The Republican health care bill could cost the average poor family benefits worth a third of their income while giving the most affluent families a $5,000 tax break, according to the first detailed report on the income distribution effects of President Trump and Republican lawmakers’ plan to undo the Affordable Care Act.
The law expanded health insurance to millions of Americans, in part, by reducing income inequality – levying taxes on the richest Americans to help the poorest gain coverage.
Through changes to taxes and health benefits, the Republican bill would reverse that: In 2022, an average family making less than $50,000 a year would stand to lose federal benefits, while those that made more would gain – with the biggest winners and the biggest losers at the extremes, according to the report by the Urban Institute and the Urban-Brookings Tax Policy Center. The average family making less than $10,000 a year could expect to lose $1,420 under the plan; the average family making more than $200,000 could gain $5,640.
“The ACA was designed to make coverage more affordable for individuals who were of low- and middle- income, who did not have access to adequate and affordable health insurance coverage. And it did so largely, if not completely, by raising revenue on higher income families,” said Linda Blumberg, a senior fellow at the Urban Institute who led the report. The Republican bill “is basically a reverse of that.”
The effects of the Republican plan on particular households’ finances could vary widely depending on age and geography, and the new report does not include detailed projections based on these factors. It also does not include the impact of an additional $85 billion that House lawmakers have said will be steered to people between 50 and 64 years old, because there were not enough details available on who would be eligible or how the funds would be distributed.
Avik Roy, a former adviser to Republican presidential candidates Mitt Romney and Sen. Marco Rubio, a Florida Republican, argued that the analysis did not take into account the potential benefits from an improved economy if Obamacare were repealed. “If you have a lot more economic growth, that can help everybody,” Roy said. “It’s important to recognize that there are other factors at play here, and economic growth being one very significant factor.”
The proposed changes that would help or hurt different interest groups vary widely.
Poor families would lose benefits because of cuts to Medicaid. Those in the lower middle class would lose subsidies that cover out-of-pocket costs, and, depending on their ages and where they live, they would receive less generous subsidies to help pay premiums. Among more affluent people, some who currently make too much money to be eligible for subsidies would receive help in paying their premiums. At the highest income bracket, the biggest gains would come from tax repeals.
“The fundamental thing is this bill is not meant to expand health care coverage. As many people have said, it’s basically a tax cut to the wealthy,” said Ezekiel Emanuel, a bioethicist and architect of the Affordable Care Act. “They don’t need it. That’s not a good use of resources in this country. None of them have gone without a meal or even without a coffee because of the ACA.”
The Affordable Care Act was designed to fix a broken insurance market, where companies made money in part by discriminating against sick people by charging them more or refusing to insure them at all. To make it viable for insurers to sell insurance to all people, regardless of their pre-existing conditions, the law’s architects needed everyone to sign up, so that healthy people’s premiums would balance the care for sick people. But in order to get all those people to sign up – particularly the poorest – the government needed to provide financial assistance, which was funded in part by taxes on rich households.
Those included a 0.9 percent tax on wages and salaries above certain limits – $250,000 a year for a married couple. Another provision was a 3.8 percent surcharge on gains from a range of investments, such as rents, royalties, dividends and capital gains, for similarly wealthy households.
The Republican plan repeals the taxes – a boon to the wealthy. At the same time, it cuts Medicaid by hundreds of billions. It restructures and, overall, cuts premium subsidies that help people afford coverage. It eliminates cost-sharing reductions that defray the out-of-pocket costs for low income families.
“You’re just going backwards,” said Jonathan Gruber, an economist at the Massachusetts Institute of Technology and an architect of the Affordable Care Act. “This is an explicit redistribution, from poor to rich.”
Joseph Antos, an economist at the conservative American Enterprise Institute, said that Democrats had hoped to use Obamacare as “an excuse for redistribution.” He argued that the poor and the working class would have been better off, however, if Democrats had used the money they raised through taxing the rich to meet needs other than health care.
“What I’m talking about it is putting foods in the bellies of kids, getting families to have decent housing conditions,” Antos said. “They don’t want more health care. They’d be better off and their health would be better off.”
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