How ‘Repeal-and-Replace’ Legislation Could Increase The Deficit

How ‘Repeal-and-Replace’ Legislation Could Increase The Deficit

Even if the Congressional Budget Office releases an estimate early next week claiming that the Senate Obamacare discussion draft reduces the deficit, the legislation could well end up increasing the deficit. That’s because the bill repeals most of the law’s taxes, but leaves one in place—for the moment. Under the discussion draft, Obamacare’s “Cadillac tax” on high-cost health plans would return in 2026.

The New York Times noted earlier this week that Republicans intend to offer an amendment to eliminate the tax outright. If an outright repeal of the “Cadillac tax” receives more than 60 votes in the Senate—as it has before—that would mean the legislation could (and likely would) increase the deficit in the long term, while still passing through budget reconciliation measures on a simple majority vote.

About the Heller Amendment

Congressional staff have considered this scenario for months—whereby the “repeal” bill can bust the budget, by using Democratic votes to repeal the “Cadillac tax,” just as they did in 2015. During consideration of that repeal-only reconciliation bill, Senate Majority Leader Mitch McConnell (R-KY) offered a substitute amendment sunsetting the tax in 2025. Sen. Dean Heller (R-NV) then offered an amendment to that substitute repealing the “Cadillac tax” outright. That amendment passed on a bipartisan vote, with 90 senators voting to repeal the tax.

Because that vote passed overwhelmingly (i.e., with more than 60 votes), the Congressional Budget Act restrictions on reconciliation legislation—that the provision not increase the deficit outside the ten-year budget window—did not apply, and would not apply in this case either. In other words, if the bill increases the deficit solely due to the “Cadillac tax” repeal amendment, and 60 senators have supported said amendment, the bill’s overall deficit impact doesn’t matter.

It’s the Spending, Stupid

Should this scenario transpire, and the reconciliation bill ultimately increase the deficit, congressional leadership may claim that the long-term deficit increase would be due to the full repeal of the Obamacare “Cadillac tax.” But an examination of prior CBO scores shows a different picture.

  • The initial House “repeal” reconciliation bill (H.R. 3762) from the fall of 2015—which repealed the “Cadillac tax,” but did not repeal Obamacare’s entitlements—would have appreciably increased the deficit in the long term, according to CBO; but
  • The revised “repeal” reconciliation bill that passed the Senate later in 2015—which repealed the “Cadillac tax,” and all the Obamacare taxes, while also repealing the law’s new entitlements—would have had a minimal, almost infinitesimal, deficit impact over the coming half-century.

Given this dynamic, some conservatives may argue that it isn’t the repeal of the “Cadillac tax” that would cause any increase in the long-term budget deficit—it’s the entitlement spending included in the bill.

Raise the Deficit, Raise Costs

Not only would repeal of the “Cadillac tax” increase the budget deficit, it would also increase overall health-care spending. Although crude—it taxes all health plans at 40 percent, rather than at filers’ marginal tax rates, and raises taxes overall—the “Cadillac tax” would, if ever allowed to go into effect, serve as a control on health care spending. Most economists agree that the current, unlimited tax exclusion for employer-provided health coverage encourages workers to over-consume health insurance, and thus health care. Limiting this exclusion—albeit without raising taxes—represents sound conservative policy.

Ironically, if this procedural gambit succeeds, Republicans will have raised both the budget deficit and overall health care costs. Those potential outcomes provide further evidence the bill would reprise Obamacare, not repeal it.

Chris Jacobs is founder and CEO of Juniper Research Group, and author of the forthcoming book, "The Case Against Single Payer." He is on Twitter: @chrisjacobsHC.
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