Congress passed sweeping tax reform legislation on December 19-20 along party lines and the President will soon sign it into law. Health care-related issues have played a prominent role in the tax reform debate, particularly in securing the vote of Sen. Susan Collins (R-ME). The final bill includes a repeal of the Affordable Care Act’s (ACA) individual mandate, which requires individuals to purchase health insurance or pay a penalty. The Congressional Budget Office (CBO) has estimated that repeal of the individual mandate would result in budget savings of $338 billion over 10 years, due to decreased government spending on subsidized ACA coverage. CBO also estimates that 13 million more people would be uninsured and premiums would increase by 10 percent, as healthier people choose to go without coverage, resulting in a less healthy and therefore more expensive risk pool.
To assuage her concerns on repealing the individual mandate and to secure her vote on the tax reform bill, Collins demanded and received assurances from Senate Majority Leader Mitch McConnell (R-KY) and the President that they would support passage of two separate bills to stabilize the ACA insurance markets: legislation introduced by Sens. Lamar Alexander (R-TN) and Patty Murray (D-WA) that would fund cost-sharing reduction subsidies for two years, and a bill introduced by Collins and Sen. Bill Nelson (D-FL) that would fund short-term, state-based high-risk pools or reinsurance programs. Collins believes these stabilization bills will help mitigate the negative effects of repealing the individual mandate. However, CBO has estimated that passage of the Alexander-Murray bill would do nothing to blunt the effects of repealing the individual mandate, and Democrats argue that the long-term damage caused by eliminating the mandate far outweighs any positive effects of passing the two short-term stabilization bills. Another matter of uncertainty is when and how the House and Senate would pass these bills—if they may be included in must-pass spending legislation, and whether opposition from House Republicans will prevent their passage.
Another notable health care provision in the final version of the tax reform bill is that it preserves the deduction for medical expenses that exceed 10 percent of an individual’s adjusted gross income, and for two years decreases that threshold to 7.5 percent. While most Americans do not claim this deduction, it does provide tax relief for many middle class people with high-cost chronic illnesses, people caring for family members with a disability, and individuals paying for long-term care.
A significant concern underlying Congress’ tax reform efforts is that the bill’s passage will trigger automatic spending cuts to mandatory spending programs, including Medicare. 2010 “Pay as you go” (PAYGO) legislation requires that all passed bills cannot collectively increase the estimated national debt. If a passed bill does violate PAYGO, then an automatic cut across mandatory spending programs would be required to offset the cost, including cuts to Medicare capped at 4 percent. Because the tax reform bill is scored to increase the deficit by about $1.5 trillion over the next decade, it would trigger a Medicare cut of $25 billion per year. Congress can waive PAYGO rules through legislation, but it requires 60 votes in the Senate. Republican leadership in the House and Senate have insisted that they will not let an automatic cut go into effect, and they may include a PAYGO waiver in must-pass spending legislation.