Why The GOP’s Obamacare Repeal May Doom Their Replacement

The GOP’s most likely path for repealing Obamacare immediately eliminates hundreds of billions of dollars in tax revenue that would otherwise be available to fund their replacement plan.

The large tax cut, which would go disproportionately to high earners, will seriously handcuff lawmakers as they try to cobble together a replacement plan to cover the millions of Americans dependent on Obamacare for health insurance, health care policy experts say.

With Republican Party’s strict anti-tax orthodoxy, it is difficult to envision the new GOP-controlled Congress raising taxes down the road to fund their Obamacare replacement. So while the current plan of repeal and delay contemplates a future replacement plan, the lost tax revenues is perhaps the most telling sign that a viable replacement may be either impossible to achieve or a meager substitute.

So far, congressional leaders have signaled they’re eying a version of the 2015 bill that delayed some aspects of Obamacare repeal for two years, but dismantled its taxes right away.

Not only would that mean a major tax break for the high-earners, with cuts that are directed towards individuals making more than $200,000. It would also shut down right off the bat a potential revenue source for whatever alternative — if there ever is one — that GOP lawmakers settle on.

“If all the taxes in the ACA are repealed as part of a reconciliation bill, that could be hugely consequential,” said Larry Levitt, vice president at the Kaiser Family Foundation. “If you take all that revenue off the table, it means a replacement bill has to be very scaled back relative to the ACA or they have to find money from somewhere else to pay for it, both of which would involve difficult trade offs.”

The tax cuts for the high-earners come in the form of an additional Medicare tax on high-earners and a tax on net investment income, which would be repealed immediately, under the 2015 rubric. The legislation, which was passed via the procedural maneuver known as reconciliation, also repealed taxes on the health care industry. All told, $680 billion in tax revenue would be eliminated if GOP lawmakers pushed through the same bill they used a year ago, according to a Brookings report.

From a political sense, it’s easy to see why getting rid of the taxes is appealing to Republicans.

As a Ryan Ellis, former tax policy director for Grover Norquist’s Americans for Tax Reform, put it to Politico, the tax cuts are “the best part about repealing Obamacare.”

“Because on the health care side of it, you have this complicated ‘replace’ that you have to turn to after that, but on taxes, it’s all easy — it’s all dessert,” he said.

From a policy standpoint, it puts an additional hurdle in front of GOP lawmakers as they hammer out a replacement plan. Not only will they have to agree on what that plan should look like, but how to fund it.

“It’s so often the case with health care legislation that the disagreements come with how to pay for it, rather than what to spend the money on,” Levitt said.

It’s not like Republicans are typically comfortable with raising taxes, meaning they could land on a plan that would be paid for with cuts to other programs or that wouldn’t cost that that much in the first place.

“They are acknowledging by saying that, that they have no intention of replacing with something that will provide the equivalent coverage and affordability, because they won’t have the dollars to support it,” said John McDonough, a Harvard public health professor who wrote the 2011 book “Inside National Health Reform.”

“So what they’re looking at it will be a substantially degraded replacement plan in terms of the numbers of people who get coverage and the benefits for which they can get access to medical care,” he said.

Some of the replacement proposals that have been floated by Republicans include tax credits similar to the ACA’s subsidies that could cost billions. But funding the Affordable Care Act was no easy feat, and depended on a logic that those new taxes were justified for those who would be paying them.

“You’re expanding the market for health care, so some insurance companies and providers, like devicemakers, will make some money so it made some sense to tax them,” said Alice Rivlin, a former Clinton administration Office of Management and Budget who is now a fellow at the Brookings Institute.

But even then, some ACA taxes have met fierce resistance. The Cadillac tax — which, more than just a revenue raiser, is widely praised by economists who say it will help reduce health care cost growth — has been delayed repeatedly by Democrats and Republicans, showing just how easy it easy for interests groups to turn lawmakers against.

“It’s often easy to get support for spending money, by raising taxes, or cutting programs invite new losers to the table that make politics of any legislation more difficult,” Levitt said.

What to do on the taxes is just one of many questions Republicans will have to grapple with as they push forward with their repeal. The elimination of the individual mandate will have almost immediate consequences on the individual insurance market, and Republicans may have to rely on the same kind of so-called “insurer bailouts” they’ve bashed in the past to keep carriers on the exchanges — which, of course, could cost more money.

“Repealing the taxes won’t lead to a meltdown,” Rivlin said. “But it’s a dumb thing to do. If you’re going to have a replacement, you should think about what that replacement should be and how to pay for it.”