Want New Taxes To Pay For Health Care? Lessons From The Affordable Care Act

It was a moment of genuine bipartisanship at the House Ways and Means Committee in October, as Democratic and Republican sponsors alike praised a bill called the "Restoring Access to Medication Act of 2019."

The bill, approved by the panel on a voice vote, would allow consumers to use their tax-free flexible spending accounts or health savings accounts to pay for over-the-counter medications and women's menstrual products.

Assuming the measure ultimately finds its way into law, it would also represent the latest piece of the Affordable Care Act's financing to be undone.

Over-the-counter medication had been eligible to be considered a pretax expenditure in this way, before the ACA. But that eligibility was eliminated as part of a long list of new taxes and other measures that were designed to generate revenue to help pay for expanding health coverage to more people — a roughly $1 trillion cost of the health law over its first 10 years.

"It is paid for. It is fiscally responsible," said President Barack Obama as he signed the ACA into law in 2010.

But not so much anymore. Many of the taxes and other provisions aimed at paying for that expanded health coverage "have been eliminated, delayed or are in jeopardy," says Marc Goldwein of the Committee for a Responsible Federal Budget, a nonpartisan budget watchdog group. "All this stuff, it turns out, is very unpopular."

The first piece of financing to disappear happened before most of the law even took effect. In 2011, Congress repealed a requirement that small businesses report to the IRS any payment of more than $600 to a vendor. The idea was that if more such payments were reported to taxing authorities, more taxes due on that income would actually get paid.

But small businesses complained — loudly — that the new paperwork requirement would be excessive, and Congress (and Obama) eventually agreed. The change alone eliminated an estimated $17 billion in ACA financing over 10 years.

Next, in 2015, Congress delayed (for the first time) the "Cadillac tax," a 40% tax on the most generous employer health plans; one goal of that tax had been to curb excessive use of medical services.

That congressional delay came after intense lobbying by a coalition of business, labor and patient advocacy groups that banded together in a group called the Alliance to Fight the 40. It first got Congress to delay the Cadillac tax's implementation from 2018 to 2020, then further pushed that date to 2022. And this past summer the House voted overwhelmingly to altogether eliminate the tax, which had been estimated to raise nearly $200 billion over the next decade.

Also on ice, thanks to that 2018 bill, are levies that were supposed to be paid by medical-device makers and health insurance companies, originally worth a combined $80 billion in financing during the law's first decade.

Yet another — albeit fairly small — source of financing for the law went away in the 2017 GOP tax bill, which zeroed out the tax penalty for failing to have health insurance. The penalty raised $4 billion in 2018, the last year it was in effect.

Now it should be pointed out that the two ACA taxes that generate the most revenue are still on the books and collecting money. They are aimed at people with high incomes (more than $200,000 for individuals and $250,000 for couples) and were estimated to bring in more than $200 billion from 2010 to 2019. The measures, which don't deal directly with services or provisions of the ACA, raise Medicare taxes on people at those higher incomes and increase taxes on unearned income.

The durability of those two taxes does not surprise Goldwein. Some are "unpopular to repeal," he says, like "a tax on the rich that funds Medicare."

What Goldwein does find surprising, though, is how durable some of the ACA's other financing measures — reductions in spending ­— have been. For example, the health law, somewhat controversially, reduced Medicare payments to hospitals, insurance companies and a broad array of other health providers.

"The Medicare cuts have been for the most part surprisingly sustainable politically," Goldwein says. Even when the GOP took over the House in 2011, its budget maintained the reductions from the ACA. So did the 2017 GOP "repeal and replace" proposal.

On the other hand, the appointed board of experts that was to rein in future Medicare spending, the "Independent Payment Advisory Board," never got off the ground. Congress formally repealed it in 2018.

So what does this all mean? The past decade has shown that it has been relatively easy to make hard-won tax increases go away, suggesting that interest groups — particularly health industry groups representing drugmakers, insurers and hospitals — still wield a lot of power on Capitol Hill.

"Right now, everyone wants to cancel a 3% tax on the health insurance industry," he says, referring to the current efforts of a major ad campaign by a coalition of small-business owners and insurance groups to get Congress to delay or cancel that ACA-linked tax.

Given how much money from health insurers is going into fighting that tax, he says, how likely is it that Congress — even one controlled by Democrats — would really "cancel the whole industry" by passing a "Medicare for All" bill?

Kaiser Health News is a nonprofit, editorially independent program of the Kaiser Family Foundation. KHN is not affiliated with Kaiser Permanente.

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