The Republican Party has an ACA problem. The ACA is deficit reducing. Most of that was because it raised taxes on upper income families and cut back Medicare reimbursement rates for Medicare Advantage. The Republicans are ideologically indifferent to cutting back Medicare Advantage reimbursement rates especially as Medicare Advantage has continued to grow in popularity so it has not harmed core Republican votes or donors. But the Republican Party is ideologically committed to lower taxes on high income families.
The Republican Party has a policy problem. It needs to offer something that is close enough to coverage to minimize blowback of sympathetic figures crying on camera that the Republican health policy bill will kill them. So that means some type of coverage. And that means spending some money. That money has to be found from somewhere. It can either be found from raising a different set of taxes after the taxes that hit high income individuals are cut or borrowing.
So here is what the Republican Party’s wonks are proposing:
Republicans are considering capping the U.S.’s tax break on job-provided health insurance, a major change to the tax system that could be used to finance their efforts to repeal and replace Obamacare.
This is a big pool of money. The CBO believes the ESI tax exclusion is worth a quarter trillion dollars a year. It is regressive tax benefit where the benefits mostly accrue to upper income individuals. There is a good economic argument that the tax incentive favors one form of compensation (health insurance) over another (cash) when the efficient incentive structure is to be indifferent where both forms are treated the same by the tax code. Most liberal wonks (myself included) will agree that building a system from scratch, ESI tax exclusion would never be part of an ideal package.
BUT HERE IS THE PROBLEM. It pisses off voters who receive coverage through work. And we already sort of tried this route before:
A similar idea was proposed by Senator Ron Wyden, a Democrat, during debate over the Affordable Care Act, and went nowhere. Obamacare already includes a levy on high-cost health insurance plans, known as the Cadillac tax, that begins in 2020. Republicans didn’t say where they would set the cap.
The Cadilliac tax set a fairly high rate (40%) excise tax on a fairly high exclusion limit. It was supposed to have gone into play for 2018 but a large, bi-partisan coalition (including union friendly Democrats) pushed to force it back another two years. There is still a large blocking coalition in place to continue to push the Cadillac tax back. It will become the health care tax equivalent to the AMT re-indexing.
If the Republicans need to raise serious money from this exclusion being rolled back ($50 to $100 billion a year is serious), it means the tax hits most employer sponsored health plans to some degree. If they don’t raise serious money because they fear blowback, it is a high income earner only tax and it still leaves their plan with a massive hole.
The easiest solution for Republicans looking for money to paper over their plan is to do what they did for Medicare Part D. Just borrow it as that means no hard choices are needed.
But I can’t see how this proposal would get 150 votes in the House or 40 in the Senate.