Senior Fellow at the Center.

1. Paul, in our last podcast we discussed how health reform helps to reduce the deficit by cutting spending. In addition, the health reform law will also bring in revenue. What are some of the major revenue sources in the law?

There are four major sources of revenue that I’ll mention:

  • First, an increase in the Medicare tax on high-income people
  • Second, health industry fees
  • Third, employer and individual responsibility requirements, and
  • Fourth, an excise tax on very high-cost insurance plans.

2. Let’s start with the Medicare tax increase. How will that work?

Most people will be unaffected. Only individuals with incomes over $200,000 - or $250,000 for couples – will see their Medicare taxes increase. They will pay an additional 0.9 percent tax on earnings above those amounts. Also, they’ll pay a new 3.8 percent Medicare tax on unearned income, like capital gains, dividends, and interest.

3. The second revenue source you mentioned was industry fees. Tell us about them.

Drug companies, medical device manufacturers, and health insurers will all gain new customers as a result of the expansion of health coverage under reform. The health reform law imposes fees on these industries so that they contribute to financing the cost of the coverage expansions.

4. What are the individual and employer responsibility requirements?

Under health reform, most individuals will be required to obtain health insurance for themselves and their dependents. Individuals who do not have health coverage will face a modest penalty, unless they aren’t able to afford coverage.

In addition, larger employers must help assure that their employees have affordable coverage. If a large firm doesn’t offer insurance to its employees – or if the insurance it offers is too expensive – its employees will be able to purchase insurance in the new insurance exchanges, and they may be able to get subsidies to do so. If a large firm has full-time workers who get subsidized health insurance through the exchanges, the firm will pay a penalty. The penalties ensure that individuals and large employers live up to their responsibilities.

The individual responsibility requirement is also essential to keeping premiums affordable and to the success of some of the law’s popular private insurance reforms.

5. Fourth and finally, tell us about the excise tax.

The health reform law imposes an excise tax on very high-cost health plans offered through employers. This tax will help reduce the growth in health care costs over time by discouraging overly generous health insurance coverage.

It’s important to note that the large majority of health insurance plans will be unaffected by the excise tax, since it applies only to health plans that far exceed the value of the typical plan.

6. We’ve talked about number of revenue increases. What should listeners take away from this discussion?

I hope they’ll remember that the health reform law is fiscally responsible – it expands health insurance for more than 30 million people without increasing the deficit. In fact, it reduces the deficit. And it achieves this result through a sound mix of spending cuts and revenue increases.

Thanks for joining me, Paul.

This was part 2 in a series on the major ways that the new health reform law helps reduce the deficit. We discussed major sources of revenue in the law. If you haven’t already, check out the previous podcast in this series, which discusses how the health reform law cuts federal spending.