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JAMA Forum Archive, 2012-2019: Health policy commentary from leaders in the field
JAMA Forum

Undermining Health Care Through Tax Reform

One of President Trump’s regular refrains is that Obamacare is failing. Many have taken issue with this assessment of the Affordable Care Act (ACA), but what seems clear in the wake of a failed attempt to use the legislative process to repeal the ACA is that the Trump administration is doing all it can to sabotage the law.

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This undermining of the ACA includes not promoting open enrollment in the federal and state health insurance marketplaces that began on November 1, shortening the open enrollment period from the previous 90 days to 45 days, and shutting down the federal marketplace website for “maintenance” on weekends, when individuals would most likely to want to use it. It also includes eliminating the cost-sharing subsidies that helped to lower the cost of insurance, particularly for those who are not eligible for premium subsidy support.

The sustained Republican attack on the ACA is in part an attempt to follow through on a political campaign promise, but in addition, it undermines the federal commitment to health care entitlement programs, such as Medicare and Medicaid, which have become a growing proportion of federal spending. Although federal spending has remained roughly 20% of the gross domestic product (GDP) over the past 30 years, the percentage of GDP committed to health care programs has increased from 2.0% to 5.5%. In 2017, Medicare, Medicaid, the Children’s Health Insurance Program, and marketplace premium subsidies comprised 28% of the total federal budget. The growth in federal health care spending is in part related to the aging of the US population over time, excess cost in medical inflation relative to the remainder of the economy, and, to a much lesser degree, the expansion of Medicaid and the introduction of premium subsidies as a part of the ACA.

Republican interest in targeting federal health care entitlement programs was apparent in the attempt to repeal the ACA. The repeal language went beyond the expansion of entitlements under the ACA to more broadly focus on reducing the federal contribution to the Medicaid program by attempting to convert all of it to a fixed block grant with a slower than historical growth rate to states. It is also telling that even though federal health care spending on Medicare, a program primarily focused on the elderly, was more than 50% higher than spending on Medicaid, ($590 billion vs $385 billion, respectively) in 2017, the primary focus of the Republican’s cuts on health care entitlement programs is the poor, not the elderly.

In addition to targeting Medicaid, Republicans also looked to eliminate premium subsidies for low-income individuals in the marketplaces, which cost $51 billion in 2017. For the most part, Medicare was left untouched—at least during Republican attempts at health reform.

Tax Reform and Effects on Federal Health Programs

Now, having failed at federal health care reform, Republicans are organizing a new approach to reduce health care entitlement programs by attempting to choke off the funding for these programs under a new tax reform proposal. The legislation, first unveiled in Congress through a bill introduced in the House on November 2, is expected to reduce federal revenue over the next 10 years by $1.5 trillion. Critics suggest this already enormous number actually underestimates the true effect, as there are accounting gimmicks built into the law which will result in an even larger reduction. Like the attempt to repeal the ACA, the Republican leadership in Congress is attempting to use a budgetary maneuver called reconciliation, which requires only 50 senators to pass legislation. This circumvents the normal Senate rules, which require 60 votes, to encourage bipartisan cooperation and compromise.

There is little specific language in the bill that affects federal spending on health care. The most prominent example is the proposal to remove the deduction for medical expenses, estimated at $87 billion in 2015. But the indirect effects that this legislation could have on federal health care spending for entitlement programs is much more substantial. The proposed cuts in federal taxes may trigger a crisis by exacerbating the challenge in meeting the financial obligations of federal health care programs.

Unlike what followed the ACA’s passage, which increased the longevity of the Medicare Trust Fund by 12 years (from 2017 to 2029), the tax reform proposal may destabilize financial support for federal health programs. This is not an incidental result of tax reform but what I believe is an intended outcome, as reflected in the Republicans’ 2018 Senate budget resolution proposal, which calls for a $470 billion reduction in Medicare spending and a $1.3 trillion reduction in Medicaid spending over the next 10 years. This amounts to a 25% cut in the projected amount of Medicaid spending that would occur under current law.

It is not likely that any amount of “state flexibility” can bridge that gap. The effect of the proposed federal tax reform legislation on federal health care programs is comparable and potentially even more damaging than the Trump administration’s actions to sabotage the ACA.

Individual Mandate

If these actions were not already enough to destabilize health care, Republicans in the Senate have decided to eliminate the ACA’s individual mandate as part of their tax reform legislation, as a way to generate federal savings to stay within the requirements to not exceed a $1.5 trillion reduction in federal revenue. Without a mandate, fewer people would seek or use federal support to obtain coverage, and the Congressional Budget Office estimates that as a result 13 million people would become uninsured over the next decade.

There is a very real discussion to be had across the political spectrum among Democrats and Republicans about how we spend our collective public federal resources, the cost of entitlement programs, and whether we might be better able to slow the growth in health care costs and improve population health by redirecting some of the funds now spent on health care toward social services. But that is not what the Republican tax reform legislation is about. This legislation would primarily redirect public funds back into the hands of private interests, with the top 1% of income earners deriving approximately half of the federal tax reductions.

Some physicians may be among the high-income winners, but from a professional vantage point, this legislation will adversely affect the health and well-being of many Americans. It would reverse more than 50 years of federal health policy and suggest that the wealthy are more entitled to a tax reduction than the most vulnerable individuals are to basic health care. It is inconsistent with a commitment to “do no harm,” particularly because those who are at greatest risk of harm from this legislation are the poor, the disabled, and the elderly.

About the author: Andrew Bindman, MD, is professor of medicine and epidemiology & biostatistics based within the Philip R. Lee Institute for Health Policy Studies at the University of California, San Francisco (UCSF). He is a former Director of the Agency for Healthcare Research and Quality and a member of the National Academy of Medicine. (Image: Ted Grudzinski/AMA)
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