Democracy Dies in Darkness

Wonkblog | Perspective

The Republicans’ Obamacare repeal is one big lie

By Steven Pearlstein

June 22, 2017 at 1:23 PM

Watch more!
Senate Majority Leader Mitch McConnell (R-Ky.) unveiled the legislation that would reshape a big piece of the U.S. health-care system on Thursday, June 22. Here's what we know about the bill. (Monica Akhtar/The Washington Post)

The Senate health-care bill is a blatantly cynical and political plan to reward the rich, squeeze the poor and give Republicans the chance to claim they protected the middle class — or at least those in the middle class who aren't too sick.

The Republican campaign to repeal Obamacare was always based on a false promise (okay, a lie): that it was possible for all Americans to have better, cheaper medical care without raising taxes or reducing the incomes of doctors and the profits of hospitals and drug companies.

The reality, as the Senate's Republican caucus came to understand, is something quite different: You can't lower health-care costs or extend coverage for some people without raising the taxes or premiums of everyone else. It's a zero-sum game.

Actually, that statement is not exactly true. In a country that spends roughly twice as much as other advanced countries for mediocre results, it would be possible to restructure the system to give most people more for less. But, alas, the Senate bill does almost nothing to restructure the way medical care is delivered, how much is consumed and how it is priced, because to do so would have meant taking on the business interests that the Republicans are counting on to finance their reelection.

Instead, what we get is a financial shell game.

Take, for example, the centerpiece of the Republican effort, transforming Medicaid from a guarantee of free health insurance for the poor and disabled into a block grant to states to finance health care for whomever they want in whatever ways they see fit.

States, which now pay about a third of the cost of the program, have long had the flexibility to propose different ways of covering the poor, and the federal government has approved a variety of such experiments. But the way most states have been found to restrain Medicaid costs is to pay doctors and hospitals less than all other insurers pay. The result is that hospitals charge other insurers and patients higher rates to make up the difference, while the number of doctors who are willing to take Medicaid patients has shrunk.

So what will happen if Republicans succeed in turning Medicaid from an open-ended individual entitlement program for the poor into a slowly diminishing block grant to the states? There are three options:

*States could raise taxes on everyone else to increase their own spending on Medicaid.

* States could further cut reimbursement to doctors and hospitals and drug companies, resulting in yet even more cost shifting.

* States could cut more people from Medicaid coverage, or reduce the range of services covered, which will only send more poor people to hospital emergency rooms for free medical care, resulting in still more cost shifting.

In other words, there is no real saving — some portion of the cost of providing free medical care to the poor is merely shifted from all federal taxpayers to state taxpayers, and higher premiums for everyone else. Zero-sum game.

Another feature of Republican plan gives states the right to opt out of Affordable Care Act regulations that limit how much more insurance companies can charge older customers, who on average consume a lot more health care, than younger ones who tend to use relatively little. Existing regulations say insurers can charge only three times as much. Senate Republicans would increase that to five times as much. The rationale is that the lower premiums will induce more young people to buy insurance without having to resort to a government mandate, which will have the effect of stabilizing insurance markets.

But there is no magic here. In a regulated insurance market, every dollar of reduced premiums for the young will be offset by an increase in premiums for the old. Some will pay it (those will tend to be the ones with chronic illness), but some of the healthier and less affluent ones will decide they cannot afford it and go without insurance. And if they are unlucky and they do get a serious illness, they too will wind up in hospital emergency rooms, where the cost of their care will be shifted to everyone else. Again, the zero-sum game.

A third big change will be the form and size of the subsidies provided by the federal government to those working-class families without employer-provided health insurance who buy policies on the Obamacare exchanges. Republicans would replace the current premium subsidies with tax credits, the size of which would be adjusted for income and age but in total will be significantly less than Obamacare's premium subsidies. So working-class people will pay higher premiums and out-of-pocket costs for health insurance that is less comprehensive — or they will go uninsured — while the people who financed Obamacare through higher taxes will be paying less by about the same amount.

And who are these lucky taxpayers? According to an analysis by the nonpartisan Tax Policy Center, around 90 percent of the benefit would go to households with more than $700,000 in annual income — the top 1 percent — who would no longer have to pay a 3.8 percent payroll tax on the income they make from investments in stocks, bonds and real estate and a 0.9 percent payroll surtax on their salaries. The center calculated that works out to an average of $33,000 per household.

If you set out to design a regressive piece of public policy — one that literally takes money from the poor and gives it to the rich — it would be difficult to design a policy more regressive than the bills to repeal Obamacare. The Senate's is only somewhat less effective in this than the one already passed by the House.

The inequity, however, is not simply with the distributional impact of repealing these taxes to reduce health insurance subsidies. There is also an aspect of tax fairness.

If you are like the vast majority American workers who earn less than $127,200 in annual wages and salaries, you pay a 7.65 percent payroll tax as your contribution to the Social Security and Medicare program. It is taken right out of your paycheck, in that box labeled FICA. But if you are one of the top 10 percent of wage earners who has a higher salary, you don't pay the payroll tax on whatever is over that cutoff. In addition you pay no tax on income that comes from dividends or capital gains -- profits from buying and selling stocks, bonds, real estate and shares in private equity and hedge funds.

This inequity has existed since the payroll tax was introduced. It turns the payroll tax from a flat tax — one in which everyone pays the same share of their income — into a wildly regressive one in a world where most wealthy people have arranged to receive most of their income in the form of dividends and capital gains. Obamacare was financed by partially closing this glaring loophole, and if Obamacare is repealed, it will be because Republicans insist on reopening it. Zero-sum game.

To be fair, there were parts of Obamacare meant to reduce the amount of health care consumed and the prices charged for that care, and there have been modest gains in that direction. But primarily Obamacare was a big transfer of wealth from people who are rich, young and healthy to people who are poor, older and sick. Obama tried to soft-pedal that redistributive reality in trying to pass it, just as Republicans are now desperate to cover up that they are doing the same, only in reverse.

Here's one thing I don't understand, however.  I don't understand why Democrats don't run TV ads like this one, which is well within the current hash marks for truthfulness in political advertising:

Open with black-and-white video of a nurse, a carpenter and a machine operator hard at work as 7.65% flashes on the screen and the announcer declares, "For these hard-working Americans, this is what goes from every paycheck to pay their fair share of Medicare and Social Security " Then cut to a slick and cocky hedge fund manager getting his shoes shined at the office while doing a derivatives trade on his cellphone, and with 0% flashing on the screen as the announcer picks up, "… while this Wall Street hedge fund manager doesn't pay a dime."

The ad then cuts to an ordinary voter on the street saying, saying, "I didn't know that."  And a second one who says, "That couldn't be right." And a third who asks quizzically, "What politician would vote for that?"

Then switch to still color photo, face shot only, of a smiling Republican congressman as the announcer intones: "Actually, it was your senator, Bob Corker, who voted for that tax plan when he voted to repeal Obamacare and kick millions of poor, sick and disabled Americans off of health insurance. Is that the government you thought you were voting for? Is that the kind of America you want to live in? "

If you want to know why Senate Republicans even dared to propose a health-care bill like the one unveiled today, if you want to know why Hillary Clinton lost in November and Jon Ossoff lost in the congressional race in George this week, it is because they couldn't come up with simple, powerful messages like that.

Read more:

Now is the time for business leaders to dump Trump, for the good of the country

When it comes to corporate tax reform, the GOP may be on to something. Really.

The business lobby's hypocritical, one-size-fits-all answer to regulation: No

Trump is putting the wolves of Wall Street in charge of America's economy


Steven Pearlstein is a Post business and economics writer. He is also Robinson Professor of Public Affairs at George Mason University.

Post Recommends
Outbrain

You obviously love great journalism.

With special savings on our Basic Digital package, you’ll never miss a single story again.

Already a subscriber?

Secure & Encrypted