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New Senate Healthcare Draft Retains ACA Taxes on Wealthy

POSTED ON Jul. 14, 2017

Senate Republican leadership unveiled an updated draft of the Better Care Reconciliation Act (BCRA) July 13 that preserves several of the Affordable Care Act’s taxes on high-income earners, but whether the changes are enough to move the bill across the finish line remains unclear.

While the changes in the new draft were intended to shore up Republican support for the BCRA, at least two Republican senators said they would not support a procedural vote, expected the week of July 17, to begin debate on the bill. That means every other Republican in the chamber would have to vote in favor of moving forward on the bill, and Vice President Mike Pence would have to cast the deciding 51st vote, for it to proceed.

The new draft keeps in place the ACA’s 3.8 percent net investment income tax, the 0.9 percent hospital insurance additional Medicare payroll tax, and the $500,000 cap on corporate tax deductions for health insurance executive pay. According to the Joint Committee on Taxation (JCX-30-17), repealing those three provisions — as the original draft of the BCRA would have done would cost about $231 billion over a decade.

The updated bill also includes narrow language to allow health savings accounts to be used by those in the individual market enrolled in high-deductible health plans to pay for insurance premiums, with some restrictions. Beginning in 2018, any premium amounts that are not part of an employer-sponsored plan and that exceed the tax credit amounts available under the bill — and for which no deduction is offered — could be paid for using an HSA.

The bill also would make changes to the premium tax credit’s eligibility criteria, beginning in 2020. According to a summary, the bill would change the formula for calculating required premium contributions depending on age, income, and geography. The new draft also would allow those purchasing coverage on the individual market to use these subsidies to purchase a catastrophic coverage plan — a practice outlawed under the ACA.

Another significant change in the bill would allow insurers to offer noncompliant plans outside of the individual market exchanges, as long as those insurers also offer the required plans in the exchanges. Those off-exchange plans would not qualify for federal subsidies. Several lawmakers suggested this language may not be final.

Other tax provisions in the bill are carried over from the original draft of the BCRA. The legislation would still repeal the individual and employer healthcare mandates, delay implementation of the so-called Cadillac tax until 2026, and repeal the medical device excise tax and the excise tax on indoor tanning services, among other provisions. 

What About Tax Reform?

The tax changes to the BCRA come after Senate Republicans recently cautioned against repealing the taxes on high-income earners, wary that the legislation could be perceived as giving tax breaks to the wealthy at the expense of low-income families losing health coverage. However, lobbyists have speculated to Tax Analysts that keeping those taxes will spark conservative backlash from interest groups that have long sought to reduce effective tax rates on investment income and capital gains.

Senate Finance Committee member John Thune, R-S.D., told reporters he was concerned that keeping the NII tax could affect the budget baseline when working on a budget resolution that includes reconciliation for tax reform. He said that while his preference would be to repeal all the ACA taxes via the BCRA, the Senate Republican Conference, of which he is chair, had other ideas.

“We have a lot of members that have a different view about that, but there’s no question that it does have an impact on the decisions we have to make [on tax reform],” Thune said.

Sen. Ron Johnson, R-Wis., is one senator who sees no problem with putting the ACA taxes on high-income earners off until the tax reform debate, telling reporters that he supports repeal of ACA taxes that are “driving up the costs of healthcare” in the BCRA.  “I’m happy to deal with those other taxes in tax reform. I’ve got my own plan B on that in terms of corporate tax reform,” he added.

Finance Committee Chair Orrin G. Hatch, R-Utah, who has expressed opposition to keeping the NII tax and other ACA taxes, said in a statement that the new bill “isn’t perfect,” adding, “There are some things in the bill that, given my preferences, I would do very differently.”

The top taxwriter in the House also made clear that he would prefer that all the ACA taxes be repealed. House Ways and Means Committee Chair Kevin Brady, R-Texas, said during a weekly briefing that despite the Senate's plan, “I continue to believe that each of those Obamacare taxes does the economy wrong.”

While Brady has said that the ACA taxes won't be addressed in tax reform, congressional Democrats aren't buying it. “They’re going to delay the tax cuts for the fortunate few for a few months,” Finance Committee ranking minority member Ron Wyden, D-Ore., told reporters. “They’re going to get it; they’ve all been saying we’ll put it in another bill.”

Another Finance Committee Democrat, Sen. Robert Menendez of New Jersey, echoed Wyden, saying in regard to repeal of the ACA’s taxes on high-income earners, “whether it’s this legislative vehicle or another one, they’re going to get it.”

Does the Bill Fit?

Despite the changes to the bill, Republican Sens. Susan M. Collins of Maine and Rand Paul of Kentucky both expressed steadfast opposition to it.

“The best way to [solve the ACA] is through the committee process,” Collins told reporters. “One of the reasons I’m going to vote no on the motion to proceed is, I don’t believe you make major changes to an entitlement program upon which millions of Americans depend without having a single hearing in the Senate to evaluate the impact.”

Paul said the bill still does not deliver on the Republican promises to repeal the ACA, suggesting that Republicans should fully repeal the law and then focus on replacement ideas, perhaps even including Democrats in deliberations. “If you separate that out — and some Democrats and Republicans want some of these spending programs — put it on another bill, and let’s have another vote,” Paul said. “The root problem is repeal. . . . I think you could get to some repeal bill that all 52 Republicans would support.”

Other GOP senators were encouraged by the tweaks and considered offering support for the legislation. Johnson said that while the bill may not go far enough to reduce premium costs and the federal budget deficit, he would vote to begin debate on the measure.

Finance Committee member Tim Scott, R-S.C., told Tax Analysts that there are several options for how to use the additional funds generated by keeping the taxes on high-income earners, suggesting he would like to see some revenue go to doctors who help individuals through nonprofit organizations.

“There’s a myriad of things that can be done,” Scott said, highlighting the additional funds already allocated for opioid abuse treatments, the state stability fund, and allowing HSA funds to pay for premiums.

Fellow Finance member Johnny Isakson, R-Ga., told Tax Analysts that he would vote to begin debate, but said he was unsure whether he would support the final bill and would play close attention to any amendments that are offered.

Some senators have already begun pitching their amendments to the BCRA. Finance Committee member Bill Cassidy, R-La., and Sen. Lindsey Graham, R-S.C., issued a statement signaling their intention to offer an amendment that would further the transfer of power over healthcare delivery decisions to state governments, and only repeal the ACA’s medical device excise tax, keeping other revenues in place to fund the additional resources in their proposal, like retaining the medical inflation rate for Medicaid spending.

Collins, who has worked with Cassidy on an ACA replacement plan, told reporters she had yet to read the amendment language and would reserve judgment on whether it would change her vote until she has reviewed the proposal.

Menendez told Tax Analysts that the bill’s passage is “all up to Republicans,” but that if the legislation does come to a vote, Democratic amendments will likely be offered.

“With every tweak, millions still lose their insurance — we end Medicaid as we know it, which means millions more are at risk, and all the rest of us pay more for less. None of that has changed,” he said. “So at the end of the day, those who opposed it on the original grounds, I don’t see anything that has been imputed here that actively changes the dynamics for all those Republican members to vote yes even on the motion to proceed.”

Thune said the updated BCRA is still set to be debated on the floor the week of July 17. A Congressional Budget Office analysis of the bill is expected to be released early that week.

David van den Berg, Asha Glover, and Stephen K. Cooper contributed to this article.

Follow Dylan F. Moroses (@Dmoroses3244) on Twitter for real-time updates.