Wonkblog | Analysis
March 7, 2017 at 4:43 PM
Republicans' new health-care bill is a mass transfer of income that cuts taxes for the wealthiest Americans while cutting federal benefits for the middle and working class.
Just two provisions in the Republican plan would allow the richest households to pay an average of nearly $200,000 less under the GOP plan, according to the nonpartisan Tax Policy Center.
For the lower-middle class, the plan would replace the current system of benefits based on income with a new system based on age. As a result, a young person making less money would get less help to buy insurance than an older person who is making more.
The GOP measure unwinds many of the provisions of Obamacare, which offered health insurance subsidies to millions of middle-income households and funded them in part through new taxes on the wealthy.
Republican proponents of the bill argue that by eliminating regulations on health insurance, their legislation will reduce the price of coverage for the middle class, making up for the financial pain of reduced government support.
Some experts, however, are skeptical that the plan will work as intended.
"If the plan is successful in theory at lowering health insurance premiums, that's particularly a powerful economic benefit for low-income people who struggle to afford health insurance," said Avik Roy, a former adviser to Republican presidential candidates Mitt Romney and Sen. Marco Rubio (R-Fla.).
But Roy added that those benefits will not make up for the reduced subsidies: "The regulatory changes are a step in the right direction. Unfortunately, they don't go far enough," he said. "That's going to cause problems for a number of people."
Wealthy Americans — especially those households with incomes above $200,000 — would be better off under the bill primarily because they would no longer pay two major taxes levied as part of the Affordable Care Act.
One is 0.9 percent on taxpayers earning more than $200,000 in wages and salaries a year, or $250,000 for married couples. Those households must also pay a surcharge of 3.8 percent on income from several kinds of investments. Together, these taxes are projected to raise $346 billion over the next decade, according to the nonpartisan Congressional Budget Office.
The taxes aren't limited to the wealthy, but the wealthy would get the lion's share of the benefits of their repeal. The richest percentile of families pay 77 percent of the tax on high wages and salaries, and 90 percent of the tax on investments, according to the Tax Policy Center.
And the very rich would fare even better. The center projects that the average household from the top 0.1 percent of income distribution would save $31,000 a year if the tax on high salaries were repealed, and another $165,000 each year without the tax on investments.
At the same time, working- and middle-class households would no longer receive the same financial assistance that Democrats established to help them buy health insurance.
Under Obamacare, help was available in the form of health insurance subsidies to people with modest incomes — those who are not legally impoverished, but who make less than about $48,000 for an individual taxpayer, or about $90,000 for a family of four.
Under the Republican plan, Americans would receive tax credits based primarily on their ages, not their incomes. Individual earners making less than $75,000 a year would receive a fixed benefit based on their ages, with older taxpayers receiving more because of the increased cost of insurance for older patients.
Taxpayers making more than that amount would receive a less generous credit, but those earning any amount less than that would receive the same payment as other people of the same age.
As a result, a single 45-year-old earning as much as $75,000 a year could be better off under the Republican plan, because that taxpayer would not receive help under the current system, established under the Obama administration.
Meanwhile, a single 45-year-old making half that amount would receive the same payment as the wealthier taxpayer of the same age. That payment might be less generous than the one she would receive in the existing system, depending on where she lives.
Roy pointed out that some provisions in the Republican bill could help the middle class financially.
For instance, the bill would repeal a tax on tanning beds, and it would further delay a tax on especially generous health-insurance plans. This tax, known as the Cadillac tax, often applies to plans that employers offer to members of unions.
Among households with roughly middling incomes, about 12 percent would enjoy a tax cut if the tax on these plans were repealed, according to the Tax Policy Center. For families that would benefit, the relief would be worth about $930 a year on average.
The Republican plan would also reduce taxes on health savings accounts, which some middle-class families use to prepare for medical expenses. This provision, however, would probably have greater benefits for wealthier families, who can save more and can better take advantage of savings accounts that are sheltered from taxes as a result.
Also, the bill would eliminate some regulations on health-insurance plans that Democrats imposed. As a result, insurance companies would be able to offer less comprehensive but cheaper insurance. For some families, Roy said, those skimpier plans could be an opportunity to save money.
Roy warned, however, that those savings would likely not make up for the reduction in subsidies for taxpayers in the middle class would leave many Americans unable to afford health care.
Finally, the plan would probably make Medicaid, the federal program that provides health insurance to the poor, less generous over the long term.
Obamacare gave states the option to expand the criteria for qualifying for Medicaid and offered federal funds to pick up the vast majority of the associated costs. Under the Republican plan, however, that expanded criteria for qualifying for Medicaid would go away after 2020, at which time states would not be able to enroll new or returning patients from the expanded criteria in the program.
Meanwhile, the federal Medicaid payments to states will be limited based on the number of residents in poverty and the prices of medical treatment.
These limits will not be adjusted based on the average age of each state's residents or if states confront unexpected costs, said Aviva Aron-Dine, an economist who served as a health-care official in the Obama administration. As a result, the resources available to care for poor Americans could decline relative to what states would receive in the existing system, especially as the population ages.
On the whole, Aron-Dine said, the Republican bill would increase inequality, reducing taxes for the wealthy at the expense of affordable insurance for ordinary Americans.
"Millions of people are going to lose their health coverage," said Aron-Dine, now a senior counselor at the liberal Center on Budget and Policy Priorities. "Millions or tens of millions of people are going to see higher premiums and out-of-pocket costs."