Trump Healthcare and Taxes

Trump won an important political victory last week by getting the House to pass a bill repealing and replacing ObamaCare.  The victory showed that Trump and his staffers are able to put together the political power and intelligence to get the fractious Republican congressmen to agree on something that can get the necessary number of votes.  The bill is a mess, but it is a political victory.

The reasonable, responsible thing for America to do is pass single-payer, government-funded healthcare, Medicare for all, as Trump recognized by his comment during his dinner with Australian Prime Minister Turnbull.  Trump probably personally favors this solution, but he can’t possibly pursue it with the Republican Party he leads.

ObamaCare is bad.  It expands coverage, but it is a mishmash drafted by healthcare and insurance industry lobbyists.  It has turned out not to be so profitable for health insurance companies, but they have the option to drop out if it’s not profitable, which they are doing in droves.  ObamaCare is somewhat responsible about trying to provide funding for the new services, but it fails in the long run.  The Congressional Budget Office estimated that in 2016 federal subsidies for all types of health insurance coverage for people under age 65 (i.e., excluding Medicare) amounted to $660 billion, or 3.6% of GDP.  The amount would rise to $1.1 trillion by 2026.  For the ten year period from 2017 to 2026, the total federal subsidy for medical care for people under 65 would be about $8.9 trillion.  Of that subsidy, $3.8 trillion is for Medicaid, and $3.6 trillion is for the tax deductions for healthcare insurance provided by businesses.

The main point of these figures is that ObamaCare is not self-funding; it results in a huge deficit funded either by higher taxes or borrowing from the Chinese.  Since higher taxes seem unlikely, China is picking up the tab for much of the medical treatment provided in the US.  The Chinese are buying lots of expensive homes and cars for American doctors.

It’s hard to tell from this FactCheck.org report, but it sounds like about 6 million people with pre-existing conditions were covered by ObamaCare, who might otherwise have been denied insurance.  On the other hand, Kaiser and HHS say about 75 million people are enrolled in Medicaid; so, Medicaid is a much bigger, more expensive program.  I found it strange that the Democratic arguments against the Trump repeal and replace of ObamaCare were focused much more on pre-existing conditions than on Medicaid.  In addition, it sounds as if the Trump bill uses its Medicaid cuts to give a huge tax cut to millionaires.  It seems to me that this is a much more important issue.

These articles in Forbes and MarketWatch so far seem some of the clearest on the tax implications of the Medicaid changes.  It looks like the TrumpCare bill eliminates a Medicare tax, not a Medicaid tax.  The Medicare tax imposed by ObamaCare is a 3.8% tax on net investment income for people earning over $200,000 (single) or $250,000 (married).  Plus, ObamaCare created a 0.9% Medicare tax on salary or income above those same amounts.  Apparently TrumpCare would eliminate these taxes, reducing taxes (and revenues) by about $900 million over a decade, i.e., about $100 million per year.  One advantage of putting these tax provisions in the healthcare bill may be that it will help a tax bill pass under the reconciliation process in the Senate, thus blocking a filibuster.  It may also make tax cuts look smaller by dividing them up between the healthcare and tax bills.

In any case, the Medicaid provisions, which are the basis for including the tax cuts, seem much more important for the economy and for the population at large than the pre-existing condition provisions.  Nearly half of all births in the US are paid for by Medicaid, according to Kaiser.  Maybe the Democrats thought the pre-existing condition issue would be more attractive to the general public, but relatively few people will be affected by it.  More than 6 million people may have pre-existing conditions, but they probably have other options than ObamaCare, and can get insurance through another program. The 75 million people on Medicaid have fewer options.

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