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WASHINGTON — Republicans are once again bogged down in negotiations over health care, with moderates and conservatives pulling the Senate bill in different directions and polls showing the public overwhelmingly unhappy with their plans.
But the key to understanding their struggles might not lie in health policy so much as tax policy.
As frustrated GOP senators are discovering, their bill is much less generous than Obamacare because it spends hundreds of billions of dollars less on people’s health care. And the main reason it spends so much less is that its savings are used to cut taxes for wealthy Americans and for medical companies.
How close is the relationship? When it comes to Medicaid, it’s almost 1:1. The Senate bill slashes tax revenues by $701 billion over a decade, while reducing Medicaid spending by $772 billion versus current law. Overall, the Senate bill reduces federal health care spending by $1 trillion.
The result: More Americans without insurance. According to the nonpartisan Congressional Budget Office, the bill would cover about 22 million fewer people by 2026 than Obamacare.
It might be easier to make this tradeoff if the Americans losing aid for health care were the ones benefiting from the tax cuts. But unless you’re paying a penalty under Obamacare's individual mandate for deciding to go without insurance, you’re unlikely to notice the difference in your return.
Instead, the biggest gains from the bill, by far, go to the top 1 percent of earners and especially the top 0.1 percent. The individual taxes the Senate would eliminate, a 3.8 percent surtax on investment income and a 0.9 percent payroll tax, only apply to single filers making over $200,000 and families making over $250,000.
The cost of including these tax cuts, even for small numbers of high earners, is not chump change either. The Center for Budget and Policy Priorities estimates the bill’s tax benefits for the 400 highest earning households in America alone are equal to the cost of keeping Obamacare's Medicaid expansion in four states that cover 726,000 people.
On the spending side, the bill requires people to pay higher premiums to buy a private plan similar to what's available under Obamacare. It accomplishes this by reducing spending on subsidies and distributing them in a way that encourages people to purchase higher deductible plans with lower premiums. At the same time, it eliminates Obamacare subsidies that help low-income people pay their deductibles.
Here, too, the lower end of the economic spectrum fares worse than the higher end. The nonpartisan Kaiser Family Foundation projected premiums for people making over and under 200 percent of the federal poverty line (about $24,000 a year for an individual) and found the biggest spikes came for older low-income customers. The CBO also found this group would have the hardest time finding affordable insurance under the Senate bill.
Some Republicans are interested in easing the bill's Medicaid cuts and making subsidies for private insurance more generous at low incomes, but the math doesn't add up as long as the bill gives them $700 billion less in revenue to work with than Obamacare.
And some Republican senators have expressed unease in recent days with the bill’s tax cut for investment income from high earners and indicated GOP leaders might drop the idea.
“The point is, you cannot increase the burden on lower-income citizens and lessen the burden on wealthy citizens,” Senator Bob Corker, R-Tenn., told NBC News on Thursday. “That’s not an equation that works.”
Keeping Obamacare's tax on investment income adds $172 billion over 10 years, which is significant. But there's little talk of keeping the taxes on medical companies, which critics say are passed on in higher prices for consumers. Nor is there any indication yet that Republicans are willing to raise taxes elsewhere to make up the income.
That could leave them with the same fundamental problem: Less spending that provides fewer benefits than Obamacare can deliver.