Home / Government / Q&A: Tax bill would affect ‘Obamacare’ and possibly Medicare

Q&A: Tax bill would affect ‘Obamacare’ and possibly Medicare

Associated Press

WASHINGTON (AP) — The tax overhaul Republicans are pushing toward final votes in Congress could undermine the Affordable Care Act’s health-insurance markets and add to the squeeze on Medicare.

Lawmakers will meet this week to resolve differences between the House- and Senate-passed bills in hopes of getting a finished product to President Donald Trump’s desk around Christmas. Also in question are a tax deduction for people with high medical expenses and a tax credit for drug companies that develop treatments for serious diseases that affect relatively few patients.

The business tax cuts that are the centerpiece of the legislation would benefit many health-care companies. Hospitals, doctors and insurers are also concerned, though, about the effects on coverage. Here are some questions and answers on how the tax bill intersects with health care:

Question: Trump has said he won’t cut Medicare, and the program doesn’t even seem to be mentioned in the tax bill. Why is AARP saying that health insurance for seniors could be jeopardized?

Answer: The tax bill would increase federal deficits by about $1 trillion over 10 years, even after stronger economic growth expected from tax cuts. More red ink means higher borrowing costs for the government, and that would reduce options for policymakers when Medicare’s long-postponed financial reckoning comes along.

Medicare’s giant fund for inpatient care isn’t expected to start running out until 2029, which is more than a decade away. But an anti-deficit law currently in effect could trigger automatic reductions as early as next year — causing about $25 billion to be cut from Medicare.

House Speaker Paul Ryan, R-Wisc., and Senate Majority Leader Mitch McConnell, R-Ky., said in a joint statement last week that such speculation is unfounded. “This will not happen,” the GOP leaders said. Congress has previously waived such reductions, they explained, and there’s no reason to think this time will be different.

Even so, some see an increased danger.

“The greater concern is even if the automatic cuts don’t take place, the tax bill just exacerbates the pressure on the federal deficit and Republicans have been pressing for cuts in Medicare for some time,” said Paul Van de Water, a policy expert at the Center on Budget and Policy Priorities, which advocates for low-income people.

Other safety-net programs, including Medicaid and Children’s Health Insurance, would also come under greater pressure.

Q: How did “Obamacare” wind up in the tax bill?

A: The Senate version repeals the Affordable Care Act’s tax penalties on people who don’t have health insurance. That actually saves the government money, since fewer consumers would apply for taxpayer-subsidized coverage. GOP tax writers got nearly $320 billion over 10 years to help pay for tax cuts.

Repealing the fines would deal a blow to “Obamacare” after a more ambitious Republican takedown collapsed earlier this year.

Q: Those fines have been very unpopular. So how could repealing them undermine the health law? Other parts of the ACA will remain on the books.

A: Premiums will go up, and that’s never popular.

The fines were meant to nudge healthy people to get covered. Because insurance markets work by pooling risks, premiums from healthy people subsidize care for the sick.

Without some arm-twisting to get covered, some healthy people will stay out of the pool.

That’s likely to result in a 10 percent increase in premiums for people who are left behind, are more likely to have health troubles and need comprehensive coverage, says the Congressional Budget Office.

The CBO also estimated that 13 million more people would be uninsured in 2027 without the penalties. If people in this category have a serious accident or illness, they’ll get slammed with big bills, and taxpayers wind up indirectly subsidizing the cost.

Q: So just taking away an unpopular penalty would destabilize the health-insurance law?

A: The repeal of the fines is just one of many changes that are taking place.

The Trump administration slashed the advertising budget for ACA sign-ups this year, while also cutting the enrollment window in half. The administration is working on rules that would allow broader sales of skimpy insurance plans with lower premiums. That, too, would also draw healthy people away from the markets set up by the ACA.

“The program would still exist, but it would be quite hobbled at this point,” said Larry Levitt of the nonpartisan Kaiser Family Foundation.

A separate bipartisan bill to help make health-insurance markets stable is still pending in the Senate, and it remains unclear how the markets will settle out.

Q: Taxes and health care are connected. Anything else to flag in the GOP bills?

A: The House bill repeals the tax deduction for people with high medical expenses not covered by insurance. The Senate bill would instead make the deduction more generous than what’s currently allowed. People could deduct amounts that exceed 7.5 percent of their income. The differences between the two versions still must be resolved in conference.

In order to raise money to pay for lower tax rates, the House bill would eliminate a tax credit available to drug companies that develop medications for people with rare diseases; the Senate bill would scale back the tax credit. Organizations representing patients are pushing to keep the credit intact.

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