Updated Mar 5, 2018

Tax cuts will save health care companies billions — but not patients

Illustration: Sarah Grillo / Axios

Health care companies will add tens of billions of dollars to their bottom lines this year thanks to savings from the Republican tax cut package. But only a fraction of that money will benefit patients.

Why it matters: Even though a lower corporate tax rate frees up more cash for a health care system that more patients are finding increasingly unaffordable, patients should not expect the health industry's windfall to lead to lower premiums, reduced prices or major industry changes.

What we analyzed: Fourth-quarter financial reports and investor calls from publicly traded health care companies. (Here's the list.)

  • This is a conservative estimate of health care companies' tax cuts, because we only looked at a handful of companies that spelled out the savings specifically tied to the Republican tax overhaul.

What we found: 21 companies collectively expect to gain $10 billion in tax savings in 2018 alone. Most of the money is going toward share buybacks, dividends, acquisitions and paying down debt — with just a sliver for one-time employee bonuses, research and internal investments.

  • UnitedHealth Group accounts for a quarter of that total, and a majority of UnitedHealth's windfall is going to Wall Street and executives.
  • Most pharmaceutical companies were not included in this analysis because their figures weren't precise enough. But we already know they're spending at least $50 billion on new share buyback programs.
  • Many drug and medical device companies also brought back tens of billions of offshore dollars that, after the repatriation tax, will flow directly to their bottom lines this year and in future years.

The big picture: The tax law is "unlikely to lead to significant, long-lasting savings for patients," said Erik Gordon, a health care business professor at the University of Michigan.

  • "Companies lower prices on shoes, phones, cars (comparatively or versus inflation) to get your business. Health care pricing doesn't work that way. So the natural pressure to use the tax code to lower pricing...isn't there in health care," said Rodney Whitlock, a former GOP health policy aide.

Go deeper: Even health care companies that didn't forecast specific tax savings nevertheless made it clear Wall Street will get its fill.

  • "Much of the tax benefit will immediately flow through to shareholders in increased earnings," Susan Salka, the CEO of staffing firm AMN Healthcare, said in February.
  • Several corporations, including Johnson & Johnson and Abbott Laboratories, also said they'll use their billions in tax savings to pay down debt — debt that has grown as a result of past acquisitions, potentially opening the door to even more deal-making.
  • Dave Denton, chief financial officer of CVS Health, which is in the process of buying Aetna, said CVS is spending at least half of its $1.2 billion tax benefit this year on debt reduction.

Yes, but: Some insurers will have to issue rebates to their consumers because of a provision of the Affordable Care Act. And even if tax benefits were passed along to patients, that would be more likely to happen when companies renegotiate contracts — but don't hold your breath for that.

  • The other side: "If you subsidize something, you get more of it," said Chris Jacobs, a conservative health policy analyst. "Companies using tax reform to lower prices would yield out-of-pocket savings to consumers, but it would also encourage consumption — some of which would be necessary and useful, and some of which probably wouldn't."

Go deeper

Trump's clemency spree

Rod Blagojevich in 2010. Photo: Scott Olson/Getty Images

President Trump announced Tuesday that he commuted former Illinois Gov. Rod Blagojevich's 14-year prison sentence for extortion, bribery and corruption — as well as issuing full pardons for former San Francisco 49ers owner Edward DeBartolo Jr., former NYPD Commissioner Bernie Kerik and financier Michael Milken.

The big picture: The president's clemency spree largely benefitted white-collar criminals convicted of crimes like corruption, gambling fraud and racketeering, undercutting his message of "draining the swamp."

Go deeperArrowUpdated 2 hours ago - Politics & Policy

Trump's improbable moonshot

Illustration: Aïda Amer/Axios

NASA is unlikely to meet its deadline of sending astronauts to the surface of the Moon by 2024, even with a large influx of funding.

Why it matters: The Artemis mission to send people back to the Moon is the Trump administration's flagship space policy, and its aggressive, politically-motivated timeline is its hallmark.

Go deeperArrow3 hours ago - Science

Justice Department says U.S. attorneys are reviewing Ukraine information

Rudy Giuliani. Photo: Roy Rochlin/Getty Images

Assistant Attorney General Stephen Boyd sent a letter to House Judiciary Chairman Jerry Nadler (D-N.Y.) Tuesday informing him that the U.S. attorneys for the Eastern District of New York and the Western District of Pennsylvania are reviewing "unsolicited" information from the public related to matters involving Ukraine.

Why it matters: Nadler had requested an explanation for the "intake process" that Attorney General Bill Barr stated had been set up in order to receive information that Rudy Giuliani had obtained about the Bidens in Ukraine.