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Repealing and replacing the Affordable Care Act, the signature health care law of former President Barack Obama’s presidency, has been the top priority of Republicans in Congress for seven years and was a core campaign promise of President Donald Trump. Doing so, however, has proven to be far from easy.
With the collapse of the most recent health care reform proposal in the Senate on July 27th, what’s next for health care and the broader policy agenda? Here are some questions and answers about the state of play in Washington and the potential implications for investors.
What’s the latest from Washington on health care reform?
The House of Representatives narrowly passed a bill in May to repeal and replace the Affordable Care Act (ACA), but that bill was heavily criticized by lawmakers in the Senate (even Trump called the bill “mean”), where Republicans have a narrow 52-48 majority.
Senate Majority Leader Mitch McConnell (R-Ky.) convened a working group of 13 Republican senators to come up with an alternative. In June, McConnell unveiled the Better Care Reconciliation Act, promising to pass it before the July 4th recess. It quickly became clear, however, that there were not 50 Republicans willing to support the bill, so McConnell delayed the vote, giving members more time to find a consensus.
Republican leaders modified the bill multiple times over a three-week period in an attempt to find a compromise that could pass the Senate. On July 27th, a final attempt was made to pass a so-called “skinny repeal” bill—a slimmed-down version of the legislation that would have, among other things, scrapped the requirement that most people carry health insurance, ended the requirement that large companies provide health coverage, increased contribution limits to tax-free Health Savings Accounts for three years, and repealed the medical device tax for three years. The hope was to pass that bill in order to go to a conference with the House, where a compromise between the two bills could be crafted.
The changes were not enough, however. In the wee hours of July 28th, three Republican senators joined with all 48 Democrats to oppose the bill. McConnell was forced to acknowledge that the bill was dead.
Could the Senate try a different approach?
There is no Plan D, E, F or Z. Barring some unexpected turn of events, health care reform is likely pushed to the back burner for now, and Republican leaders will move on to other issues, including tax reform, the 2018 budget and the debt ceiling.
What does the bill’s failure mean for health care going forward?
The ACA remains the law of the land. But Republicans now face a conundrum: There are issues with the ACA that still need to be addressed, most notably the fact that some insurers are reducing or withdrawing entirely from participating in the law’s insurance exchanges in some locations. This means some individuals have few or no options for buying health care coverage. It is likely that Congress will need to take some steps this fall to shore up the exchanges. But the options, such as providing subsidies to reduce costs for sicker Americans, are not supported by all Republicans. Many will be hesitant to take action to “improve” the ACA unless it is a part of a broader initiative to repeal the law.
How will this affect my health care coverage in 2018?
That depends. If you get your health care coverage through your employer, you should not see any significant impact. Your coverage should continue and your employer should make you aware of any changes to your plan for 2018 during your company’s open enrollment period.
But if you are self-employed or part of a small business that doesn’t offer a plan, you need to be aware of what the options are in your area, especially given that some health care insurers have announced their intention to withdraw from some of the ACA’s health exchanges in 2018. Consult an insurance professional.
On other issues, it’s too soon to tell what the impact will be, in part because it will depend on what the Trump administration decides to do next, particularly when it comes to funding the law. If funding is reduced, for example, premiums could rise. We’ll know more in the next few months.
What happens to the taxes that were part of the ACA, including the surtax on investment income?
One of the mechanisms to pay for the ACA was a 3.8% Net Investment Income Tax (NIIT), a surtax on investment income for wealthier filers. Republicans originally planned to repeal the tax as part of passing an alternative to the health care law. For now, both the NIIT and the 0.9% Medicare surtax on wages for higher earners that was part of the health care law remain in effect.
That complicates the prospects for these taxes being repealed as part of any future tax reform bill. Repealing these taxes represents a significant revenue loss to the Treasury, and there are other, much larger Republican priorities when it comes to overhauling the tax code, including reducing individual rates and corporate rates.
Bottom line: The chances of the NIIT going away are shrinking. Don’t be surprised if it’s still in effect in 2018.
Does the collapse of health care reform have other ramifications for tax reform?
There are both policy and political implications for the upcoming tax reform debate. As stated above, it was originally expected that health care reform would include the repeal of a number of taxes, including the NIIT, the medical device tax and several others. Since those have not been repealed, they will have to factor into the tax reform debate, complicating the math. Or they could be left in place, which many Republicans are loath to do.
Politically, we have already seen one significant impact. In a joint statement released on July 27th, Republican leaders from the House, Senate and White House indicated that tax reform would proceed under “regular order,” meaning it will be considered by the relevant committees in both chambers of Congress. That process was bypassed in the health care reform effort, and several Senators—most notably, Senator John McCain (R-Ariz.)—said the decision to skip the committee process contributed to the bill’s downfall. Going through the committees gives more lawmakers the opportunity to voice their opinions, offer amendments and have a role in shaping the final bill.
The health care reform debate offers another important lesson for tax reform: Republicans are far from united. Despite having a Republican president and majorities in both the House and Senate, the differing perspectives and goals of Republicans ultimately meant they couldn’t reach consensus on health care reform. Tax reform is likely to be at least as tricky, if not more so, as lawmakers weigh competing priorities against each other.
Pivoting from health care reform to tax reform may be the stated goal of the party’s leaders, but the path to success doesn’t get any easier.