Congress Set to Deficit-Fund Obamacare by Almost $40 Billion

I had always feared that Congress’s alternative to Obamacare was a deficit-funded Obamacare, and it looks like that is coming to pass. This is being done through the so-called “taxibus,” a legislative package that combines popular “tax extenders” (items like research and development tax credits that are legally temporary but practically permanent) with funding the federal government through September 2016.

The bill proposes a couple of years delay in three Obamacare taxes: the medical-device excise tax, the health insurance fee, and the excise tax on high-cost employer benefit plans.

All three taxes are bad. However, the bill just delays them without cutting any Obamacare spending.

The medical-device excise tax is a 2.3 percent levy on medical devices sold in the United States. A two-year moratorium will reduce tax revenue by almost $4 billion.

The health insurance fee is a similar charge on all employer-based health insurance. A one-year moratorium on this fee will reduce tax revenue by about $12 billion.

The excise tax on high-cost health plans is a little different. Delaying it by a couple of years will reduce tax revenue by about $20 billion. Yes, it is a bad tax. However, it is not quite as bad as the other two. Pre-Obamacare, firms could spend an unlimited amount on health benefits, which were never added to employees’ taxable income. This led to over-insurance, artificially high health spending, and higher income tax rates than otherwise. This excise tax, although poorly designed, recognizes the problem.

Of course, these taxes are discriminatory and harmful. However, they were included in the Affordable Care Act to make the numbers add up to a budget-neutral Obamacare. Reducing these taxes without reducing Obamacare spending – especially Obamacare’s dependency-inducing Medicaid expansion – does nothing to repeal Obamacare. It merely gives us deficit-funded Obamacare.

* * *

For the pivotal alternative to Obamacare, please see Independent Institute’s book, A Better Choice: Healthcare Solutions for America, by John C. Goodman.

  • Catalyst