How the New US Tax Bill Will Impact Medicare
The new tax bill which the Trump led Republican administration seeks to pass into law will be the most important health care legislation enacted in United States since the Affordable Care Act (ACA) of 2010. Though the new tax bill has its positive sides, it is envisaged that it will pose some grievous threats and have negative impacts on Medicare.
The new tax bill has two major health-related aspects which include:
- the elimination of the penalties paid by people who fail to have health insurance as required by the so-called individual mandate
- the bill’s overall impact on the federal deficit — which will increase by an estimated $1.5 trillion after allowing for predicted economic growth.
This would lead to massive, across-the-board spending cuts in vital programs—including a four percent reduction in Medicare—due to the Pay-Go law enacted in 2010.
Because the Republican new tax bill gets rid of the Affordable Care Act’s individual mandate, it is expected that it will drive up health care premiums and result in more uninsured Americans.
With healthier people opting out of insurance and foregoing a penalty, it is speculated that premiums would continue to rise for those maintaining coverage. The penalties were meant to nudge healthy people to get covered.
Because insurance markets work by pooling risks, premiums from healthy people subsidize care for the sick. Without some arm-twisting to get covered, some healthy people will stay out of the pool.
According to the Congressional Budget Office (CBO) that’s likely to translate to a 10 percent increase in premiums for those left behind, people more likely to have health problems and need comprehensive coverage.
The CBO also estimated that 13 million more people would be uninsured in 2027 without the penalties. If they have a serious accident or illness, uninsured people get slammed with big bills, and taxpayers wind up indirectly subsidizing the cost.
Also, it is estimated that the new tax bill would increase federal deficits by about $1.5 trillion over 10 years, even after stronger economic growth expected from tax cuts. More deficits mean higher borrowing costs for the government, and that would reduce options for policymakers when Medicare’s long-postponed financial reckoning comes due.
According to the estimates of CBO, if the tax bill is enacted and would increase deficits by an estimated $1.5 trillion over 10 years, the White House’s Office of Management and Budget, the authority to determine whether a sequestration is required would have to order spending reductions of $136 billion for fiscal 2018 in order to eliminate the overage.
That’s unless other legislation is enacted to offset the deficit increase or there’s a waiver of these pay-go rules, as McConnell and Ryan have promised. The pay-go law limits cuts to Medicare to 4 percentage points, which is about $ 25 billion for fiscal 2018.
According to Jo Ann Jenkins, the Chief Executive Officer of AARP, “the sudden cut of about $25 billion to Medicare provider funding in 2018 would have an immediate and lasting impact, including fewer providers participating in Medicare and reduced access to care for Medicare beneficiaries. She asserted that “health care providers may choose to stop accepting Medicare patients at a time when the Medicare population is growing by 10,000 new beneficiaries each day”.
The greater concern remains that even if the automatic cuts don’t take place, the tax bill just aggravates the pressure on the federal deficit and the Republicans have been pressing for cuts in Medicare for some time.