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The GOP's growing problem of how to pay for Obamacare replacement

Pictures of Money / Flickr Creative Commons

Republicans may quickly learn there's no such thing as an easy way to pay for health reform. After years of attacking Obamacare's industry taxes and other funding sources, the GOP is running out of ways to pay for their replacement plan without using the options they've criticized so heavily in the past.

The first red flag came last week, when key committee chairmen threw their support behind repealing the Obamacare taxes along with the law's subsidies and mandates. This would immediately gut revenue that could be used later to pay for a replacement plan.

Now, powerful lobbyists are trying to knock out another big source of money: the GOP plan to limit the tax break for employer health coverage. If both funding sources go, there's not much money left for an Obamacare replacement.

The lobbying behemoth opposing Obamacare's "Cadillac tax," which is aimed at expensive employer-sponsored health plans, is now warning Republicans not to limit the tax breaks for employer-sponsored insurance benefits. The group, the Alliance to Fight the 40, says the two ideas are essentially the same except for one key difference: The tax would only indirectly be paid by employees, while the limit on the tax breaks would come directly out of their pockets.

If those lobbyists are successful, it could be a problem, budget wonks say — because Republicans won't have any money left for a replacement plan if they lose all of the Obamacare taxes and don't generate any new ones. "This is a big deal," said Ed Lorenzen, a senior adviser at the Committee for a Responsible Federal Budget.

Quick refresher:

  • Obamacare taxes are paid by insurers, medical device manufacturers and drug companies. There's also a tax on high-income households. Together, these would bring in about $680 billion over ten years, according to the Brookings Institution.
  • Obamacare's "Cadillac tax" is aimed at unusually generous employer health plans. The employer pays the tax, but opponents argue that gets passed on to employees.
  • A cap on tax-exempt employer benefits effectively means that the tax break only covers up to a certain amount, and then the employees pay taxes on the rest.

In both cases, the goal is the same: increase federal revenue and control health care costs.

Why the cap is in trouble: The Alliance is unquestionably effective. Two years ago, it fought hard against the Cadillac tax and won a two-year delay: Congress pushed back its implementation from 2018 to 2020. Almost every Republican in Congress came out in opposition to the tax, and many Democrats also had issues with it. The group is now going to make the case that a vote against the Cadillac tax should be a vote against a cap.

The employer benefit cap is a large source of revenue in a Republican replacement plan, although how much it saves depends on where the threshold is set. Yet even Paul Ryan, who has included a cap in his own health reform proposals, wouldn't commit to including it in the GOP health plan last week: "Where Congress goes on this is an open question," he said during his weekly press conference.

The link to the populism that elected Trump is pretty obvious. Taxing premiums will increase deductibles and cost-sharing for workers, the Alliance says, which is something polling has shown is the opposite of what Americans want.

Why the Obamacare taxes are in trouble: While some Republicans have said they're nervous about repealing the taxes because of the budgetary issues down the road, they may be on the losing side of the battle. Sen. Orrin Hatch, chairman of the powerful Finance Committee, said in a Chamber of Commerce address last week that "all of the Obamacare taxes need to go as part of the repeal process."

Why it matters: If a GOP plan has no taxes or limit on tax breaks for those insured by their employer, then only about 40 percent of the funding for Obamacare's coverage expansion would be available for the replacement plan, Brookings estimates. That means the GOP plan would have to significantly reduce the amount of people covered or the benefits offered, unless they find a different way to pay for it.

Wonks aren't the only ones pointing this out; Democrats are too. "How are you going to put a subsidy in place for people buying on insurance exchanges? How are you going to provide states with the Medicaid money that we promised them?" Senate Minority Whip Dick Durbin asked me. "Pull the string and it all starts to unravel."

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