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After the Congressional Budget Office evaluated Republicans’ plan to replace Obamacare in March, concluding that it would take more than $1 trillion away from programs targeting poor and middle-class families and deny 24 million people health insurance, I reached out to one of DC’s most experienced advocates for programs for the poor, to see just how bad this was. His verdict was cutting.
“No legislation enacted in recent decades cut low-income programs this much — or even comes close,” Robert Greenstein, the founder and president of the Center on Budget and Policy Priorities, told me.
The bill has changed since March. But that basic fact has not. The fundamental features of the law — the cuts to Medicaid, and the redirection of that money into tax cuts for the rich — remain the same. The American Health Care Act is one of the most significant income redistribution programs the US government has ever considered, from the poor to the wealthy rather than the other way around.
There are massive cuts to Medicaid: The biggest damage to the poor will come from the plan’s cuts to Medicaid, which total $880 billion over 10 years, almost exactly the same amount as the plan cuts in taxes. While the bill has been changed to weaken protections for people with preexisting conditions and allow insurers to cover fewer benefits, those changes only apply to private insurance. The Medicaid portion of the law remains the same as it was when the CBO evaluated it in March.
“By 2026, Medicaid spending would be about 25 percent less than what CBO projects under current law,” the CBO found. The program would insure 14 million fewer people — the biggest single coverage loss caused by the Republican bill.
Under Obamacare, the Medicaid program was expanded, to cover everyone up to 138 percent of the poverty line (~$36,000 for a family of four), provided that states accepted the expansion. That meant that for the first time ever, all poor Americans in 31 states plus DC had health insurance.
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The Republican plan kills this expansion. It denies federal funding for any further enrollment in the Medicaid expansion, and ensures that funding will be cut off for current beneficiaries if they lose eligibility for two or more months. Since the vast majority of Medicaid expansion beneficiaries are only on the program temporarily, or cycle in and out of it, that means the expansion will gradually die as its beneficiaries cycle out and lose eligibility. All the coverage gains from Obamacare are, with time, wiped out.
And then the plan restricts coverage further by slashing Medicaid funding to states, using a tool called a “per capita cap.” Today, the federal government matches whatever states spend on Medicaid using a given formula. Connecticut gets $1 for every $1 it spends; Mississippi, being poorer, gets $3.11 for every $1. The Republican plan would end all that, and instead give states a set amount of money per enrollee, increasing along with a specialized medical inflation rate (CPI-M, which measures how much people spend on out-of-pocket costs).
This would, in effect, cut Medicaid funding more, the CBO concludes: “The limit on federal reimbursement would reduce outlays because (after the changes to the Medicaid expansion population have been accounted for) Medicaid spending would grow on a per-enrollee basis at a faster rate than the CPI-M.” That means states will have less money for Medicaid, and they will likely respond by kicking people off the rolls or giving them worse coverage.
Tax credits are redirected to the rich: Then there are the cuts to the insurance subsidies established under Obamacare, which helped people making up to four times the poverty rate ($98,400 for a family of four) pay their premiums for private individual insurance. The Republican plan would replace the sliding-scale subsidies of Obamacare, which help lower-income people more, with lower, flat credits that vary only by age, and which only begin phasing out for couples making $150,000 or more.
In other words, the Republican credits will be smaller, and they will be more targeted toward the rich. The result is a $312 billion net spending cut, and the $361 billion in tax credit spending that remains would be redirected to richer people.
The biggest tax cuts help the rich: The Republican plan would reduce federal revenues by $883 billion over 10 years. About $210 billion of that comes from eliminating the employer and individual mandates; the former is paid by companies that don’t insure their employees, and the latter is progressive, as it’s levied as a percentage of income.
But the bulk of the tax cuts would come from eliminating specific provisions meant to raise money for the Medicaid expansion and insurance subsidies in Obamacare, rather than to make sure the insurance market functions properly. The biggest of those is the 3.8 percent tax the Affordable Care Act applied to capital gains, dividend, and interest income for families with $250,000 or more in income ($125,000 for singles). The CBO finds that getting rid of this tax costs $157.6 billion over 10 years.
Repealing that tax is a change that, by definition, only helps the rich, or at least the affluent. If you’re part of a married couple and, like the vast majority of Americans, make less than $250,000 a year, or earn more than that but have little investment income, it doesn’t affect you at all. The Tax Policy Center finds that repealing the tax would amount to an average tax cut of $0 for households in the bottom 90 percent — those making $208,500 or below. A handful of people in the 80th to 95th percentiles would see cuts, but the vast majority wouldn’t.
By contrast, members of the top 0.1 percent, who each on average make more than $3.75 million annually, would get an average tax cut of $165,090.
Then there’s the 0.9 percent Medicare surtax, a hike on wage income in excess of $250,000 a year ($200,000 for unmarried people). The Republican bill would repeal this surtax, which the CBO estimates will cost $117.3 billion over 10 years. That would give everyone in the bottom 90 percent an average tax cut of $0, per the Tax Policy Center. The richest of the rich, the top 0.1 percent, would get an average cut of $30,520.
Obamacare was a massive step to reduce income inequality. Ryancare reverses it, and then some.
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Another way of saying this is that the Affordable Care Act was one of the single largest downward redistributions of income in American history, made more so when considered in the context of the Obama administration’s increases in taxes on the rich and expansions of tax credits for the poor. This was a point that Jason Furman, Obama’s chief economist, made well in a speech last October.
“In concert with the effects of the ACA coverage provisions, changes in tax policy since 2009 will by 2017 boost incomes for families in the bottom quintile by 18 percent, or $2,200 (the equivalent to about a decade of income gains), and in the second quintile by about 6 percent, or $1,500, relative to what they would have been under the continuation of 2008 policies,” Furman noted. “Under President Obama, the Federal investment in inequality has increased by about 0.8 percent of potential GDP, more than any previous president since the Great Society.”
You don’t have to take Furman’s word for it. A simple glance at the funding mechanisms of the ACA — things like the surtaxes on income above $250,000 — and what it spent money on (namely health insurance for the poor) makes it clear that it takes money from the rich and gives it to the poor, in the form of health insurance.
The American Health Care Act undoes basically all of those components. And then it goes a step further, by slashing Medicaid to below its pre–Affordable Care Act levels using a per capita cap.
The AHCA would reverse one of the greatest actions against inequality ever taken by the federal government, and then increase inequality yet further. It is an act of class warfare against low-income Americans, waged for the benefit of the handful of rich taxpayers affected by Obamacare’s surtaxes.
