Semro column: Tax cuts vs. health care
The Tax Cut and Jobs Act of 2017 was passed last December on a party-line vote with no real public hearing. Even though it was marketed as tax reform, it could have a long-term effect on your health care.
The budget resolution approved by Congress in October, which was the first critical step in passing the tax bill without bipartisan support, targets almost $1.8 trillion in cuts to Medicaid, Medicare and other health programs. While this budget resolution is unlikely to become law, it clearly shows the path that this Congress wants to follow.
According to the Congressional Budget Office (CBO), the new tax law will generate $1.45 trillion in additional debt over 10 years after allowing for predicted economic growth. That lost revenue will only add to an already serious debt problem. And Medicare and Medicaid account for 30 percent of the federal budget.
You don’t have to be Steven Spielberg to imagine how this movie might end. It could easily lead to increasing the eligibility age for Medicare to 67 or beyond and create higher premiums and cost-sharing for seniors on Medicare and lower income adults and children on Medicaid. So-called entitlement reform could restructure Medicare into a premium support program and result in major funding cuts to Medicaid through federal block granting.
Having said all of that, the tax law’s most immediate impact on U.S. health care is the repeal of the individual mandate, which requires Americans who can afford coverage to purchase health insurance or pay a tax penalty. After the numerous repeal and replace failures of 2017, the President pushed to remove the mandate through the tax bill in order to make the political claim that he has “essentially repealed Obamacare.”
Congress wanted to repeal the mandate in part for political motives, but also to free up an additional $338 billion that would have been added to the national debt by the original tax bill. Not surprisingly, the repeal helps to cover the $414 billion in lost revenue created by the new 20 percent deduction for pass-through income accumulated by real estate companies, LLCs and other pass-through businesses.
Unfortunately, American patients, policy holders and taxpayers will indirectly end up paying for this provision. According to the CBO, the repeal of the mandate will cause 13 million fewer Americans to have health insurance coverage because people will voluntarily leave the market or be priced out of it. In addition, the repeal of the mandate on Jan. 1, 2019, will create recurring annual premium increases of 10 percent over the next decade in the individual health insurance market. According to the CBO, the reason for these premium increases is that younger and healthier people will exit the market leaving a sicker and more costly risk pool.
For people that receive health insurance subsidies, the cost of coverage won’t go up since those subsidies will increase to cover the cost of the mandate repeal. For those who keep coverage, the real losers are people who don’t get insurance through their employers and earn more than 400 percent of the Federal Poverty Level which makes them ineligible for subsidies.
According to the latest study by the Tax Policy Center, an individual with an annual income of $49,000 to $87,000 (and who’s not eligible for a subsidy) would receive an average tax cut of approximately $930 in 2018. By 2027, those tax cuts will end and this group will actually see their taxes increase.
Unfortunately, while individual tax cuts go away, health insurance premiums will continue to grow because of the tax law’s mandate repeal.
To put this in perspective, if the CBO’s 10 percent premium increase had been added to the lowest 2018 premium for a Silver Tier health plan in Colorado’s individual insurance market, a 40-year-old Garfield County resident could have seen an annual premium increase of $775 because of the mandate repeal. A 60-year-old could have seen an annual premium increase of $1,650. Naturally, higher priced plans could see bigger increases. If those individuals had received that $930 tax cut, it would have been eaten up by their health insurance bill.
If you apply the same criteria to Garfield County families in the individual market, a 40-year old couple with two dependent children and an income of $97,000 or more could have seen an annual premium increase of $1,700. For a 60-year old couple with no dependents earning over $64,000, the annual premium increase could have cost an additional $3,300 exclusively because of the mandate repeal.
When you look at these examples, the expression “giving with one hand and taking away with the other” is about to become a financial reality. For many Coloradans, the impact of the tax bill on their health-care costs will begin next year. For older and lower income Coloradans, the downsides are more severe but farther off in the future.
Bob Semro of Glenwood Springs is a former health policy analyst for the Bell Policy Center, and a legislative and senior advocate.