Tuesday night's budget deal is about to make Obamacare a whole lot more expensive for the federal government.
This tax and others have always been unpopular. But they're also necessary to pay for the law's expansion of insurance to millions of Americans. Scaling back these taxes will raise the deficit as much as $40 billion over the next decade, according to an analysis from the Committee for a Responsible Federal Budget.
Loren Adler, who oversees budget research at CFRB, offered a more detailed analysis on Twitter.
Combined, the ACA tax delays cost $35.8B over 10 years (per JCT): - Caddy tax delay = $19.8B - HIT pause = $12.2B - Med device pause = $3.9B— Loren Adler (@LorenAdler) December 16, 2015
The much-hated Cadillac tax would get delayed for two years
The Cadillac tax has few friends in Washington today. There is widespread, bipartisan support for killing the provision, which would levy a 40 percent tax on the most expensive health insurance plans. This is the one piece of Obamacare that both Hillary Clinton and Bernie Sanders want to repeal.
The Cadillac tax's biggest supporters tend to be health economists, who argue the tax would lead to less generous insurance packages that nudge consumers to only use health care when they really need it — thereby reducing overall health care spending.
So it's no surprise that the budget deal takes aim at the tax, which was slated to start in 2018, and delays the start until 2020.
That decision, however, comes at a price: The Cadillac tax is one of the main ways the health care law raises money. The most recent Congressional Budget Office projections estimated that it would raise $87 billion in revenue over the next decade.
Two unpopular taxes — on health insurance and medical devices — get a "pause"
The Affordable Care Act's drafters knew they wanted to expand health insurance to most uninsured Americans; that was a huge reason to pass a new law in the first place.
When pressed to figure out how to pay for that expansion, they largely decided to tax the medical industries that would benefit from gaining millions of newly insured customers. Hospitals, health insurers, medical device makers, drug companies — all of them have a specific tax worked into the law.
The law had barely passed when industries began lobbying hard against their specific taxes. Medical device makers and health insurance plans lobbied especially hard to repeal their taxes, which were expected to raise $26 billion and $145 billion over the next decade, respectively.
But neither was successful — until now. The budget deal includes a two-year pause on the medical device tax, which took effect in 2013. It also halts the health insurance tax, which began in 2014, for one year.
Repealing taxes will always make Obamacare more expensive
The Kaiser Family Foundation has, since the law passed, run one of the best series of polls on the health care.
Americans generally loved the idea of expanding health insurance. Seventy-six percent agreed that it's good to provide health insurance subsidies to low-income and middle-class Americans. But the things required to pay for Obamacare? Those didn't poll well at all. Sixty percent opposed the Cadillac tax in Kaiser's September 2015 poll.
This tension will likely be an ever-present threat to the Affordable Care Act's future. Reducing Obamacare's revenue by $40 billion will not sink the law. But it is still a sizable portion of about $500 billion that the CBO expects to raise in revenue next year. That could ultimately force hard decisions about what type of benefits or subsidies the law can provide to beneficiaries. Or it could just make Obamacare a more expensive proposition for the government if legislators don't ratchet down the spending. That could strengthen the political case against Obamacare as a budget-busting law that doesn't bring in nearly enough revenue.
If the budget deal passes (and it is expected to), the pauses and delays will prove something powerful: that Congress and the White House are open to halting some of Obamacare's biggest revenue generators. If a two-year delay to the Cadillac tax passes, for example, it makes more delays seem way more plausible. Perhaps even more importantly, the budget deal shows a willingness to pause taxes that have already come into effect. This suggests that in Washington, any Obamacare tax can become fair game — a battle that you can bet thousands of health lobbyists in Washington are eager to fight.
And if these taxes disappear forever — not just on a temporary basis — that would have a huge effect on Obamacare. Adler put together this chart showing that repealing the three taxes permanently would reduce the health law's revenue by $1.1 trillion — about a third of the health law's $3.5 trillion in overall revenue.
The stakes in this particular budget deal are, in the 10-year scheme of things, relatively small. But the space they open up for future changes like this could be quite massive.