The Congressional Budget Office’s (CBO) estimate of the American Health Care Act (AHCA) finds it will reduce deficits by $337 billion through 2026 (read our analysis here). But what would it mean for the long term?
While CBO hasn’t yet provided second decade estimates (other than to say the bill would not be deficit-increasing), we estimate – very roughly – that the bill would save $2 trillion over two decades, including $1.6 trillion between 2027 and 2036. Including interest, we estimate 20-year savings of $2.4 trillion. However, the bill also includes several “cliffs” that if addressed could significantly reduce that estimate.
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The furor over the Congressional Budget Office’s report on the House GOP health bill is concentrated on predictions about insurance coverage, which suits Democrats fine. Lost amid the panic is that CBO shows the bill is a far-reaching advance for the market principles and limited government that conservatives usually favor.
The CBO is not omniscient, but if its projections are even close to accurate then ObamaCare repeal and replacement is the most significant government reform in perhaps three decades. Under conventional (static-revenue) scoring, the bill cuts spending on net by $1.22 trillion and eliminates a raft of new taxes worth $883 billion through 2026.
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One of the most controversial provisions (for conservatives) of the American Health Care Act (aka Obamacare repeal and replace) is the creation of an advanceable, refundable tax credit for individuals to purchase health insurance. It would be available to anyone not offered health insurance at work, or eligible for Medicare or Medicaid. It would be bigger for older folks and smaller for younger folks. It would means test starting at $75,000 ($150,000 for married couples). The credit would be available month to month to offset health insurance premiums as a direct offset. It is paid for by repealing Obamacare.
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Republicans have a point that their Obamacare replacement plan is particularly hard for the Congressional Budget Office to score, budget experts say.
The bill, which Democrats are sharply criticizing for its lack of a CBO score, gives states much more leeway in how they would provide — or not provide — health insurance for people. And predicting how states will behave over the next decade is a time-consuming and tricky task for the agency.
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Current federal tax policy treats workers and their families who do not or cannot get health insurance through employment-based coverage unfairly and contributes to disruption in coverage when employees change jobs. Obamacare imposes a hefty excise tax on expensive employer coverage, a punitive measure that adds to the complexity of the current health care system.
Congress should repeal Obamacare’s Cadillac tax and set a simple cap on the employer exclusion. In addition, Congress should create a new type of individual tax relief that would be available to everyone, regardless of where they purchase coverage. Together, these policies would help to ensure that the federal government is not favoring one type of coverage or consumer over another and would go a long way toward restoring a functioning market in health care that is responsive to consumers.
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As policymakers debate repealing and replacing the ACA, they grapple with how to address the ACA’s “Cadillac Tax.” Rather than repealing the 40% tax on high-cost insurance plans outright, many advocates of “repeal and replace” have proposed replacing it with a limit on the tax exclusion for employer-sponsored health insurance. Doing so would be a wise choice, and limiting the ESI exclusion would both generate significant revenue to pay for an ACA replacement and help to limit the overall growth of health care spending. Other options include capping the income tax exclusion, capping the payroll tax exclusion, and replacing the income tax exclusion with a fixed-dollar credit/deduction.
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Following an Obama administration order, the IRS had been set to require taxpayers to indicate on line 61 on their form 1040s whether they had maintained health coverage in 2016 or paid the penalty. The IRS would have rejected returns if taxpayers failed to report their coverage status. But the IRS announced this week it would not reject returns that failed to check the appropriate ObamaCare boxes—an early indication of the administration’s efforts to provide relief from ACA mandates.
“This year, the IRS put in place system changes [initiated by the Obama administration] that would reject tax returns during processing in instances where the taxpayer didn’t provide…information [attesting that the taxpayer had health insurance].
“The recent executive order [issued on day one of the Trump administration] directed federal agencies to exercise authority and discretion available to them to reduce potential burden. Consistent with that, the IRS has decided to make changes that would continue to allow electronic and paper returns to be accepted for processing in instances where a taxpayer doesn’t indicate their coverage status.”
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Obamacare repeal and replace is going to turn into a huge tax cut. Those reading the tea leaves would do well to consult two sources as to how and why: the 2015 repeal bill, and the House GOP “Better Way” health care blueprint. Just as in the 2015 bill, which was vetoed by President Obama, Congress aims to repeal all of the 20 major new or higher taxes in Obamacare. It’s important that this repeal be effective at the beginning of 2017, both to get rid of negative Obamacare taxes as soon as possible and to lower the current law’s revenue baseline for tax reform.
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Congressional Republicans are facing their first big decision on taxes under President Trump: Which ones to scrap in the repeal of ObamaCare.
Republicans have in the past sought to erase most of the big tax hikes in the healthcare law, and the chairmen of the tax-writing committees have expressed support for eliminating the taxes in a repeal bill.
“After spending seven years talking about the harm being caused by these taxes, it’s difficult to switch gears now and decide that they’re fine so long as they’re being used to pay for our healthcare bill,” Sen. Orrin Hatch (R-Utah), the chairman of the Senate Finance Committee, said Wednesday.
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This week, the U.S. Senate and then the U.S. House of Representatives will consider a budget resolution for FY 2017. It has no purpose whatsoever except to create a vehicle for the repeal of Obamacare.
Congress should pass this budget resolution. It doesn’t commit anyone to any policy choices at this point. All it does is create reconciliation instructions for the chambers to pass Obamacare repeal shortly after President Trump is inaugurated.
This budget resolution has nothing to do with the actual budget, unlike any budget resolution in memory. All it does is create reconciliation instructions for the chambers to pass Obamacare repeal shortly after President Trump is inaugurated.
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