What does the American Health Care Act — the healthcare bill the House of Representatives is voting on Thursday, after weeks of negotiation and a previous failed attempt — actually do?
You can answer this by talking about what’s actually in the bill: it replaces Obamacare’s income-adjusted subsidies with a flat (and overall less generous) tax credit; it overhauls and dramatically cuts Medicaid; and it allows states to get waivers from Obamacare requirements that protect people with pre-existing conditions.
But that’s not the reason that Republicans want to pass the bill. Republicans want to pass the bill to cut taxes.
One of the main ways the ACA makes health insurance affordable is by providing families earning less than 400 percent of the poverty line (i.e., less than $85,000 for a family of three or less than $47,550 for a single person) with tax credits to defray the cost of purchasing insurance. Giving people money helps make things more affordable. President Obama and the congressional Democrats who wrote the law didn’t find the money for those subsidies hidden in a banana stand — they did what Democrats like to do when paying for things and raised taxes on affluent families.
Republicans do not like this idea. They dislike the idea of raising taxes on wealthy households so much that back in 2011, they pushed the country to the brink of defaulting on the national debt rather than agree to rescind George W. Bush’s high-end tax cuts. In December 2012, they tried to insist that they wouldn’t let Obama extend the portion of the Bush tax cuts that everyone (including rich people) got unless he also extended the tax cuts that only rich people got.
All of which is to say that despite Democrats’ occasional protestations of bafflement as to why the GOP would so uniformly oppose a market-based approach to universal health care that Mitt Romney happily adopted in the mid-aughts in Massachusetts, there’s no real mystery here. Subsidizing the health care costs of working-class people is expensive, and while Democrats want rich people to pay the freight for doing it, Republicans do not.
That’s an important reason why they opposed the Affordable Care Act, it’s an important reason why they want to repeal it, it’s an important reason why they can’t replace it with something better, and it’s also an important reason why they may end up just dropping the whole thing.
Repeal of Obamacare’s taxes would be a huge tax cut for the rich
This did not play a major overt public role in the 2009-’10 debate about the law, but the Affordable Care Act’s financing rests on a remarkably progressive base. That means that, as the Tax Policy Center has shown, repealing it would shower money on a remarkably small number of remarkably wealthy Americans.
The two big relevant taxes, according to the TPC’s Howard Gleckman, are “a 0.9 percent payroll surtax on earnings and a 3.8 percent tax on net investment income for individuals with incomes exceeding $200,000 ($250,000 for couples).” That payroll tax hike hits a reasonably broad swath of affluent individuals, but in a relatively minor way. The 3.8 percent tax on net investment income (money made from owning or selling stocks and other financial instruments rather than working), by contrast, is a pretty hefty tax, but one that falls overwhelmingly on the small number of people who have hundreds of thousands of dollars a year in investment income.
:format(webp):no_upscale()/cdn.vox-cdn.com/uploads/chorus_asset/file/7804307/untitled_9.png)
For the bottom 60 percent of the population — that is, households earning less than about $67,000 a year — full repeal of the ACA would end up meaning an increase in taxes due to the loss of ACA tax credits. (Under the Republican bill Congress is considering, the tax credits aren’t totally eliminated — but they’re no longer designed to give the most money to the poorest Americans, so it’s likely that at least some of the poorest Americans would see their taxes go up.)
But people in the top 1 percent of the income distribution — those with incomes of over about $430,000 — would see their taxes fall by an average of $25,000 a year.
And for the true elite in the top 0.1 percent — people like designated White House senior adviser Jared Kushner, Treasury Secretary Steve Mnuchin, Education Secretary Betsy DeVos, Commerce Secretary Wilbur Ross, and many major campaign donors — the tax cut is truly enormous. Households with incomes of more than $1.9 million would get an extra $165,000 a year in take-home pay under full repeal. That’s obviously more than enough money to make these hyper-elite families come out ahead regardless of what happens to health insurance markets.
Under the actual AHCA, Jared Kushner would actually pay even less in taxes. As a young person, Kushner would get a larger tax credit to buy insurance under the AHCA than he does now.
This is why Republicans couldn’t make a better replacement
Republicans have made a lot of political hay out of pointing out that the plans available under the Affordable Care Act are, in many ways, disappointing. Unsubsidized premiums are higher than people would like. Deductibles and copayments are higher than people would like. The networks of available doctors are narrower than people would like.
These problems are all very real, and they all could be fixed.
They are not, however, problems that the American Health Care Act actually fixes. While Republicans have made several changes to the AHCA to cobble together a majority of House votes, the core of the bill remains the same: it offers stingier insurance to a narrower group of people.
This is because the AHCA does what Republicans want: it rolls back the ACA taxes. But under those circumstances, it’s simply not possible for the GOP to offer people the superior insurance coverage that it is promising.
The bill the House is voting on Thursday doesn’t get rid of the ACA’s tax credits to make it easier to buy health coverage, but it bases them on age, with younger people getting bigger credits, rather than income — which means poorer Americans. especially elderly ones, will have a bigger tax burden and more difficulty affording the insurance they need.
Phil Klein, a top conservative health policy journalist, has urged Republicans to solve their overpromising problem by “stating a simple truth, which goes something like this: ‘We don't believe that it is the job of the federal government to guarantee that everybody has health insurance.’”
Instead, Republican leaders have tried to please both the wing of their party that believes this and is willing to say it, and the wing of their party that was hoping to replace Obamacare with something that gave better coverage to more people. Even if they cobble together a majority on Thursday, after one failed attempt, it won’t change the fact that the bill was designed as (and will be successful as) a tax cut, not a coverage expansion.
This is also why Republicans might drop repeal
While mania for tax cuts is an important driver of the GOP push to repeal the Affordable Care Act, it might also ultimately be what leads them to abandon it. The healthcare debate has already taken more time than either Congress or the White House wanted — and the bill hasn’t even gotten to the Senate yet.
Meanwhile, many Republicans are itching to move on to their next priority: tax reform.
Republicans have a bunch of different tax plans floating around, but they all feature enormous tax cuts for wealthy households. Democrats will object, but they won’t be able to stop the GOP from enacting a big tax cut. The only issue will be how large of an increase in the budget deficit do Republicans consider economically viable. Once that’s decided, however, the tight linkage between the ACA and tax policy will be broken, since the entire rate structure will have already been rewritten in a way that makes the ACA’s specific financing mechanism irrelevant.
Taking away people’s health insurance is one way to create more budgetary space for additional tax cuts. But the same would be true of cutting spending on any program. Meanwhile, on the campaign trail Trump promised a $1 trillion infrastructure surge, an increase in military spending, no cuts to Medicare and Medicaid, and a balanced budget. Something will need to give, but it’s by no means clear that zeroing in on the health care law will be the way to go. It will end up being one of many programs on which the government spends money to provide social services that Democrats generally want to make more generous and Republicans generally want to make stingier.
No matter how the budget crunch gets resolved, however, the tax issue is the $500 billion elephant in the room. It’s a key reason GOP leaders want repeal, a key reason they’ve had trouble coming up with a popular replacement, and potentially a key reason they’ll ultimately decide to move on to other matters. Talking about health care politics without talking about the revenue side misses an enormous part of the story.
