Repealing Obamacare - Costs and Issues!

The 115th Congress started on January 3 and repeal of Obamacare (the Affordable Care Act) has begun.  Here is information from Majority Speaker Paul Ryan including the budget resolution to help with the repeal. He states:

“This is the first step toward relief for Americans struggling under Obamacare. This resolution sets the stage for repeal followed by a stable transition to a better health care system. Our goal is to ensure that patients will be in control of their health care and have greater access to quality, affordable coverage. Today we begin to deliver on our promise to the American people.”

The ACA is certainly not perfect and I'm speaking from a tax perspective. The ACA included some complex tax rules.  It also included some inequitable ones, which I've written about before (such as 12/14/14 and 10/18/14 and 3/8/15). Some of the key tax issues/inequities:

• If you purchase health insurance on the exchange, you only get a tax credit if your household income is under 400% of the federal poverty line (about $42,000 for a single person). In contrast, if you're fortunate to have your employer subsidize your health insurance, that income is excluded from your taxable income regardless of your income level.

• The eligibility for the Premium Tax Credit doesn't factor in age even though health insurance costs a lot more as you get older.

• The employer mandate is too complex. Reg 1.4980H-1 includes 50 definitions! and that's just part of its complexity.

The ACA enabled millions of people to afford insurance and to obtain it even if they had a pre-existing condition.

The Congressional Budget Office and Joint Committee on Taxation estimate that repeal of the ACA will increase the budget deficit by $137 billion over 10 years.

Two of the ACA taxes - the net investment income tax (NIIT) and the .09% additional Medicare tax on higher income individuals bring in more revenue than the individual AMT! That was over $35 billion for 2014. Repeal of the AMT would provide a better benefit because the AMT generally is not paid by the highest income individuals. But, where will the replacement funds come from or how much will repeal cost us in increased budget deficits and interest expense on the debt? [Per IRS data for 2014]

When will repeal be effective? Will people who purchased their insurance on the Exchange for 2017 lose it? Will they lose their subsidy (Premium Tax Credit) that helps most people be able to afford the insurance? What happens to people with pre-existing conditions? What happens to the ability for parents to include children up to age 26 on their health plan and if provided by their employer, to exclude that income benefit from income?

Challenges of repeal include:

• If there is a replacement, will it be better? 
• Why not just fix Obamacare (and call it something new)? 
• How will it all be paid for (see above dollar issues)?

Why not help pay for it by reducing the largest tax subsidy in the tax system - the income exclusion for employer-provided health care which benefits the roughly 60% of employees with such coverage?  It costs the budget about $266 billion per year! The House Republicans identify that as one of the three largest government health care subsidies. They also note that this subsidy increases the cost of health insurance by about 10 - 15% (page 15)!

Per the House Republican Health Care Blueprint (page 15):

"The non-partisan CBO projects this job-based subsidy will lower federal revenues by $266 billion in fiscal year 2016 alone and $3.6 trillion over the next decade. This benefit is so massive that, in terms of federal support, it would be the third largest health expenditure, after Medicare and Medicaid."

The Republican plan does call for taxing this benefit, likely if the benefits exceeds a specified amount. I think that's a good idea.  This is the biggest tax break in our tax system and taxing some portion of it would help fund health care for more people and even allow for lower tax rates.

We'll see what happens. Repeal won't be easy and likely won't be popular.

What do you think?