Patient Protection and Affordable Care Act - How It Will be Funded

The big question on many people’s minds is where will the money come from to fund the deficit reduction and the Patient Protection and Affordable Care Act (PPACA). The Congressional Budget Office (CBO) estimates that the PPACA will cost $940 billion over the next 10 years. Even with the high cost of the PPACA, the CBO approximates that there will be a $143 billion reduction in the federal deficit over the next 10 years (2010-2019) and a $1.2 trillion reduction in the federal deficit in the 10 years following (2020-2029).

The PPACA and deficit reduction will be funded through new taxes, fees, and penalties on individuals, businesses, and the health care industry. This alert will touch upon the biggest changes individuals, businesses, and the health care industry will experience in the next few years.

Individual tax payers will contribute to the PPACA funding through an additional Medicare tax imposed on wages and investment income, penalties for failure to maintain health care coverage, a higher threshold for itemized medical expense deductions, a tax on indoor tanning, and an additional tax on distributions from health and medical savings accounts.

The health care industry will be a large source of the PPACA’s funding through fees on health insurance providers and pharmaceutical manufacturers and importers, excise taxes on medical devices and high cost employer sponsored health coverage, and a limitation on remuneration paid by health insurance providers.

Beginning this year, the deduction for employee remuneration paid by health insurance providers will be limited. The amount health insurance providers will be able deduct in applicable employee remuneration will decrease from $1 million to $500,000. The limit will apply to all officers, employees, directors, and other workers or services providers performing services for or on behalf of a health insurance provider.

Non-health care industry businesses will also face changes and penalties as part of the PPACA funding. Effective in 2010, the PPACA eliminated the cellulosic biofuel producer credit. Paper companies will now be barred from claiming $1.01 per gallon cellulosic biofuel producer credit for black liquor, a by-product of paper making. This change is estimated to raise $23.6 billion over the next ten years.

Hoffman, Larkin, Bruce Douglas and Kelly Burke. "Patient Protection and Affordable Care Act - How It Will be Funded." Lexology. 13 July 2010. Web. 27 July 2010.