President-elect Donald Trump has promised to quickly repeal and replace the Affordable Care Act. Now he and the newly elected Republican Congress are like the dog that caught the car. What are they going to do with it?
One of their biggest problems will be how to fund the tax deductions or credits they have proposed to help people afford health insurance in their new system. That's because repealing the ACA means erasing the hundreds of billions of dollars in taxes that pay for the law's premium tax credits and Medicaid expansion. Last January, congressional Republicans passed a repeal bill that wiped out the subsidies, the Medicaid expansion, and most of the major taxes, including taxes on hospitals, health insurers, medical device makers, and high-income taxpayers. President Barack Obama vetoed it.
Abolishing the ACA would increase the federal budget deficit by as much as $350 billion through 2025, according to the Congressional Budget Office.
“The brutal reality that Republicans have been reluctant to discuss is if you repeal all of Obamacare, there is no money to insure all of the uninsured,” John Goodman, a veteran GOP health policy adviser who helped draft an ACA replacement bill sponsored by Rep. Pete Sessions (R-Texas) and Sen. Bill Cassidy (R-La.), said in a June interview.
Examining the challenges Republicans will face in financing health insurance subsidies illustrates the complexities and political tradeoffs involved in passing an ACA replacement bill. It suggests that Trump, who has promised to repeal and replace the ACA as one of his first acts in office, would have to invest a large amount of time and political capital on his healthcare overhaul, just as Obama did in his first year.
His various financing options are likely to anger powerful stakeholder groups. They include eliminating the Medicaid expansion and cutting Medicaid spending through defined federal contributions to the states; paring Medicare spending by tightening value-based payment programs to place healthcare providers at greater financial risk; and capping the tax exclusion for employer health plans, according to Christopher Condeluci, who worked as Senate Finance Committee Republican staffer during the drafting of the ACA.
Making the whole exercise politically harder is that one of the money-raising options—eliminating the ACA's tax penalty for not buying insurance—would prompt fewer people to use premium subsidies but would drive up the uninsured rate. The CBO concluded (PDF) that the GOP repeal bill in January would leave 22 million more Americans uninsured. “That's not great,” Condeluci said.
Most observers agree the Trump administration and congressional Republicans will have to offer at least some financial assistance to help people buy coverage in order to mitigate the number of Americans who would lose coverage with the repeal of the ACA's generous premium tax credits.
Without offering details, the Trump campaign proposed earlier this year to allow individual purchasers of health insurance to fully deduct premium payments on their income tax returns. That would offer a relatively modest subsidy, but most of the benefits would flow to people higher on the income scale.
In contrast, a white paper issued by House Speaker Paul Ryan and other House GOP leaders in June would offer people who lack public or employer coverage a refundable tax credit in an unspecified amount—adjusted by age, not income—to help them buy insurance.
While neither of these tax subsidies would be as expensive as the ACA's premium tax credits, they probably would still cost tens of billions of dollars over a decade. At the same time, the Trump tax deduction or the Ryan tax credit would provide much less help than the ACA in making coverage affordable to consumers, particularly for lower-income people.
To pay for these replacement subsidies, Goodman favors keeping the ACA taxes. The bill he helped draft, the Health Empowerment Liberty Plan (HELP), would offer every adult a refundable tax credit averaging $2,500, adjusted by age and geography but not based on income; every child would be eligible for a tax credit averaging $1,500. That's generous by the standards of recent GOP proposals.
People could use the HELP tax credit to buy coverage on their own or have their employer apply it to their health plan at work. Alternatively, they could deposit the money in a health savings account and pay directly for their medical expenses. Those currently enrolled in ACA exchange plans could keep their plans and premium subsidies or switch to the new flat-dollar tax credit system for buying coverage.
In an interview last week, before the election, Goodman said he's talked to a lot of House Republicans and they're open to keeping the Obamacare taxes. “I don't find a lot of resistance to the idea that we need to keep the Obamacare revenues,” he said. “We've got a lot of money, and we'll give it to real people.”
But Condeluci, who now runs his own consulting shop, CC Law & Policy, sharply doubts congressional Republicans will be willing to keep the ACA taxes because they've already voted to abolish the taxes and they are deeply hostile to all things Obamacare. And he thinks Ryan's proposal, though vague, is more likely than the Sessions-Cassidy bill, to serve as the blueprint for the Trump administration's replacement legislation.
As Condeluci ran through the various ways of raising revenue for the GOP premium subsidies, I wondered how many Republicans really will want to jump into the shark-infested waters of healthcare reform. For one thing, taking money from Medicare would expose them to the same charge of “raiding" the popular senior program that they leveled at Obama and the Democrats when they passed the ACA. Any effort to cap the tax exclusion for employer health plans would encounter the same fierce opposition from business and labor unions the Democrats faced on the ACA's reviled Cadillac tax on high-value employer plans.
Then Republicans probably would have to agree to sweetening the tax credits for lower-income people if they wanted to avoid charges of being too stingy to the working poor and win enough Democratic support to pass the replacement bill in a closely divided Senate. That would cost more money and anger House conservatives.
Condeluci, who knows the tough trade-offs from living through the passage of the ACA, expressed moderate confidence that Trump and the Republicans are willing to slog through this. He acknowledged that the GOP healthcare overhaul could end up being just as complicated and bureaucratic as the ACA.
“Can you mitigate the complexity so that it's better than the system we currently have? Maybe you can never get there,” he said. “But now that the Republicans are running the show, they have no other choice but to do this.”
