Senate Health Care Bill Would Kill ACA Taxes

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By Colleen Murphy, Jason Mast, and Laura Davison

Senate Republicans lauded their draft health care bill—which would repeal the Affordable Care Act’s taxes—as more generous than what passed the House last month, but wouldn’t speculate on whether it will pass the chamber.

“I think we have a long way to go before we know the answer to that question,” Sen. Tim Scott (R-S.C.) told reporters.

The draft bill, released June 22, largely aligns with the bill ( H.R. 1628) that passed the House May 4. Notably, the Senate draft restructures the refundable tax credits included in the House bill to adjust them based on age, income, and geography—an effort to increase the credits for older and low-income individuals.

The bill comes ahead of what will likely be a whirlwind several days as Republican senators push to vote on the measure the week of June 26 before leaving for the Fourth of July recess. Moving quickly on the measure, which would then need to be reconciled with the House’s version, would free up Republicans to plow ahead on tax reform. However, it took weeks for the House to pass its bill after releasing it, and some Senate Republicans have already expressed opinions that differ from what is included in the draft—a signal that intense negotiating is likely.

Changes Coming

Taxes repealed in the draft range from the medical device tax to the tax on some brand-name prescription medications and indoor tanning salons. Many of the tax repeal dates align with the dates in the House bill.

But in recent days, some Senate Republicans have suggested several ACA taxes may need to remain in order to help fund other areas.

“This is not necessarily what’s going to be entered on the floor. It is truly a draft,” Sen. Bob Corker (R-Tenn.) said. “My guess, in this case, there will be substantial amendments that matter.”

Republicans can afford to lose two votes and still pass the measure. Sens. Rand Paul (R-Ky.), Ted Cruz (R-Texas), Ron Johnson (R-Wis.), and Mike Lee (R-Utah) said in a June 22 statement they don’t support the draft bill but are open to negotiations.

“There are a lot of things I’d like to do differently,” Sen. Pat Toomey (R-Pa.) said. “If I were king, I’d write a different bill. But this has been a long, hard, collaborative process, and as I say, I think it’s a first step in the right direction.”

Tax Repeals

The draft would repeal a 0.9 percent Medicare surtax beginning after 2022. During negotiations in the House, Republicans initially included the tax as an olive branch to reluctant lawmakers, though it was repealed in the final bill.

The effective date of the already-delayed Cadillac tax—the ACA’s 40 percent excise tax on portions of high-cost employer health care plans—is pushed back several more years, to after 2025. The tax has been roundly criticized by both parties.

Republicans plan to pass the bill using the budget reconciliation process, in an effort to work around Senate rules. Fully repealing the Cadillac tax would increase the deficit outside of the 10-year budget window, violating the rules of reconciliation.

The bill would also repeal the 3.8 percent net investment income tax on high earners, a provision also in the House bill that Democrats have panned as a tax break for the wealthy. Repealing that tax, the most costly of the ACA’s tax provisions, would cost $172 billion over a decade, according to a May analysis from the Joint Committee on Taxation.

Sen. John McCain (R-Ariz.) said his priority was sending the bill to his state’s governor to review its Medicare provisions, but said he was excited to see the taxes repealed, including the 2.3 percent tax on medical devices, which the bill would repeal after this year.

“The medical device tax is clearly a disaster that has driven manufacturers overseas,” he said.

Tax Credits

Sen. Bill Cassidy (R-La.) called the credits in the Senate draft “far more generous” than those in the House bill, which were only adjusted for age and capped at certain income levels. The House bill included an amendment that set aside $85 billion for the Senate to bulk up the credits.

The draft’s credits are capped at 350 percent of the federal poverty level instead of at 400 percent under the Affordable Care Act. A family of four at 400 percent of the federal poverty level has a household income of up to $97,200, according to the Internal Revenue Service.

For individuals under 29 with income at or below the federal poverty level—about $12,000—the premium would be capped at 2 percent. The premium for an individual with income at 133 percent of the federal poverty level would be capped at 2.5 percent, according to the draft.

Because of the way the credits are structured, the draft bill would likely increase coverage numbers in comparison with the House bill, Chris Condeluci, principal at CC Law & Policy PLLC, told Bloomberg BNA. Condeluci was a Republican tax staffer on the Senate Finance Committee and helped craft portions of the ACA.

The Congressional Budget Office said in a statement that “early next week” it would release a score on the bill’s budget impact and coverage numbers. The House bill would ultimately leave 23 million individuals uninsured by 2026, according to the CBO.

Not Enough

Still, the credits available in the draft “would generally be considerably less generous than those under current law” because it eliminates cost-sharing subsidies for low- and moderate-income individuals, Matthew Fiedler, a fellow with the Center for Health Policy at Brookings’ Economic Studies Program, told Bloomberg BNA in an email.

Individuals may have to switch from plans with no deductible or a low deductible in order to avoid paying higher premiums, he said.

“Relative to the House bill, the subsidies in the Senate discussion draft are somewhat more generous at the bottom of the income scale and less generous to higher-income enrollees,” he said. But still, the subsidies “will leave many people significantly worse off.”

Senate Minority Leader Charles E. Schumer (D-N.Y.) said during a June 22 news conference that the draft is even “meaner” than the House-passed version, cribbing a criticism President Donald Trump recently expressed about the House bill.

The draft could also raise premiums for individuals in rural states like Alaska, Aviva Aron-Dine, a senior fellow at the left-leaning Center on Budget and Policy Priorities, said on a June 22 press call.

What’s Coming

The bill will undergo two revision phases, Corker said. The first “informal” process will be changes to the bill before it is introduced. The second will be a “formal” amendment process on the Senate floor, he said.

“For anyone at this point to say they will or won’t would be irresponsible,” Corker said. He declined to say which aspects of the bill are most likely to be changed.

Even if the Senate doesn’t pass a bill before leaving for recess, its progress is promising, House Ways and Means Committee Chairman Kevin Brady (R-Texas) said. Getting health care off the table paves the way for tax reform and tax cuts, he said.

“That would be very, very encouraging if the Senate were able to complete its work next week, but barring that if they’re continuing to move forward to deliver this, that’s encouraging too,” he said.

Rep. Dave Brat (R-Va.) said he could support the Senate version if it brings down premium costs. Brat and other fellow Freedom Caucus members opposed a version of the bill in March that ultimately led House leaders to rework the bill.

“From what I’ve seen, there are a bunch of deal breakers in there,” Brat said. “It all hinges on do they have a piece which overwhelms those deal breakers that brings down price. If they do, I’m open ears.”

To contact the reporters on this story: Colleen Murphy at cmurphy@bna.com; Jason Mast at jmast@bna.com; Laura Davison at ldavison@bna.com, in Washington

To contact the editor responsible for this story: Meg Shreve at mshreve@bna.com

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