The AHCA’s Massive Transfer of Wealth

 

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March 9, 2017 (San Diego) We have been going over the American Health Care Act (AHCA), and it’s consequences. There are serious consequences to the enactment of this. They range from people losing not just health care coverage, but access to health care, to what is a massive transfer of wealth.

As the bill stands right now, it repeals the taxes on the richest of Americans, that are essential to the Affordable Care Act. It also repeals the penalties for those who refuse to get insurance. The only tax that might survive, is the Cadillac Insurance Tax. According to the non-partisan Tax Policy Center:

  •  An additional 0.9 percent payroll tax on earnings and a 3.8 percent tax on net investment income (NII) for individuals with incomes exceeding $200,000 and couples with incomes exceeding $250,000. Nearly all families affected by the additional payroll and investment taxes are in the top 5 percent of income, with most of the burden borne by families in the top 1 percent of income. JCT estimates repealing these two taxes would cost $275 billion over ten years.
  • The Premium Tax Credit (PTC), a refundable tax credit to help families purchase health insurance through state and federal marketplaces. To qualify, tax filers must have incomes between 100 and 400 percent of the federal poverty level and be ineligible for health coverage from other sources (such as Medicaid or affordable employer-sponsored insurance). The PTC primarily benefits low- and moderate-income families.
  • Penalty taxes on individuals without adequate health insurance coverage and employers with 50 or more full-time equivalent employees who do not offer adequate health insurance coverage to their employees. These individual and employer mandate taxes, which were created to encourage people to get insurance coverage, disproportionately affect low- and moderate-income families who are more likely to lack insurance.
  • Excise taxes on health insurance providers, pharmaceutical manufacturers and importers, and medical device manufacturers and importers. These excise taxes have a similar percentage impact on after-tax incomes for families across the income distribution. JCT estimates repealing them would cost $190 billion over ten years.

These taxes were progressive in nature and helped a lot of people. This means that the top 2 percent will benefit from the repeal the most, making this a transfer in wealth.

According to the Chicago Tribune:

One is a tax of 0.9 percent on taxpayers earning more than $200,000 in wages and salaries a year, or $250,000 for married couples. Those households must also pay a surcharge of 3.8 percent on income from several kinds of investments. Together, these taxes are projected to raise $346 billion over the next decade, according to the nonpartisan Congressional Budget Office.

 
Then there is the nature of the Tax credits. According to the Center for Budget and Policy Priorities:

The impact would be even more severe for people in high-cost states. Consumers in 11 high-cost states would see their tax credits to purchase health coverage fall by more than $3,000 on average — or more than 50 percent.[4] That’s because unlike the ACA’s tax credits, the House plan’s tax credits wouldn’t adjust for geographic variation in insurance premiums; they’d be the same for a 45-year-old consumer in Alaska, where benchmark health insurance coverage costs $12,600 this year on average, as in New Hampshire, where it costs $3,600.

Rural states, who mostly voted for Donald Trump in the 2016 election, will be the most harmed. There is more. According to the center.

in 2016, pre-credit premiums increased an average of $30 per month, but net premiums among consumers eligible for tax credits increased just $4 per month.[17] Under the House plan, tax credits would grow at the rate of inflation plus 1 percentage point, no matter how quickly premiums rose in a particular year or state. As a result, Kaiser estimates that the (nationwide) average reduction in tax credits for marketplace consumers would increase from $1,700 to $2,900 between 2020 and 2027.

This will make coverage nonaffordable for those in low and mid- incomes in high-cost states. Many of these states are also blue states, such as California, Hawaii, and Massachusetts.

The AARP

There is another area where this is a direct transfer of wealth, and why the American Association for Retired People is not liking this one bit. Insofar as the repeal of the 0.9 percent tax, this is what the American Association for Retired People told Congress in a letter two days ago:

 Our members and older Americans believe that Medicare must be protected and strengthened for today’s seniors and future generations. We strongly oppose any changes to current law that could result in cuts to benefits, increased costs, or reduced coverage for older Americans. According to the 2016 Medicare Trustees report, the Medicare Part A Trust fund is solvent until 2028 (11 years longer than pre-Affordable Care Act (ACA)), due in large part to changes made in the ACA. We have serious concerns that the American Health Care Act repeals provisions in current law that have strengthened Medicare’s fiscal outlook, specifically, the repeal of the additional 0.9 percent payroll tax on higher-income workers. Repealing this provision could hasten

They also concentrate on the effects this act will have on Medicaid. These are disastrous. Ergo, the AARP is no friend of this piece of legislation. We are quoting them in part:

 In providing a fixed amount of federal funding per person, this approach to financing would likely result in overwhelming cost shifts to states, state taxpayers, and families unable to shoulder the costs of care without sufficient federal support. This would result in cuts to program eligibility, services, or both – ultimately harming some of our nation’s most vulnerable citizens.

We agree with their assessment, Ultimately, these caps will force states to chose between children and the elderly. In some states, it will crash the program. Ultimately it could have unforeseen consequences, such as the ending of the program at the state level. It is also part of this transfer of wealth.

If that was not enough, the AHCA will also include Health Savings Accounts and Flexible Spending Accounts, which are used by the wealthiest among us, and they can be used to get tax advantages.

The taxes that support the ACA would be repealed while keeping the subsidies. Also gone would be the mandates. So, a fiscal question does rise. How do you pay for it? We have no scores from the nonpartisan Congressional Budget Office. (For the record, there were many of those done during the year and a half it took for the ACA to pass.) So we have no idea how much this will cost. Nor we know if this is viable? What we do know is that this is a massive transfer of wealth from the poor and middle class to at best the 2 percent wealthiest Americans.

 

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