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Obamacare cost-cutting: CNBC explains

Tuesday, 1 Oct 2013 | 12:52 PM ET
President Barack Obama speaks about the Affordable Care Act in San Jose, Calif.
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President Barack Obama speaks about the Affordable Care Act in San Jose, Calif.

Obamacare is trying to cut billions of dollars in health-care costs, at the same time it mandates that nearly all Americans get health insurance.

A number of provisions of the Affordable Care Act, many of which have already gone into effect, are directly aimed at reducing the growth of health-care spending, which accounts for nearly one-fifth of the overall U.S. economy.

However, even as it tries to hold down the inflation rate of health care, the ACA will cost the federal government an estimated $1.36 trillion over the next decade, according to the Congressional Budget Office.

(Read more: How do Obamacare exchanges work?)

One of the ACA's cost-cutting tools is financially penalizing hospitals by reducing government Medicare reimbursements to them if they have an excess number of patients who are released from the hospital and then readmitted within a month for heart attacks, heart failure and and pneumonia.

Another is requiring health insurers who spend less than 80 percent of the premiums they receive from customers on health benefits for them to reimburse some money to those customers. Insurers of large companies have to spend at least 85 percent of the premiums they receive on benefits or pay refunds.

(Read more: Medicare and Medicaid: CNBC Explains)

In 2018, there will be a 40 percent excise tax slapped on health insurance plans whose premiums exceed $10,200 for individuals and $27,500 for families. This tax on so-called Cadillac plans is designed to tamp down overuse of medical care by people with those plans.

The law also encourages hospitals, primary care physicians and other medical providers to join forces in so-called Accountable Care Organizations, whose goal is to coordinate care for their patients and, if they meet certain quality targets such as keeping those people healthy and out of the hospital, get paid more by Medicare.

Obamacare also created the Independent Payment Advisory Board, which is empowered to recommend reductions in Medicare spending, in years in which Medicare per capita costs exceed specific targets including overall medical prices. Those reductions will take effect unless Congress comes up with another reduction that saves the same amount.

Obamacare's provision that insurers' policies cover things such as preventative care for customers is also geared to reducing overall long-term costs. The theory is that people who can obtain preventative care, and actually do with, will be less likely to suffer chronic health conditions that could end up costing much more.

(Read more: Obamacare deadlines loom for you)

—By CNBC.com's Dan Mangan. Follow him on Twitter @_DanMangan.

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