The release of the House GOP budget by Rep. Paul Ryan has sparked a resurgence of false and misleading claims about the Affordable Care Act, which the budget seeks to largely repeal. On the Sunday talk shows, Rep. Debbie Wasserman Schultz, the head of the Democratic National Committee, and Sen. Ron Johnson, a Republican from Wisconsin, each distorted the facts regarding revenues raised in the health care law. And Ryan wrongly said the law would take money away from Medicare and ration benefits for seniors.
- Johnson said there’s “$1 trillion in middle-income tax increases … in Obamacare.” But the new revenue generated by the Affordable Care Act falls mostly on high-income taxpayers, employers who fail to provide health care to their employees, and health care companies, such as drug manufacturers, medical device manufacturers and insurance providers.
- Wasserman Schultz said “there are not $1 trillion in taxes in Obamacare,” calling Johnson’s claim “completely untrue.” That’s wrong. The nonpartisan Congressional Budget Office says repealing the law will “reduce revenues by $1 trillion between 2013 and 2022,” meaning it will cost taxpayers that much if the law remains on the books.
- Ryan said the law’s reductions in the growth of Medicare spending amounted to “money that was taken from Medicare.” But the Treasury has to give Medicare the money credited to its trust fund — the money can’t be taken away.
- Ryan also repeated a popular talking point when he said that a 15-member “rationing” board would “determine what kind of benefits people get.” But the board, tasked with recommending ways to slow the growth of Medicare spending, can’t restrict benefits, according to the Affordable Care Act.
$1 Trillion in Taxes
Wasserman Schultz and Johnson had a spirited exchange over the revenue raised by the federal health care law during an appearance on ABC’s “This Week.”
Johnson, March 10: The fact of the matter is, we already have a $1 trillion in middle-income tax increases hitting us in Obamacare. They’re hidden, but it’s middle-class …
Johnson: … it’s certainly true, as well as another $600 billion. So, you’ve already got $1.6 trillion worth of tax increases hitting us in the next 10 years. That’s going to harm economic growth. George, the best way getting out of the situation is economic growth.
Wasserman Schultz: No, let — first of all, that is completely untrue. It is — there are not $1 trillion in taxes in Obamacare …
Wasserman Schultz is wrong.
House Speaker John Boehner asked the CBO to estimate the revenue effects of H.R. 6079, the Repeal of Obamacare Act. In a July 2012 letter to Boehner, the CBO said that repealing the new law would “reduce revenues by $1 trillion over the 2013-2022 period” — meaning, of course, that it will cost taxpayers $1 trillion over 10 years if not repealed.
CBO and the nonpartisan Joint Committee on Taxation produced the revenue estimates in the letter to Boehner. Table 2 of the CBO letter and the charts contained in a June 2012 preliminary report by JCT provide details on the revenue estimates. The CBO letter shows that total revenues — taxes, fees, penalties and associated revenue effects of the legislation — exceed $1.2 trillion over 10 years. The net amount, however, is $1 trillion after accounting for $242 billion in tax credits to help millions of Americans buy health care insurance.
More than $1 trillion of the $1.2 trillion in estimated revenues comes from higher taxes and penalties imposed on individuals for failing to obtain health insurance and employers for failing to provide health insurance. The Supreme Court ruled that the penalties can be considered a “tax,” as we have written before, so Johnson’s labeling of the revenues as a $1 trillion tax is not in dispute.
But Johnson exaggerates by describing the $1 trillion as “middle-income tax increases,” and he ignores the fact that the legislation will help millions of middle-income taxpayers buy insurance.
Let’s first look at who will pay most of the health care tab, which falls heavily on businesses and upper-income individual taxpayers.
The CBO letter to Boehner shows about $318 billion — a third of the $1 trillion in net revenues — would come from tax increases on upper-income taxpayers to help fund Medicare. (See Table 2, “Additional Hospital Insurance Tax.”) Beginning Jan. 1, taxpayers started paying an additional 0.9 percent Medicare tax on income above $200,000 (for individuals) and $250,000 (for families), and a 3.8 percent tax on investment earnings above those thresholds.
In addition to upper-income taxpayers, the law will impose new taxes and fees on businesses — particularly in the health care field. Another $165 billion in new revenue would come from an annual fee on drug manufacturers ($34.2 billion), a 2.3 percent excise tax on manufacturers and importers of some medical devices ($29.1 billion), and an annual fee on health insurance providers ($101.7 billion). (The revenue estimates for each industry come from a June 2012 JCT report used by the CBO for its report.)
In addition, the CBO says businesses that do not offer health insurance for their employees are expected to pay $106 billion in penalties over the 10-year period.
Those six provisions total $589 billion over 10 years. Two other changes in the business tax code push the total to more than $600 billion — about half of the $1.2 trillion in total new revenues.
This is not to say that some middle-income taxpayers won’t pay to help finance the expansion of health care for millions of Americans.
The CBO estimates that the law will raise about $106 billion from penalties on individuals who fail to buy insurance — the so-called “individual mandate.” But, as we have written before, less than half of the penalty revenue (about 46 percent) will come from taxpayers earning under $120,000.
Also, the CBO estimates that there will be $216 billion in “associated effects of coverage provisions on tax revenues.” Put simply, the CBO assumes that employees who drop or lose their employer-sponsored health care at work will receive higher pay to compensate them. As a result, the government will see an increase in tax revenues because wages are taxable and health benefits are not. The CBO, however, did not estimate which taxpayers might wind up paying more in taxes because of such coverage changes.
There will be other direct tax implications for individual taxpayers, including some middle-income taxpayers, such as limits on health care spending accounts that increase tax revenue. (A full list of the tax provisions can be found on the IRS website.)
Johnson also has made the point before that the “Obamacare taxes” will indirectly affect all taxpayers. In a response to the president’s State of the Union address, Johnson said: “The trillion dollars of Obamacare taxes have just kicked in. They will hit every man, woman, and child in America — either directly through taxes on your health care plan, or indirectly, through higher prices for health care in general.”
That may be. Richard Foster, Medicare’s chief actuary, testified in March 2011 that he expected higher taxes on certain medical devices to be passed on to consumers. But the fact is that most Americans will not see any direct tax increase from the law, and to describe the entire $1 trillion as “middle-income tax increases” goes way too far.
Johnson also ignores that the law will result in health care coverage for an estimated 27 million more Americans by 2017 — many of them middle-income Americans who will receive subsidies to help them purchase insurance through the exchanges that will be set up by the law.
Those who are not eligible for Medicare or Medicaid and earn up to 400 percent of the poverty level ($92,200 for a family of four and $44,680 for a single person in 2012) will receive federal subsidies to help defray the cost of health insurance. In a February report, the CBO projected that about 80 percent of the 25 million people purchasing insurance through the exchanges in 2023 would receive government subsidies.
House Budget Committee Chairman Paul Ryan dredged up some old claims about the Affordable Care Act on “Fox News Sunday” when talking about his new budget plan, which was released March 12. Ryan claimed that the law was taking money away from Medicare, which isn’t the case, and that a board tasked with finding ways to curb the growth in Medicare spending would “determine what kind of benefits people get.” The law says the board can’t restrict benefits.
Fox News Host Chris Wallace asked Ryan about his budget’s $716 billion in Medicare cuts over 10 years — the same reductions in the future growth of spending that are part of the Affordable Care Act, and the same cuts Ryan opposed while campaigning as presidential nominee Mitt Romney’s running mate. During last year’s campaign, Romney said he would repeal these reductions in Medicare spending, and Ryan claimed that Obama had “turned Medicare into a piggy bank to fund Obamacare,” saying he would “stop the raid on Medicare.”
Now, Ryan includes those cuts in his latest budget, but still says he would “end the raid of Medicare from Obamacare.” Ryan had also included the Medicare cuts in budgets he proposed before getting the vice presidential nomination.
Ryan, March 10: What we also say is, end the raid of Medicare from Obamacare. You have to remember, all of that money that was taken from Medicare was to pay for Obamacare. We say we get rid of Obamacare, we end the raid and we apply those savings to Medicare to make Medicare more solvent and extend the solvency of the Medicare trust fund.
The problem is, the Affordable Care Act can’t take money away from Medicare. Instead it reduces the future growth of Medicare spending — primarily Medicare Part A, which is funded mainly by payroll taxes. We explained Part A’s financing in an Aug. 24 piece titled “Medicare’s ‘Piggy Bank.’ ”
The payroll taxes collected can’t be taken away from Medicare; instead, just as Ryan says his plan would do, savings from reduced spending are applied to Medicare to “extend the solvency of the Medicare trust fund.” The program doesn’t take in enough in taxes to pay for current benefits, so spending less than was expected in the future boosts Medicare’s finances.
When Medicare doesn’t need to spend payroll tax money right away, that money goes into the Medicare Part A trust fund. In lieu of the dollars, Medicare receives a Treasury bond that it can cash in anytime it wants. Treasury must pay the bond, even if it has spent the original money on something else (which is often the case).
So Obama simply can’t take this money away from Medicare.
Republicans have a point when they say the Affordable Care Act double-counts these Medicare savings as both prolonging the life of the trust fund, and paying for insurance coverage expansion under the law.
The nonpartisan Congressional Budget Office and Medicare’s chief actuary, Richard Foster, have both said that the law can’t do both things as once, even though government accounting conventions show the law doing just that.
But it’s still incorrect to say that the law would “raid” Medicare or somehow take Medicare money away from the program.
Also, Ryan doesn’t mention that the health care law further shores up Medicare’s future financing by $318 billion over 10 years by increasing the Medicare payroll tax rate for individuals making more than $200,000 a year and couples earning more than $250,000, and adding a tax on investment income for those upper-income earners.
Ryan: It’s a program that basically puts Medicare under the control of 15 people on a board that will determine what kind of benefits people get. That’s a rationing board, however you slice it.
The board is the Independent Payment Advisory Board, and it can’t “determine what kind of benefits people get,” by law. The Affordable Care Act limits what the IPAB can and can’t do. And clearly in the “can’t” group is limiting benefits or eligibility, and increasing taxes or premiums:
Patient Protection and Affordable Care Act, page 490: The proposal shall not include any recommendation to ration health care, raise revenues or Medicare beneficiary premiums under section 1818, 1818A, or 1839, increase Medicare beneficiary costsharing (including deductibles, coinsurance, and copayments), or otherwise restrict benefits or modify eligibility criteria.
A Kaiser Family Foundation analysis said that the board would have to find savings from “Medicare Advantage, the Part D prescription drug program, skilled nursing facility, home health, dialysis, ambulance and ambulatory surgical center services, and durable medical equipment.”
The 15-member board’s recommendations for reducing spending could be overridden by a three-fifths majority vote by both Houses of Congress, or a new plan from Congress to cut spending by the same amount as what the IPAB recommends. Ryan made similar claims about the board during the vice presidential debate last year, and in making a case for his budget plan in May 2011.
– Eugene Kiely and Lori Robertson