ACA replacement: huge tax cuts for the wealthiest while raising costs and cutting care for struggling Minnesotans

The Republican plan to replace the Affordable Care Act (ACA) doesn’t just slash the federal government’s commitment to health care for those who struggle the most to afford it, it does so while providing huge tax cuts for the wealthiest Americans. The American Health Care Act (AHCA) includes tax benefits that do little to make health care more affordable or expand health insurance coverage. Instead, the AHCA places affordable, quality health insurance out of reach for lower-income people and their families, the elderly, people with disabilities, and residents of Greater Minnesota by making big cuts in Medicaid and reducing premium assistance.

The AHCA cuts taxes by:

  • Cutting the revenues that have been used to pay for expanding affordable health care through the ACA; and
  • Creating new opportunities for higher-income households to contribute to Health Savings Accounts.

The AHCA is speeding through the U.S. House of Representatives, and a new analysis from the Center on Budget and Policy Priorities describes the likely impact. Overall, 57 percent of the tax cuts from repealing major ACA revenue provisions would accrue to millionaires and much of the rest would go to other high-income households, insurance providers, and medical device and drug companies.

Meanwhile, according to the Kaiser Family Foundation, under the AHCA, consumers who purchase their coverage through marketplaces around the nation would lose an average of $1,700 in assistance that currently helps them afford their health insurance. But many would be hit harder — for example, a 60-year-old in Rochester, Minnesota, earning $40,000 would see a $8,590 cut to their premium assistance.

Below are some of the tax changes in the AHCA that make our nation’s tax system more unfair while doing little to meet Americans’ health care needs.

The AHCA repeals some federal taxes paid only by high-income households. Lower-income Americans pay Medicare taxes on all of their income; the Affordable Care Act made sure that the same was true for higher-income households. The AHCA would change that by exempting income over $200,000 from Medicare taxes (over $250,000 for married couples). That and a related tax repeal cuts taxes by $275 billion from 2018 to 2026. Millionaires would get more than a $50,000 tax cut on average, and the 400 highest-income American households each would see an average $7 million tax break annually.

The AHCA cuts taxes on health insurance companies with high-paid executives. The AHCA would eliminate a fee on insurers and allow them to deduct more of the salaries they pay to executives who earn more than $500,000. Combined, these two changes would cut taxes by $145 billion over 10 years and reduce the federal resources available for health care.

The AHCA gives drug and medical device companies a tax break. Over 10 years, the AHCA would cut taxes on medical devices and drug companies by $45 billion. The AHCA reverses taxes that were enacted under the ACA to reflect the fact that, with increased insurance coverage, these companies would likely see increased sales of their products. Much of the benefit of this tax reduction would accrue to wealthy shareholders even as millions of Americans would lose the insurance coverage that enables them to afford prescription drugs and medical devices.

The AHCA makes changes to Health Savings Accounts (HSAs) that would overwhelmingly benefit the wealthiest Americans. HSAs offer people with high-deductible insurance plans tax incentives in exchange for saving money to pay for health care. They are primarily used by families with higher incomes, since their very nature requires that a family has money left over after meeting their basic necessities. The AHCA doubles the maximum amount a family can contribute to an HSA from $6,550 to $13,100. The tax benefits of HSAs are already skewed towards higher-income families – because these families are in a better position to use HSAs and because the tax savings from doing so increases at higher incomes. The proposed changes only benefit those households who already “max out” their HSA contributions. This tax cut would cost $19 billion from 2017 to 2026. Nationwide, 70 percent of contributions to HSAs come from households with incomes over $100,000. Only about one in four Minnesota families falls into this income group, and again, only those who already are maxing out their contributions would benefit.

Federal policymakers should not accept the AHCA, which will make it harder for Minnesotans to afford quality health insurance – especially Minnesotans who live outside of the Twin Cities metro area, those who already struggle to pay for their families’ basic necessities, and seniors and people with disabilities who face higher medical bills. This plan slashes health care for those who need it most while providing tax cuts to those who need them the least. We encourage Minnesota nonprofit organizations and Minnesota residents to contact our Congressional delegation and ask them to reject this plan.

-Ben Horowitz

About Ben Horowitz

Ben Horowitz is the Minnesota Budget Project's policy advocate.
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