By repealing a payroll tax on high earners that provided a critical additional revenue stream for the Medicare trust fund, the GOP's proposed American Health Care Act would speed up the fund’s exhaustion by as many as three to four years, according to estimates from health care policy experts.
“It’s clear, simple and undeniable that this bill would aversely affect the solvency of Medicare,” Paul Van De Water, a Medicare expert at the left-leaning Center on Budget and Policy Priorities told TPM.
Critics say this provision is a prime example of the GOP bill granting tax breaks to the wealthy at the expense of the country’s neediest citizens, and that it paves the way for Medicare privatization. One former Obama administration official argued that by endangering the program’s funding, so-called “entitlement hawks” like House Speaker Paul Ryan (R-WI) will have cover to argue that Medicare as we know it is financially unsustainable—then realize their long-held dream of turning it into a voucher program.
Andy Slavitt, acting administrator for the Centers for Medicare & Medicaid Services during the last two years of the Obama administration, has been ringing this bell loudly since the AHCA was made public Monday night.
“I think it’s a smarter play for them to move Medicare closer to a crisis, try to get this bill done, and then build a case about why this crisis needs to be addressed,” he told TPM in a Thursday phone interview.
Ryan's office and the Energy and Commerce Committee referred questions to the Ways and Means Committee.
“House Republicans laid out our vision to strengthen and preserve Medicare in A Better Way and will continue to build on the bipartisan successes of the historic Medicare reforms we passed last Congress to improve the quality of care for our seniors," Ways and Means Press Secretary Lauren Aronson told TPM in a Friday statement. "But keeping Obamacare’s job-killing taxes that discourage work rather than reward it is not the answer.”
Shoring up Medicare solvency was a key focus of the Affordable Care Act, and experts including Paul Ginsburg, director of the Brookings Institution's Center for Health Policy, told TPM that those efforts were an unqualified success. Before Obamacare's enactment, the Medicare trust fund, which is used to reimburse hospitals for treatment provided to seniors, was expected not to have enough funds to fully cover benefits beginning around 2016. The ACA’s 0.9 percent tax on individuals earning more than $200,000 (or more than $250,000 for those filing jointly), as well as reduced payments to hospitals and private insurers under Medicaid Advantage, are credited with significantly extending the solvency deadline. In the ensuing years the insolvency deadline was pushed back as late as 2030, due to a variety of factors, and by 2016 it had settled in at 2028, according to the most recent Medicare trustee report.
The AHCA repeals that 0.9 percent tax, resulting in a predicted loss of $117 billion in revenue over the next 10 years and accelerating when the Medicare trust fund would not be able to pay out full benefits. A Brookings Institution report from December that assessed the repeal of the payroll tax concluded that Medicare would begin falling short of funds at the end of 2024, nearly four years sooner than if the tax remained in place. The Brookings report was based on the Medicare trustee's expected insolvency date.
A separate January analysis from the Committee for a Responsible Federal Budget also found the repeal of the Obamacare payroll tax would accelerate Medicare insolvency. That CRFB report was based on a CBO estimated date for Medicare insolvency that is different from the Medicare trustee's projection.
The hit to Medicare has been buried among coverage of the bill’s effect on Medicaid, which bears the brunt of spending cuts, but some senior groups and Democratic lawmakers have drawn attention to it.
In a Wednesday letter to House GOP leaders, AARP senior vice president for governmental affairs Joyce Rogers voiced “serious concerns” about the payroll tax repeal, cautioning that it could “diminish Medicare’s ability to pay for services in the future.”
Sen. Ron Wyden (D-OR), ranking member on the Senate Finance Committee, released a letter he received from Slavitt highlighting the accelerated insolvency deadline, and accused President Donald Trump of violating his pledge to protect Medicare benefits.
“This bill breaks a clear Trump promise not to harm Medicare,” Wyden said in a statement. “In addition to the bill’s many other harmful provisions, it gives a tax break to the wealthy and steals directly from Medicare’s coffers. Raiding Medicare like this will create an unnecessary crisis that threatens the health care of tens of millions of seniors who count on the program."
The tax repeal also compounds a looming demographic crisis posed by the millions of baby boomers approaching retirement age. Those Americans aged 55-64 who are not yet Medicare eligible were already expected to put a huge strain on health care costs as they aged.
Geoffrey Joyce, director of health policy at the University of Southern California’s Schaeffer Center, told TPM that addressing this demographic issue will require either raising taxes and dramatically increasing efficiency in care, or having the government “play a smaller and smaller role in Medicare and providing health care for the elderly and the poor.”
“None of those are particularly attractive scenarios,” Joyce added.
Given that this age group makes up a significant portion of the GOP base, as well as the spiraling effect the tax cut could have, opponents of the AHCA say Medicare’s fiscal sustainability should be central to public criticism.
“I think it needs to be a focus,” Slavitt said. “This is a big issue for Medicare beneficiaries and particularly anyone who is not a Medicare beneficiary today but plans to be one sometime in the future.”
This post has been updated to include comment from the Ways and Means Committee.