Repeal of the Affordable Care Act = A Huge Tax Cut for the Wealthy

What ACA revenue would the repeal-only bill give away?

Based on 2016 reconciliation legislation, the repeal-only bill would give away a total of $388.7 billion in revenue over five years and $1.099 trillion over ten years (see Table 1), a sizable portion of which would go to tax cuts for the wealthy and big corporations.

Immediate tax cuts for the wealthy

• $136.4 billion and $345.8 billion over five and ten years, respectively, would go to individuals with incomes above specified thresholds—$200,000 for single individuals and $250,000 for families.
• The repeal-only bill would end the ACA’s payroll taxes and investment-income taxes that were limited to this specific group of high earners.
• These changes would go into effect immediately following enactment, several years before the coverage cuts.

Tax cuts for health insurance companies, drug companies, and others in the health care industry.

• Industry would get tax breaks totaling $71.5 billion and $247.4 billion, over five and ten years, respectively.
• The biggest winners would be insurance companies, which would receive tax cuts worth $49.3 billion and $197.8 billion over five and ten years, respectively. This includes regaining the ability to take a tax deduction for the cost of executive compensation that exceeds $500,000 a year.
• In second place are prescription drug manufacturers, gaining $16.1 billion and $29.6 billion over five and ten years, respectively.
• Like tax cuts for wealthy individuals, most of these corporate tax cuts would become effective when the bill passes.

Other tax cuts and funding losses.

Other fiscal losses would total $125.2 billion and $328.0 billion over five and ten years, respectively:

• The bill would give away $69 and $167 billion over five and ten years, respectively, by eliminating “employer responsibility payments.” When businesses offer inadequate or no health insurance, and their workers use publicly-funded health coverage as a result, this tax requires companies to partially repay the government for covering their employees’ health insurance costs.
• The bill would eliminate “individual responsibility payments” from those who remain uninsured despite being offered coverage. Lost revenue would total $19 billion over five years and $43 billion over ten.
• The bill would restore Medicaid payments for hospitals that serve a disproportionate share of uninsured and low-income patients. That would cost $7.2 billion and $37.5 billion over five and ten years, respectively. The ACA phases these payments down; as more individuals gain coverage, particularly through the Medicaid expansion, hospitals would have fewer uninsured patients, making these payments less necessary. The fact that the repeal bill restores this funding shows that repeal proponents clearly understand that their plan will requires hospitals to cope with a much larger number of uninsured who are unable to afford necessary hospital care.
• Beyond the direct federal revenue losses from the repeal-only bill’s tax give-backs,, there would be indirect effects on federal revenue as well. CBO anticipates some reductions in wages from ACA repeal. Those wage reductions would, in turn, reduce federal tax revenue. These so-called “interaction effects” involve revenue losses estimated at $55.6 billion and $178.6 billion over five and ten years, respectively.³

What ACA revenue would the repeal-only bill leave in place?

In June 2015, CBO estimated the effects of a total ACA repeal.⁴ CBO’s itemization of ACA revenue sources included several that were not touched by the 2016 repeal-only bill. These would remain in place:

• Lower payments to Medicare providers, totaling $228 billion and $802 billion over five and ten years, respectively, mainly involve hospitals, insurers, and home-care providers.
• Medicaid savings totaling $9.8 billion and $28.5 billion, over five and ten years, respectively, mainly involve discounts on prescription drug prices.
• ACA changes made to other health programs increase spending by $3 billion over five years and reduce it by $10 billion over ten.

Altogether, only 38 percent of the ACA’s five-year revenue and 43 percent of its 10-year revenue would remain intact, under the 2016 repeal-only bill (see Table 2). This is precious little funding to provide 30 million people with coverage remotely comparable to what they had before repeal.

Conclusion

Repeal-only is a huge tax cut for the wealthy and big corporations, based on past repeal bills that are likely to serve as the model for action in 2017. Moreover, those losing insurance are mostly from middle class and low-wage, working families. The repeal-only bill would take more than half a trillion dollars that these families need for their replacement insurance and give it to the wealthy and large corporations. This massive transfer of resources from the vulnerable middle class to the economic elite would betray “the forgotten men and women of our country” to whom President-Elect Trump paid homage on Election Day.

This makes it imperative for lawmakers to spell out the details of replacement coverage before they take health insurance away from more than one in ten non-elderly Americans. A vote for repeal-only, without saying anything about what replaces current insurance, would show appalling disregard for the affected families’ health care and economic security.

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Table 1. ACA revenue given away by the January 2016 repeal-only bill (billions of dollars)

Category of Revenue Loss	Specific Revenue Source	Revenue Loss
		Over Five Years	Over Ten Years
Tax cuts for families and individuals with annual earnings above $200,000 (single filers) or $250,000 (joint filers)	Taxes on Investment Income	$88.4	$222.8
	Payroll Taxes	$48.0	$123.0
	Sub-total	$136.4	$345.8
Tax cuts for health care industry	Insurance Companies	$49.3	$197.8
	Prescription Drug Manufacturers	$16.1	$29.6
	Medical Device Manufacturers	$6.1	$20.0
	Sub-total	$71.5	$247.4
Other specific sources	Employer responsibility payments*	$69.0	$167.0
	Individual responsibility payments	$19.0	$43.0
	Medicaid DSH restorations**	$7.2	$37.5
	Other tax cuts	$30.0	$80.5
	Sub-total	$125.2	$328.0
Interaction effects		$55.6	$178.6
Total revenue losses, combined		$388.7	$1,099.8

Source: CBO, January 2016.

*”Employer responsibility payment” is a tax on business that provide inadequate or no health insurance and whose workers are receiving publicly-financed tax credits to pay for private insurance.

**This is a restored federal payment to hospitals that provide health care to a disproportionate number of low-income individuals who are uninsured and unable to pay for care. Restoring this funding is a recognition that with repeal, more people will be uninsured.

Notes: The five- and ten-year estimates are for federal fiscal years 2016-2020 and 2016-2025, respectively. “Other tax cuts” involve tax preferences for health- and medical-savings accounts, deductions for employer contributions to retiree drug coverage, the minimum threshold for tax deductions for household medical expenses, indoor tanning companies, and the economic substance doctrine. Individual- and employer-responsibility payments, revenue losses due to lower taxes on high-cost health insurance (which are included in this table as a tax cut for insurance companies), and interaction effects are estimated based on CBO, June 2015.⁵

Table 2. ACA funding eliminated by the January 2016 repeal-only bill vs. ACA funding left in place

 

	Over Five Years		Over Ten Years
	$ (billions)	%	$ (billions)	%
Total ACA funding for coverage expansion	$623.5	100%	$1,940.3	100%
ACA funding eliminated by January 2016 repeal-only bill	$388.7	62%	$1,099.8	57%
ACA funding not eliminated by January 2016 repeal-only bill	$234.8	38%	$840.5	43%

Source: CBO, December 2015; CBO, June 2015.

Endnotes