The Dubious Counting at the Center of the G.O.P.’s Health-Care Reform
After Mitch McConnell, the Senate Majority Leader, released a draft of the Senate health-care bill, on Thursday morning, the media finally began focussing on the essence of what Republicans are proposing: an enormous redistribution of wealth into the pockets of the already-wealthy. The bill would modify the health-insurance subsidies introduced under the Affordable Care Act and dramatically cut Medicaid, all to deliver a big tax cut to the nation’s richest households. But there’s another aspect of the legislation that has received less attention, and that’s the way it staggers its various provisions, and claims billions of dollars in savings that are far from guaranteed.
If McConnell’s proposal were signed into law, the tax cuts for families earning more than a quarter of a million dollars a year would take effect immediately—in fact, they would be backdated to the start of the 2017 tax year. But many of the other big provisions in the bill would only take effect down the road. The changes to the private-insurance market would be felt later this year and early next year, as people purchased individual plans for 2018. The big cuts to Medicaid wouldn’t happen until 2021, and some of them would be delayed for another four years beyond that.
Thanks in large part to the Affordable Care Act, passed under President Obama, Medicaid and its sibling, the Children’s Health Insurance Program, now provide health care to about seventy-five million Americans, including about thirty-six million children. The Senate bill, in addition to rolling back the A.C.A.’s expansion of Medicaid, starting in 2021, would also change the way that Medicaid is financed, converting it into a block-grant program—meaning that the federal government would cap the amount of money it gives to states, which administer the program. From 2025 onward, a strict new formula would limit future expenditure growth.
Part of the rationale for this timetable is obvious. If the proposed Medicaid changes are fully enacted, they will knock many millions of needy people off the federal program’s rolls. By delaying the implementation, McConnell and his colleagues are hoping to win over moderate Republican senators, such as Susan Collins, of Maine, and Rob Portman, of Ohio, whose votes they need to pass the bill. Why don’t Republicans forgo the cuts to Medicaid completely? Partly because they are ideologically opposed to expanding the social safety net, which is what the Medicaid expansion did. But they also need the Medicaid cost savings to get the tax cuts they want—not just in this bill but also in the broader tax-reform measure they hope to pass.
Even though the savings from the cuts to Medicaid would be delayed, they are huge. According to the Congressional Budget Office, which scores tax and spending programs over a ten-year window, the Medicaid provisions in the reform bill that the House of Representatives passed in May would reduce expenditures by more than eight hundred billion dollars during that time frame. This princely sum would be more than enough to “pay for” repealing the 3.8-per-cent tax on investment income, and the 0.9-per-cent income surtax that the A.C.A. imposed on ultra-high earners. Indeed, it would probably “pay for” the entire health-care-reform package, and then some. The C.B.O. said that the House bill would cut the budget deficit by a hundred and nineteen billion dollars over a decade.
The C.B.O. plans to release its score of the Senate bill next week, and it will likely conclude that the measure will reduce the deficit by a similar amount. The Republican leadership will then be able to take the C.B.O.’s figure and portray it as a down payment on the broader tax cuts that the Treasury Department is working on as it maps out a top-to-bottom overhaul of the tax code. That is why Paul Ryan, the House Speaker, insisted that the Trump Administration pursue health-care reform first. It would help to “pay for” tax reform.
The reason for the quotes around “pay for” is that there is no guarantee that the enormous Medicaid cuts will ever materialize, even if Congress passes its health-care measures. Stripping millions of children and low-income working adults of health care would be highly controversial. There are midterm elections next year, and a Presidential election in 2020. A future Congress could well end up trimming the Medicaid cuts, delaying them further, or even repealing them.
Economists have a phrase for pledges that are unlikely to be honored even though the people who make them claim to be sincere. They call promises of this type “time inconsistent,” because the nature of the pledge clashes with the incentives that person making the pledge will face when the time comes to follow through on the commitment. At that stage, the temptation to change course is too strong. McConnell, Ryan, and other Republican leaders must be well aware of this problem, but they are playing the Washington game: back-loading the most politically toxic elements of the reform, but counting the proceeds from them immediately.
In a way, it is similar to what Wall Street bankers do when they securitize risky future income streams to raise money immediately. The value of the asset or business can look impressive, even though the cash flows on which that value is based are far from assured. In this case, we are talking about a future stream of uncertain savings, rather than cash flows, but the principle is the same. You book the gains now, and spend them. If, as time goes on, some or all of the incoming money fails to materialize, you deal with the problem then. Or your successors have to deal with it.
It isn’t very ethical, of course, and it isn’t financially sound, either. But it helps the G.O.P. to pose as a guardian of fiscal responsibility even as it hacks away at the tax base. If the Medicaid cuts do get enacted, the Republicans will have succeeded in shrinking a public health-care system that could be gradually expanded to cover more and more of the population. If the cuts don’t go through, the Republicans will have already used them to justify several years of tax cuts for their most affluent supporters and donors. For McConnell and Ryan, that’s a win-win proposition.
