How Will Republicans Pay for Obamacare Replacement?

GOP faces some hard decisions

Leading Republicans have said that even if they repeal all or most of the Patient Protection and Affordable Care Act (PPACA) early in 2017, a replacement will not hurt those currently receiving benefits under the act. But that may be hard to do since Republicans have also pledged to repeal the taxes that Democrats used to pay for the health law, according to an article posted on the Kaiser Health News (KHN) website.

“Repealing all the [PP]ACA’s taxes as part of repeal and delay only makes a true replacement harder,” wrote Loren Adler and Paul Ginsburg of the Brookings Institution in a recent white paper. It “would make it much more difficult to achieve a sustainable replacement plan that provides meaningful coverage without increasing deficits.”

The PPACA’s subsidies to individuals buying insurance and the act’s Medicaid expansion are funded by two big pots of money, according to the KHN article.

The first is a series of taxes, including levies on individuals with incomes greater than $200,000; health insurers; medical device makers; brand-name drug makers; people who use tanning salons; and employer plans that are so generous they trigger the much-maligned “Cadillac tax.” Some of those measures have not yet taken effect. The Congressional Budget Office (CBO) estimated in early 2016 that repealing those provisions would reduce taxes by an estimated $1 trillion over the decade from 2016 to 2025.

The other pot of money that funds PPACA benefits comes from reductions in federal spending for Medicare (and to a lesser extent, Medicaid). Those reductions include trims in the scheduled payments to hospitals, insurance companies, and other health care providers, as well as increased premiums for higher-income Medicare beneficiaries. The CBO estimated in 2015 that cancelling those cuts would boost federal spending by $879 billion from 2016 to 2025.

The GOP, in the partial repeal bill that passed in January and was vetoed by President Obama, proposed to cancel the tax increases in the PPACA as well as the health premium subsidies and Medicaid expansion. But it would have kept the Medicare and Medicaid payment reductions.

Because the benefits that would be repealed cost more than the revenue being lost through the repeal of the taxes, the result would have been net savings to the federal government of approximately $317.5 billion over 10 years, according to the CBO. But those savings—even if Republicans could find a way to apply them to a new bill—would not be enough to fund the broad expansion of coverage offered under the PPACA, the KHN article asserts.

If Republicans follow that playbook again, their plans to replace the PPACA could be hampered because they will still lose access to tax revenues. That means they won’t be able to pay for equivalent benefits unless they find some other funding source. Some analysts fear that those dollars may come from still more cuts to Medicare and Medicaid, according to KHN.

House Republicans have identified one potential source of funding. “Our plan caps the open-ended tax break on employer-based premiums,” said their proposal, called “A Better Way.” The lawmakers said that would be preferable to the “Cadillac tax” in the PPACA, which is scheduled to go into effect in 2020 and taxes only the most-generous plans.

But health-policy analysts say ending the employer tax break could be even more controversial.

James Klein, president of the American Benefits Council, which represents large employers, said they would look on such a proposal as potentially more damaging to the future of employer-provided insurance than the Cadillac tax, which his group has lobbied against.

“This is not a time one wants to disrupt the employer marketplace,” Klein said in an interview. “It seems perplexing to think that if the [PP]ACA is going to be repealed, either in large part or altogether, it would be succeeded by a proposal imposing a tax on people who get health coverage from their employer.”

According to the KHN article, Republicans will have one other option if and when they try to replace the PPACA’s benefits—not paying for them at all. While that sounds unlikely for a party dedicated to fiscal responsibility, it wouldn’t be unprecedented. In 2003, the huge Medicare prescription drug law was passed by a Republican Congress—with no specified funding to pay for the benefits.

Source: KHN; December 23, 2016.