The repeal last month of three taxes levied under the 2010 health care law represents one of several ways Congress has chipped away over the years at provisions paying for it, but a left-leaning budget think tank calculates the law will still save money overall.
Democratic leaders have often highlighted the law’s offsets as an example of fiscal responsibility, noting that it expanded coverage to more than 20 million people while Congressional Budget Office estimates showed it still saved the federal government money. They contrasted that with a 2003 law to add prescription drug coverage to Medicare, which was not paid for.
But the recent repeals of taxes that would have produced $373 billion over a decade underscore how much easier it is for lawmakers to give the public a new benefit than it is to impose — or even keep in place — taxes and payment cuts to finance it.
And a conservative health policy expert says a new analysis may be flawed, since so much of the health care law has been adjusted since President Barack Obama signed it in March 2010.
That analysis, released last week by the liberal Center on Budget and Policy Priorities following CQ Roll Call inquiries to several think tanks, found the health care law would still reduce the deficit by between $55 billion and $75 billion in 2025.
The estimates are based on a 2015 CBO analysis that found that the law would reduce the deficit by as much as $118 billion in 2025 and that repealing the taxes would cut revenue by just over $40 billion in 2025.
Congress repealed the three health care taxes — a 2.3 percent levy on medical devices, a fee on health insurers and a 40 percent excise tax on high-cost health plans (also known as the Cadillac tax) — as part of a 2019 spending law.
The taxes were only part of the structure to pay for the expansion of health insurance coverage and subsidies to help people afford that coverage under the 2010 law. The law also raised taxes on high-income earners and lowered Medicare payments, among other things.
“$373 billion is another big hole in the deficit at a time when the economy is strong, when if anything, we should be working to reduce deficits rather than increase them,” Paul Van de Water, a CBPP senior fellow who wrote the analysis, told CQ Roll Call in December. “That said, it still leaves the fundamental coverage and provisions of the [Affordable Care Act] unaffected because they don’t depend upon the financing sources.”
Brian Blase, formerly of the Trump administration’s National Economic Council, called the analysis “shoddy,” saying it was flawed since it used the 2015 CBO estimate as a starting point.
The major spending under the law for subsidies and Medicaid expansion was about $120 billion in 2019, he said. Savings from the tax on high-income earners, changes to Medicare payments and other offsets almost certainly don’t equal that sum, he said.
CBPP experts argue that the law would still reduce deficits, in part since the projected spending on subsidies to help people afford their insurance premiums have dropped with the effective repeal of the requirement that most Americans have insurance coverage.
The original 2010 CBO estimate projected that 24 million people would be in the exchanges by 2019, with many getting federal subsidies. After several policy changes took place, only about 11 million consumers actually had exchange insurance then. On the other hand, the cost of Medicaid expansion is higher than estimated. The CBPP analysis adjusted for those issues, Van de Water said.
The 2015 CBO score also left out about $15 billion in annual Medicare savings, according to the CBPP.
But the law brought in less revenue than projected from penalties for employers who don’t offer workers coverage.
Van de Water said factors that changed after the 2015 estimate “probably reduce the deficit somewhat and partly offset the effect of the tax repeals” on balance.
“The latest congressional action took a bite out of those cost savings and cost control, which we at the center think is a really unfortunate policy decision, but it remains the case that the ACA as a whole still achieves health care cost reduction, deficit reduction, cost savings,” said Aviva Aron-Dine, CBPP vice president for health policy.
Lawmakers on both sides of the aisle say the repeal of the taxes underscored how lawmakers are placing less importance on deficits. Louisiana Republican Sen. Bill Cassidy and Wisconsin Democratic Rep. Ron Kind were among those who pointed to the lack of offsets as a reason to vote against the spending law.
Texas Rep. Lloyd Doggett, one of seven House Democrats who voted against the measure, told CQ Roll Call he opposed it in part because it repealed the taxes without offering any offsets.
“It is all too consistent with the tendency in Congress to support the easy parts and reject the hard parts,” added Doggett, who chairs the Ways and Means Health Subcommittee. “There’s been a tendency to think that we can achieve much good and not have to pay for it, and that’s what happened here.”
Texas Rep. Kevin Brady, the top Republican on the Ways and Means Committee, said Republicans always opposed the taxes.
“As Republicans, we’ve never believed you should raise taxes in order to take away bad ones, and these three were the worst of the Affordable Care Act,” he said.
Connecticut Democratic Sen. Christopher S. Murphy suggested Republicans and Democrats had different standards on which laws should be offset.
“We financed the ACA, but we didn’t finance the massive tax cuts for the rich,” he said. “We make up our standards for what needs to be financed and what doesn’t need to be financed as we go along.”
Changes to the law
Obama made it a priority to ensure the health care law did not raise the deficit. When it was enacted, the CBO said the law would reduce federal deficits by $143 billion between 2010 and 2019.
The three taxes Congress voted in December to repeal made up roughly an eighth of the law’s total offsets, said Helen Levy, a University of Michigan research professor focused on health insurance.
Besides increasing high earners’ Medicare taxes, the law also reduced payments for Medicare Advantage insurance plans and cut payments to some health care providers in the Medicare fee-for-service program. It also reduced Medicaid prescription drug payments and called for cutting Medicare and Medicaid payments to hospitals for care for low-income people, although Congress also delayed the hospital cuts.
The law proposed a cost-cutting panel, the Independent Payment Advisory Board, which was never created. Congress repealed it in 2018.
Higher taxes, including the three repealed taxes and the tax on high-income earners, accounted for roughly half of the factors behind the CBO’s projection that the 2010 law would lower deficits over a decade, Levy said.
“We keep chipping away at the taxes,” Levy said.
The law’s offsets that are still in place, including the Medicare cuts and higher taxes on high-income earners, “tell[s] you a little bit about what kinds of pay-fors may have more or less political durability,” said Aron-Dine of the CBPP.
Douglas Holtz-Eakin, president of the right-leaning American Action Forum and a former CBO director, said that while the repeal of the taxes would leave a hole in the law’s funding, he never expected the Cadillac tax to take effect.
“Congress has never had the appetite to collect these taxes,” he said.