GOP Health Care Bill Will Result In A Huge Tax Cut For The Rich, 24 Million Without Insurance

Last week, GOP leadership revealed its long-awaited  plan to repeal and replace Obamcare by publishing the American Health Care Act. Rather than representing a unifying piece of legislation for the Republican party, however, the proposed legislation created an immediate division within the GOP, with many leading Republicans derisively calling the plan "Obamacare Lite" and others questioning the impact it would have on the number of insured individuals, or stated more appropriately, the number of insured voters in advance of the 2018 mid-term elections.

Despite the lukewarm reception with which it was met, the American Health Care Act moved through the House Ways and Means Committee along party lines; though it did require 18 hours of debate, with Democratic committee members decrying the Committee's willingness to move the bill forward without a complete measure of its cost or the lost insured.

Today, the Congressional Budget Office answered those questions, releasing its official scoring of the American Health Care Act, and the results are not pretty. An $883 billion tax cut, $274 billion of it going to the richest 2%. $880 billion stripped from Medicaid. And 24 million fewer insured individuals over the next ten years.

Let's take a look at how the CBO came up with the numbers it did. But first, we need to understand a bit about how Obamacare works.

Obamacare: The Basics

The overarching goal of Obamacare, despite what you may have read on your angry uncle's Facebook page, was not to FORCE people to buy insurance. Rather, the goal was to provide affordable health coverage for as many Americans as possible by reforming the insurance industry. Insurance companies, the controversial law required, could no longer do things the way they used to: For example, they could no longer deny taxpayers coverage because they have a "pre-existing condition," a change anyone who has been on the wrong end of that exercise of power happily welcomed. Nor could insurance companies provide an annual cap on covered services, another change met with near universal approval.

But you can't have those changes in isolation. You can't hold the feet of insurance companies to the fire without holding others accountable as well. For example, if an insurance company can't deny because of a pre-existing condition, what is to prevent young, healthy individuals from waiting until after they get sick  to go out and procure coverage?

The answer, of course, is nothing. Which is why in order for insurance reform to happen, Obamacare needed to install three legs to support its overarching goal of providing affordable coverage to all.

First, for any month a taxpayer did NOT have coverage, he or she would pay a penalty to the IRS. Again, the idea was not for this "individual insurance mandate" to be punitive in nature, but rather it was necessary to compel young, healthy individuals with no motivation to get insurance --because of the inability for insurers to deny them for a pre-existing condition -- to go out and get it anyway, because only by having those individuals in the marketplace could premiums be made affordable for all. After all, if young, healthy, low-risk individuals don't buy insurance...well, insurers will be forced to raise the premiums of other, more risky applicants.

Second, those who couldn't acquire insurance from an employer needed a way to obtain affordable coverage. As a result, Obamacare ordered each of the 50 states to set up an exchange; a marketplace where individuals could buy such coverage. And if the individual's income was between 100% and 400% of the federal poverty line, their premium would in part be subsidized through a federal tax credit (the Premium Tax Credit). This put affordable coverage within reach for those who might not otherwise be able to afford it.

Lastly, Obamacare held employers' feet to the fire as well, requiring all employers with more than 50 employees to either provide affordable coverage to the employees, or pay a penalty of their own.

To finance these changes, a number of new taxes were created in addition to the individual and employer mandate penalties. Specifically:

• A new 3.8% surtax was levied on the net investment income -- interest, dividends, rents, royalties -- of those taxpayers with income in excess of $250,000 (if married, $200,000 if single).
• A new 0.9% Medicare tax was assessed on earned income -- salaries, self-employment income -- in excess of $250,000 (if married, $200,000 if single).
• The floor on deductible medical expenses was increased from 7.5% to 10% of adjusted gross income for taxpayers under the age of 55.
• New excise taxes were assessed on health insureres, certain medical devices, branded prescription drugs, and tanning services.

The American Health Care Act

The recently released plan to repeal and replace Obamacare makes drastic changes to the existing law, though not nearly drastic enough for many within the GOP.

Specifically, the plan would repeal nearly all of the taxes created under Obamacare, including the following:

• The individual mandate would disappear retroactive to 1/1/2016.
• The employer mandate would disappear retroactive to 1/1/2016.
• The net investment income tax and additional Medicare tax would be removed effective 1/1/2018.
• The premium tax credit would remain in limited form until 2020, but would not be available for any plan that covers abortion.

In place of the premium tax credit, the American Health Care Act would enact a new credit that would focus less on income levels and more on age, ranging from $2,000 for those under 30 to $4,000 to those over 60, with phase-outs beginning at $150,000 of taxable income (if married, $75,000 if single).

The new law also makes the following changes to the insurance industry:

• The federal matching rate for adults made eligible for Medicaid by Obamacare would be reduced to equal the rate for other enrolles in the state beginning in 2020.
• The bill appropriates funding for grants to states beginning in 2018.
• It removes the requirement, beginning in 2020, that insurers who offer nongroup plans cover at least 60% of the cost of covered benefits.
• It grants insurance companies the ability to charge an extra 30% for premiums if the applicant has not been covered for a period of 63 days in the previous year.
• Allows insurers to charge elderly applicants five times what it charges younger applicants (current law provides a cap of three times the premiums for younger taxpayers).

CBO Score

In what was the most eagerly-anticipated CBO score in decades, the report issued earlier today contained the following headlines:

The American Health Care Act would reduce the federal deficit by $337 billion over the next ten years.

Reduced deficits? That sounds great! But depending on your personal politics, you might not be so enthused to learn that the deficit reduction is largely attributable to tax cuts for the rich coupled with large decreases in Medicaid and tax credits for low-income taxpayers. Let's take a look:

• Spending would decrease by $1.2 trillion over the next ten years. This is due primarily to huge cuts to Medicaid ($880 billion) that would result largely from lower enrollment attributable to the terminated enhanced matching rate. In addition, there will be savings generated from the reduced benefits the new tax credit will provide to low-income individuals when compared to the Premium Tax Credit ($400 billion).
• Revenue would decrease by $883 billion over the next ten years. This is due to the tax cuts, a few of which are reflected below:

While the removal of the individual and employer mandate are likely to benefit many lower and middle-class taxpayers, as noted above, both the net investment income tax and the additional Medicare tax apply only to the richest 2%. Thus, the repeal and replace plan results in a $274 billion tax cut to those high-income taxpayers over the next decade, while simultaneously slashing Medicaid and subsidies for insurance premiums of low-income taxpayers.

The American Health Care Act would result in 24 million fewer insured individuals over the next ten years

The CBO determined that in 2018 alone, 14 million more people would be uninsured than if Obamacare simply remains in place. This is due largely to the repeal of the individual insurance mandate, which as we discussed above, was enacted to compel young, healthy individuals to acquire insurance despite the fact that they could no longer be denied because of a pre-existing condition should they choose to wait. This absence of a penalty would cause many of those individuals to eschew insurance, and without them in the marketplace, it would increase premiums for other taxpayers, many of whom will choose to forego insurance rather than pay the higher premiums.

Beyond 2018, the CBO predicts that the reduced benefits offered under Medicaid -- as some states discontinue their expansion of eligibility --  and the smaller subsidies offered under the new tax credit program will increase the total of uninsured individuals relative to current law to 21 million in in 2020 and then 24 million in 2025. In 2026, the report estimates, 52 million will be uninsured when compared with 28 million who would lack insurance that year under current law.

The American Health Care Act would increase premiums by 15-20% in 2018 and 2019, before decreasing in 2020 and beyond. 

As stated previously, with the individual mandate no longer in effect, many young, healthy taxpayers will opt to go without insurance, driving up premiums in the short term by as much as 20%. Beyond 2020, however, the CBO predicts that premiums should actually decrease relative to Obamacare estimates, largely owing to a change in the American Health Care Act that allows insurers to offer cheaper plans because they are no longer required to cover at least 60% of certain health care costs.

It should be noted, however, that while the CBO estimates that average premiums will decrease after 2020, the report notes that the premiums for young individuals will be substantially reduced, while the premiums of older people will be substantially increased, as the new bill allows insurers to charge premiums to older applicants that are five times larger than those charged to younger applicants.

Summary

The CBO report will likely only further the divide within the GOP. Many Republican lawmakers will be hesitant to support legislation that leaves 24 million registered voters without insurance, particularly with the 2018 mid-term elections looming. And with the GOP hoping to use the budget reconciliation process to push through the bill, it can ill-afford defections, as 51 votes are required in the Senate, and the Republicans only hold 52 seats (plus the ability to break a 50-50 tie with the vote of Vice President Pence).

It goes without saying, of course, that the Democrats will unite behind the report, attacking the GOP's repeal and replace legislation as little more than a huge tax cut for the rich at the cost of millions of uninsured individuals.

follow along on twitter @nittiaj