Why Tax Reform Could Be a Serious Threat to Health Care

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    Congress’s shift to tax reform doesn’t mean that attempts to deeply cut federal health programs are over
    Congress is likely to pay for deficits worsened by current tax cuts with federal spending cuts in health programs

After nine months of unsuccessful efforts to repeal and replace the Affordable Care Act (ACA), Congress has moved on to the challenge of reforming the U.S. tax code. At first glance, it may appear that Congress has shifted priorities: The House tax proposal released last week doesn’t propose to repeal the Affordable Care Act’s individual mandate requiring health insurance, nor does it fund tax reform with cuts to Medicaid. 

However, this shift in congressional focus does not mean that Republicans in Washington are done with the ACA. The executive branch continues to undermine the individual health insurance marketplaces. As Sara Collins points out in a recent post on To the Point, two presidential actions last month — the first bypassing ACA consumer protections to allow multistate association health plans, and the second ending payments to insurers for cost-sharing subsidies — are likely to increase premiums on the marketplaces by 2019. Executive branch decisions to cut funding for marketplace outreach are already making it difficult for young, healthy people to explore their insurance options, which could depress enrollment for 2018 and further destabilize the marketplaces.

Moreover, this shift in focus does not mean that the attempts to deeply cut federal health care programs are over, either. Even if congressional leaders lose their appetite for full-scale ACA repeal bills, the futures of tax reform and health care will be intertwined for at least three reasons.

First, some conservatives in the House and Senate remain committed to including ACA repeal provisions in the tax bill. And, while they initially lost in their efforts to attach a repeal of the individual mandate to the current House Bill, conservatives may withhold support unless such a provision is included in the final bill.

Second, the House tax proposal is expensive: the proposed tax cuts total $5 trillion. The budget resolution Congress passed last month allows up to $1.5 trillion of the total cost of the tax cut to be paid for with an increase in the federal deficit. That means the U.S. Treasury will have to borrow money to cover 30 percent of the cost of the House bill — a notable departure from Reagan-era tax cuts that were fully offset. This shortfall will go up over time, because several of the bill's tax code changes expire in a few years.

While the current House proposal includes $3.5 trillion in revenue-generating provisions to help pay for the remaining 70 percent of the tax cuts, several provisions are unpopular with rank-and-file Republicans. These include a 50 percent cut to the maximum home mortgage deduction and elimination of the current deduction for state and local income taxes. If some Republicans force these provisions out of the bill or modify them to affect fewer taxpayers — changes likely to be sought by Republicans representing districts in large Blue states with high housing costs and high state taxes — then the bill will not raise the revenue required by the budget resolution. Congressional leadership would be forced to pay for tax cuts with other sources of revenue or with cuts in federal spending. Key targets would be cuts to Medicaid and Medicare.

Third, tax reform may ultimately affect access to health care in the not-so-distant future, even if specific health provisions are not included in the bill. Should it pass, the ballooning federal deficit that will follow its implementation will invariably lead to calls to reduce federal spending. Medicaid, Medicare, and ACA coverage will again be in the crosshairs given the portion of federal spending — 28 percent in 2017, growing to 40 percent in 2037 according to the Congressional Budget Office — these health programs represent.

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Publication Details

Publication Date: November 8, 2017
Authors: Donald Moulds, Shawn Bishop
Contact: Donald Moulds, Executive Vice President for Programs, The Commonwealth Fund
E-mail: dbm@cmwf.org
Citation:
D. Moulds and S. M. Bishop, "Why Tax Reform Could Be a Serious Threat to Health Care," To the Point, The Commonwealth Fund, Nov. 8, 2017.

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