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House Republicans’ ACA Repeal Plan Would Mean Big Tax Cuts for Wealthy, Insurers, Drug Companies

March 8, 2017

House Republicans’ bill to repeal and replace the Affordable Care Act (ACA) would eliminate ACA taxes on wealthy individuals and insurance and drug companies and greatly expand tax-sheltering opportunities for high-income people through health savings accounts (HSAs).  These changes (plus several smaller provisions of the plan) would cost $594 billion over 2017 to 2026, the Joint Committee on Taxation (JCT) estimates.[1]  At the same time, the plan would seek to offset the cost of these windfall tax breaks by ending the ACA’s Medicaid expansion, radically restructuring the entire Medicaid program by converting it to a per capita cap, and dramatically scaling back the subsidies that low- and moderate-income families use to purchase affordable health care, as well as other coverage changes that would undermine the health and financial security of millions of households.[2]

Repealing Two ACA Medicare Taxes on Highest-Income Filers

High-income taxpayers would no longer face Medicare taxes on all their income — unlike low- and moderate-income earners.The plan would repeal, starting in 2018, two ACA Medicare taxes — the additional Hospital Insurance tax on high-income people and the Medicare tax on unearned income — that fall only on individuals with incomes above $200,000 ($250,000 for married couples).  Their repeal would mean that high-income taxpayers would no longer face Medicare taxes on all their income — unlike low- and moderate-income earners — and the disparity between the top tax rates on income from earnings and income from wealth would widen.[3]

 

Figure 1
Eliminating Two Affordable Care Act Medicare Taxes Only Helps High-Income Filers

 

  • The 400 highest-income taxpayers would get annual tax cuts averaging about $7 million each, we estimate.[4]  These taxpayers, whose annual incomes average more than $300 million, would receive tax cuts totaling about $2.8 billion a year. 
  • Millionaires would get tax cuts of more than $50,000 each, on average, in 2025.  The Tax Policy Center (TPC) estimates that repealing these two taxes would boost the after-tax incomes of households with incomes over $1 million by 2.0 percent.[5]  (See Figure 1.)

JCT estimates that repealing these two taxes starting in 2018 would cost $275 billion through 2026.[6]

Expanding Tax Sheltering Opportunities for Wealthy Through Health Savings Accounts

The House GOP plan would make HSAs, which do nothing to help the uninsured afford coverage but offer high-income people lucrative tax-sheltering opportunities, even more valuable for the wealthy.

HSAs offer generous tax subsidies for people with high-deductible health plans to save for out-of-pocket health care expenses.  They primarily benefit higher-income people, who can most afford to save for health care expenses and are most likely to contribute to HSAs.  Further, high-income people receive the biggest tax benefit for each dollar contributed to an HSA because they face the highest marginal tax rates.  These factors explain why 70 percent of HSA contributions come from households with incomes over $100,000 and why filers with higher incomes make bigger average contributions.[7]  More than 15 percent of filers with incomes above $200,000 make HSA contributions, which average almost $5,000 yearly among those who contribute.  In contrast, less than 5 percent of filers with incomes below $50,000 make contributions, which average less than $1,500 yearly among those who contribute.[8]

The House bill would tilt HSAs’ tax benefits even further toward people at the top, primarily by roughly doubling the maximum annual contribution.  (See Figure 2.)  Only people wealthy enough to “max out” their contributions under the current limit would benefit.  

Figure 2
HSA Expansion Only Benefits Those Who Can Contribute the Most

JCT estimates that the HSA expansions in the House bill would cost $19 billion over 2017-2026.  The cost would likely grow significantly over time because much of the cost associated with HSAs comes from people making tax-free withdrawals from the accounts in retirement to pay for medical and long-term costs in lieu of sources that are taxable. 

Tax Cuts for Insurance and Drug Companies  

Repealing the ACA’s taxes on insurance companies, drug companies, and medical device manufacturers starting in 2018, would reduce federal revenues by $189 billion over 2017 to 2026, JCT estimates:[9]  

  • Repealing the tax on insurers and cutting taxes for insurers with high-paid executives.  The plan eliminates the fee on insurers that helps pay for the ACA’s coverage expansions. This would cost $145 billion over ten years, JCT estimates.  The biggest insurers would receive the biggest tax cuts.  The bill also cuts taxes for insurers with high-paid executives by allowing insurers to deduct up to an additional $500,000 from their taxes for executives who are paid over $500,000 each year, while weakening the ACA’s restrictions on those deductions.  JCT estimates this would cost $0.4 billion over ten years.
  • Cutting taxes paid by drug companies.  Eliminating a tax levied on drug companies would cost $25 billion over 2017 to 2026, JCT estimates.  Manufacturers and importers of brand-name prescription drugs pay this fee based on their brand-name drug sales to government health programs.  Wealthy shareholders and other investors, who own the bulk of stock and other investments, likely would ultimately enjoy the benefit of this tax cut as company profits expand. 
  • Repealing the medical device tax.  The House bill repeals the ACA’s 2.3-percent excise tax on the sale of any taxable medical device by a manufacturer or importer.  The tax is intended to ensure that the medical device industry, which benefits from higher sales due to improved health coverage under the ACA, contributes to health reform provisions that allow millions of Americans to afford that coverage.  Repeal would cost $20 billion over ten years, JCT estimates.

Overall Tax Cuts Heavily Tilted to Wealthy

The House bill’s repeal of the ACA revenue-raising tax provisions and its HSA expansion, together with a number of smaller provisions, would cost $594 billion over 2017 to 2026, JCT estimates.

Figure 3
Repealing Major ACA Revenue Provisions Would Mostly Benefit Millionaires

TPC has already estimated the overall impact of repealing the ACA’s major revenue-raising provisions, the effects of which would be very similar to the comparable provisions of the House bill.  TPC estimates that in 2025, when the provisions are fully phased in:[10]

  • Millionaires would get tax cuts averaging more than $57,000.[11]  
  • Millionaires would reap 57 percent of the net tax cuts.  (See Figure 3.)

These figures do not include the impact of removing the penalties faced by those without health insurance, which TPC and JCT have not estimated, but they nevertheless likely understate the regressive nature of the House plan, for several reasons.  They do not include the impact of its new, regressive HSA provision or of the tax increases that many low- and moderate-income filers would face due to the loss of some or all of their ACA premium tax credits and cost-sharing subsidies.  Nor do they include the impact on millions of low- and moderate-income families of the radical Medicaid restructuring envisaged by the House plan, which would be needed to pay for its tax cuts.[12]

End Notes

[1] See House Ways and Means Committee, “Markup: Budget Reconciliation Recommendations to Repeal and Replace Obamacare,” March 8, 2017, https://waysandmeans.house.gov/event/markup-budget-reconciliation-recommendations-repeal-replace-obamacare/.

[2] Edwin Park, Aviva Aron-Dine, and Matt Broaddus, “House Republican Health Plan Shifts $370 Billion in Medicaid Costs to States,” Center on Budget and Policy Priorities, March 8, 2017, http://www.cbpp.org/research/health/house-republican-health-plan-shifts-370-billion-in-medicaid-costs-to-states.   

[3] Chye-Ching Huang, Chuck Marr, and Emily Horton, “Eliminating Two ACA Medicare Taxes Means Very Large Tax Cuts for High Earners and the Wealthy,” Center on Budget and Policy Priorities, January 11, 2017, http://www.cbpp.org/research/federal-tax/eliminating-two-aca-medicare-taxes-means-huge-tax-cuts-for-high-earners-and-the.

[4] Brandon DeBot, Chye-Ching Huang, and Chuck Marr, “ACA Repeal Would Lavish Medicare Tax Cuts on 400 Highest-Income Households,” Center on Budget and Policy Priorities, January 12, 2017, http://bit.ly/2jzK2uI.

[5] TPC tables T16-0303 and T16-0311, http://www.taxpolicycenter.org/simulations/distribution-affordable-care-act-taxes-dec-2016.

[6] This figure includes $117.3 billion for repeal of the additional Hospital Insurance tax on high-income people, and $157.6 billion for the repeal of the Medicare tax on unearned income.  Joint Committee on Taxation, “Estimated Revenue Effects Of Budget Reconciliation Legislative Recommendations Relating To Repeal And Replace Of Certain Health-Related Tax Policy Provisions Contained In The ‘Affordable Care Act (“ACA”),’ Scheduled For Markup By The Committee On Ways And Means On March 8, 2017,” March 7, 2017, https://www.jct.gov/publications.html?func=startdown&id=4988 and Joint Committee on Taxation, “Description Of Budget Reconciliation Legislative Recommendation Relating To Repeal Of The Net Investment Income Tax,” March 7, 2017, https://www.jct.gov/publications.html?func=startdown&id=4984.  The Medicare tax on unearned income is not deposited in the Medicare trust funds.  The revenues from the additional Hospital Insurance tax on high-income people are deposited in the Medical Hospital Insurance trust fund, so repealing the tax would reduce high earners’ contributions to Medicare.

[7] Center on Budget and Policy Priorities, “What Is a Health Savings Account?,” January 25, 2017, http://www.cbpp.org/research/health/what-is-a-health-savings-account and Tax Policy Center, “How do health savings accounts (HSAs) work?,” http://www.taxpolicycenter.org/briefing-book/how-do-health-savings-accounts-hsas-work.

[8] Office of Tax Analysis, “Families with Health Savings Accounts by Adjusted Gross Income, 2014,” January 6, 2017, https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/HSA-Tables.pdf and IRS Statistics of Income Table 1.4.

[9] Chye-Ching Huang and Paul N. Van de Water, “ACA Repeal Means Tax Cuts for Drug Companies and Health Insurers,” Center on Budget and Policy Priorities, January 12, 2017, http://bit.ly/2ii9yIR.

[10] TPC tables T16-0299, T16-0303, T16-0307, and T16-0311.  This estimate includes the repeal of following revenue-raising provisions as modeled by TPC: the 3.8 percent net investment income tax on unearned income, the 0.9 percent additional Hospital Insurance tax, the increase in threshold for medical expense deductions, and the excise taxes on insurers, pharmaceutical manufacturers and importers, and medical device manufacturers and importers.  It does not include the proposed changes to coverage provisions (including the premium tax credit and the individual and employer mandates) or repeal of the Cadillac tax, as the House GOP bill would reinstate the tax starting in 2025.

[11] Chye-Ching Huang and Paul N. Van de Water, “Millionaires the Big Winners From Repealing the Affordable Care Act, New Data Show,” Center on Budget and Policy Priorities, December 15, 2016, http://www.cbpp.org/research/federal-tax/millionaires-the-big-winners-from-repealing-the-affordable-care-act-new-data.

[12] Edwin Park, “House GOP Medicaid Provisions Would Shift $370 Billion in Costs to States Over Decade,” Center on Budget and Policy Priorities, March 7, 2017, http://www.cbpp.org/blog/house-gop-medicaid-provisions-would-shift-370-billion-in-costs-to-states-over-decade.