Like drunken sailors on holiday, the Republican Congress and President Trump are poised to enact a massive, end-of-the year tax give-away. The top 1% of American taxpayers benefit the most with hopes that some will trickle down. After spending years touting their fiscal responsibility and railing against the federal deficit, their tax proposal is expected to increase federal debt by a more than $1 trillion, according to the Congress’s official scorekeeper, the non-partisan Joint Committee on Taxation. The deal is even worse for California taxpayers because it caps deductions for state and local taxes.
But wait, there’s more.
After failing in their effort to repeal and replace the Affordable Care Act, Congress has found a backdoor way of sabotaging the health reform law that millions depend on for their health coverage. Shoe-horned into the tax cut legislation is a proposal that eliminates the current penalty for not buying health insurance.
Let’s face it. As a general matter, Americans don’t like to be required to do anything. But we accept the “rules of the road” to protect the safety of all. The individual mandate has not been popular, but it has created an additional incentive for younger, healthier individuals to buy insurance. When they don’t, risk pools can’t balance out the cost of sicker and more costly individuals, premiums go up for everyone.
And there’s an added problem. Sometimes even younger and healthier individuals get sick, and even if they don’t have insurance, our emergency rooms and health care safety net of hospitals and clinics provide care. That’s a good thing, but someone is picking up the tab. Taxpayers pick up some of the cost, but the burden is also shifted to other payers in the form of higher premiums.
The Affordable Care Act has three central pillars: Insurance companies are prohibited from denying coverage to individuals with pre-existing conditions; federal subsidies are provided on a sliding-scale basis to make the cost of coverage more affordable; and most people are required to have coverage or pay a tax penalty.
The proposed repeal of the individual mandate tax penalty threatens to further destabilize the marketplace where individuals buy health insurance, resulting in higher premiums. As fewer buy health insurance, premiums will go up. The Congressional Budget Office (CB0) projects a 10% increase. Lower income individuals and families who receive federal subsidies will be insulated from these higher costs because the value of their subsidy is tied to the average cost of insurance. Higher income individuals who make more than $48,000 per year or a family of three making over $81,000 won’t qualify, and will likely face higher health insurance costs. A 64 year-old could experience a premium increase of $1,490 per year as a result of repealing the mandate.
CBO estimates repeal of the individual mandate will result in thirteen million fewer Americans having health insurance. That is projected to save the federal government over $318 billion because fewer people would get federal subsidies. The Senate Republican tax plan pockets that savings to help offset the cost of a bigger tax cut.
Some experts believe that most individuals who now receive federal subsidies will continue to buy coverage even if they don’t have to. That would be good news for health insurance consumers, but bad news for the federal deficit that will be even bigger.
So what’s the plan to pay the federal debt? House Speaker Paul Ryan has an answer. “Frankly, it’s the health care entitlements that are the big drivers of our debt,” he recently said, so we need to spend more time on the health care entitlements – because that’s really where the problem lies, fiscally speaking.”
The threat to health entitlement programs like Medicare and Medicaid is one reason why organizations like AARP are opposed to the tax plan. Indeed, unless Congress takes action, the proposed legislation will result in automatic federal cuts of $136 billion in fiscal year 2018, $25 billion of which must come from Medicare.
Congress is burning the midnight oil to jam passage of their tax cut legislation before Christmas. Their handiwork will drive up the federal deficit, destabilize health insurance markets, and threaten health care programs that most Americans depend on. It’s a “gift” that will keep giving for decades to come. Let’s tell them to put it back on the shelf, and think harder about what we really need.
Americans deserve better and should demand it.
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David Panush is the President of California Health Policy Strategies, a Sacramento based consulting group, and the former External Affairs Director of Covered California.