13 Oct 2017 Healthcare and Taxes – The Latest
Latest on Medical Insurance
In a move, likely to spur action from Congress, President Trump said yesterday that the government would end government subsidies to insurers under the Affordable Care Act. The move comes on guidance from the Justice Department and the Department of Health and Human Services that the government cannot legally these multi-billion dollar payments as there is no Congressional appropriation for them.
But, according to sources cited in the Wall Street Journal, Mr. Trump has said privately that “he would support preserving the payments if a bipartisan deal being led by Sens. Lamar Alexander (R., Tenn.) and Patty Murray (D., Wash.) comes together. The senators have been working on legislation that would maintain the payments to insurers, which Democrats want, while also meeting a Republican goal of giving states more flexibility in how they implement the ACA.” The Journal article goes on to say, “Mr. Trump’s interest in the bipartisan talks reflects his desire to make changes to health care that appeal to both parties, people familiar with his thinking said. The president has also reached out to Mr. Schumer about a bipartisan path forward on health care.”
Boost to Private Insurance Markets
Also yesterday, President Trump signed an executive order that gives new life to the private insurance markets, potentially offering more choices at a lower cost to many Americans. According to a WSJ editorial today a part of the executive order “directs the Labor Department to ‘consider expanding access’ to Association Health Plans, which would allow small businesses to team up to offer insurance. The purpose is to let trade groups form insurance risk pools across state lines and enjoy economies of scale. Many large companies are freed from state and some federal benefit mandates and operate under a law known as ERISA. Smaller businesses deserve similar flexibility.” A White House fact sheet notes that the share of workers at small firms with employer coverage has dropped to about one-third in 2017 from almost half in 2010.
Employer Healthcare Reimbursement
The order calls for the increased flexibility and use of health-reimbursement arrangements, which allow employers to pay back employees for health-care expenses with pretax dollars. According to the article, the expansion “could be a step toward equalizing the tax treatment for smaller businesses that don’t offer coverage and thus don’t qualify for the subsidy known as the employer tax exclusion.”
Short Term Insurance Plans
The editorial notes a “third part of the order directs cabinet agencies to consider new rules on short-term insurance plans, which the Obama Administration restricted for the mortal sin of popularity. The plans traditionally could run for a year and often cover catastrophic events with relatively broad networks of doctors and hospitals. This can be a lifeline for folks between jobs. The short-term market has historically been minuscule, but perhaps demand will be higher now given that average ObamaCare premiums have increased dramatically since 2013.”
One one of the problems with executive orders is that the next president can undo them, as Mr. Trump has done for many of Mr. Obama’s. Another is that they are more vulnerable to court challenges than congressional legislation.
The WSJ says that “ObamaCare’s defenders are calling all of this ‘sabotage’ and warning about ‘adverse selection,’ in which a more robust individual market will siphon off the healthy customers that prop up ObamaCare’s exchanges. They predict a death spiral of higher premiums for the sick or elderly left on the exchanges.’
‘Yet the ObamaCare exchanges were deteriorating long before Mr. Trump arrived, as the young and healthy and insurers fled. Enrollment is 60% lower than the Congressional Budget Office predicted, which is impressive even by CBO’s record of missing the mark. Some 6.7 million people paid a tax in 2015 rather than buy coverage they don’t want or can’t afford.’
Editors of the Journal point out that “if the small-plan and association markets grow enough, perhaps the exchanges could over time become high-risk pools that subsidize care for the sick, as the Juniper Research Group’s Chris Jacobs has suggested. What eludes the Socratic dialogues of Jimmy Kimmel is that the small percentage of Americans with pre-existing conditions need help paying for known problems, not unexpected events built into the price of insurance. This can be done without burying the costs across higher premiums for everyone, as ObamaCare does.”
Latest on Tax Reform
Some Permanent, Some Temporary
Treasury Secretary Steven Mnuchin said today that some parts of the tax overhaul could be permanent, while others would only be temporary. “There’s tax cuts that absolutely have to be permanent,” he said when asked whether the administration will be able to make tax cuts permanent. For example, moving to a territorial tax system, which would allow tax-free repatriation of future foreign profits, would be very difficult to unwind, he said.
The current GOP proposal includes a provision that would allow businesses to immediately write off investments for at least five years. “That’s to incent people to invest money now and it’s a lot cheaper than giving it to them for 10 years,” Mr. Mnuchin said.
In today’s WSJ article, Kate Davidson says “The size of tax cuts, and the extent to which they are made permanent, will be constrained by Senate rules that limit the ability of Republicans to increase budget deficits. The party faces the challenge of fitting its tax goals—more than $5 trillion of rate cuts over a decade—into a budget plan that will likely allow for $1.5 trillion in bigger deficits over a decade and no additional deficits beyond that 10-year window. Doing so will require eliminating or shrinking some cherished tax breaks and could force the GOP to make some tax breaks temporary.”
House Moves to Keep Some of the State and Local Tax Deduction
Amidst opposition within their ranks, House Republicans are working toward an agreement that preserves some of the federal deduction for state and local taxes, rather than abolishing it entirely. An article by Richard Rubin and Siobhan Hughes in today’s WSJ.
The latest move is to keep the break for middle-income households while repealing it for higher-income households, cutting off the deduction as household incomes exceed a certain level. The debate seems to be between $200,000 and $400,000.
The argument for eliminating the state tax deduction entirely is that low-tax states are subsidizing high-tax states, according to the authors, “because New York and New Jersey can raise taxes, knowing that their residents can get part of that back in lower federal taxes.” Mr. Trump agrees saying “It’s unfair that a state that is well run is really subsidizing states that have been horribly mismanaged.”
But the argument is not convincing GOP representatives of these two states who say that their states already get back far less in federal spending than they pay in taxes.
The White House and congressional leaders seem cautiously optimistic that they can have a tax reform bill on the President’s desk by Christmas. It’s also possible that we could see something significant on healthcare sooner than later, given that senators Alexander and Murray seem pretty close and President Trump has all but required some action with his administration’s move yesterday.