President Donald Trump’s threat to “let Obamacare implode” took on a whole new meaning this week with a report released by the Congressional Budget Office that found such a strategy could lead to, among other things, bigger federal deficits in future years. Congressional Republicans are desperate for a “win” – and hopeful that tax cuts could provide that victory (along with a much-needed change of topic after a disastrous presidential response to neo-Nazi protests in Charlottesville, Va.). Yet the CBO’s projected $194 billion increase in the deficit should President Trump follow through on his promise to discontinue certain subsidies paid to insurance providers could be a deal-breaker on the already difficult path to tax reform.
The report issued Tuesday specifically analyzes a subsidy known as cost-sharing reductions. They are a payment to insurance companies authorized by the Affordable Care Act that covers the cost of providing lower deductibles and co-pays for people earning less than 250 percent of the federal poverty level. President Trump has sometimes falsely described the payments as a bailout to insurance companies. They are not. They actually translate into lower health care costs for low-income Americans.
If the cost-sharing reductions are discontinued – because of an apparent drafting error in the law, the payments are not automatic and the president has the authority to end them – the Obamacare insurance markets would be roiled, and participating insurance companies would have to raise rates by an estimated 20 percent next year. But that’s not all. It would not cause a lot of people to lose insurance, the CBO calculates; it would instead mean the government would have to pay more in tax credits as more people would qualify for direct subsidies or people whose insurance is already subsidized would qualify for larger benefits. The overall effect is to add red ink to the federal government ledger totaling $194 billion between now and 2026.
That boost to the budget deficit may seem relatively small. After all, the current fiscal year is already running a projected $352 billion deficit. But a worsening budget deficit is exactly what Republicans must avoid if they are to succeed with a tax cut of even minimal ambition. Many Republicans were counting on an ACA repeal (even if it meant millions of Americans would lose health insurance coverage) to help finance tax cuts without “blowing up” the deficit. An underfunded ACA is the worst of all possible worlds.
Make no mistake, a lot of GOP congressmen don’t really care about the deficit (unless it’s an excuse to slash safety net programs). They’re prepared to argue that tax cuts are needed to stimulate the nation’s relatively modest economic growth – a projected rate of less than 2 percent this year – as well as offset anticipated increases in interest rates by the Federal Reserve that are likely to dampen growth further. There’s even talk that Congress might be tempted to approve retroactive cuts so that people would be refunded a portion of the income taxes they’ve paid since the start of 2017. That’s the kind of thing that voters tend to like.
But the plan already faced all kinds of hurdles – primarily in the Senate where Republicans hold a slim majority and where the ACA repeal died. The same tug-of-war that killed the Obamacare repeal, conservatives versus moderates, could happen again. Grow the deficit too much and some Republican senators may back away, cut income taxes (and not just corporate taxes) by too little and you may lose others. In either case, President Trump’s political clout is likely running its own kind of deficit, fueled, in part, by his unceasing war with Senate Majority Leader Mitch McConnell. The president’s defense of the alt-right and neo-Nazis hasn’t exactly improved his public approval rating, recently judged the lowest of his six-month tenure (35 percent versus 55 percent disapproval, according to a Marist poll).
But whether a tax cut plan is likely or not, the CBO report should provide Trump with proof positive that slashing the cost-sharing subsidy would be a costly mistake. Raising insurance costs and chasing more companies out of the Obamacare exchanges might make a point, but it would only cost the government in the long run. It’s time to abandon the misleading “implode” rhetoric and seek a bipartisan compromise to upgrade and improve Obamacare to make health insurance more affordable and available to more Americans.