Whether you make a living by selling life insurance and annuities, developing comprehensive financial plans for the affluent, or giving institutions investment advice, the U.S. Senate’s health finance policy fight is your fight, too.
The United States could generate about $19 trillion in gross domestic product this year and have $87 trillion in net wealth.
The country will spend about $3.5 trillion on health care. The federal government will allocate $1.2 trillion, or 29% of what it spends, for Medicare, Medicaid and other health care programs.
An advisor from another planet who looked at the numbers for the United States might think the country was an endowment set up to yield a steady stream of funding for health care programs.
The last big wave of efforts to change the U.S. health finance system ended in the late 1990s, when the country decided that letting primary care doctors control managed-care plan enrollees’ access to specialty care and hospital care was unacceptable.
During the current wave, players on the left, who thought of the government-run health care system in France as the ideal, squared off with players in the middle, who hoped a public or private entity could make the system work better by having health plans compete for consumers’ business through a carefully policed health insurance supermarket.
Now Republicans in Congress are coming to terms with what pioneers in the health insurance supermarket movement were saying 10 years ago: that running a successful health insurance supermarket is complicated, and that keeping relentless tides of health risk from pushing the good customers and the good insurers out is hard.
Democrats approved the current Affordable Care Act and its health insurance supermarket program, the public health insurance exchange system, in 2010. The Obama administration took a slow, aloof approach to implementing it. Republicans did what they could to strangle it. Now, the system is wobbling. The tides of health risk are pushing the good risks and the most generous insurers out.
Members of the House passed a major Affordable Care Act change bill, H.R. 1628, the American Health Care Act bill, by a 217-213 vote May 4. No one knew whether the House version of H.R. 1628 would pass until it passed.
Now, Senate Republicans are struggling to pass their own version of H.R. 1628, the Better Care Reconciliation Act bill.
Senate Majority Leader Mitch McConnell was hoping to get the BCRA bill through the Senate as early as Wednesday. Shortly before press time today, he said he was postponing the vote because Senate Republicans need more time to talk about the bill.
Here’s a look at three possible implications the BCRA fight might have for financial advisors, whatever the ultimate outcome of the fight might be.
1. The BCRA fight could decide the fate of two taxes that affect high-income taxpayers, and of the Internal Revenue Code.
The Affordable Care Act created two taxes that have turned out to be solid revenue generators for the federal government: the net investment tax and the 0.9% Medicare surtax.
Together, the taxes accounted for about 1.85% of the $1.45 trillion in individual income tax revenue that the Internal Revenue Service collected in 2015, according to IRS figures.
The net investment tax imposes a 3.8% tax on the investment earnings of households with modified adjusted gross income over a minimum level. The minimum level is $200,000 for individuals and $250,000 for couples.
The Medicare surtax imposes an extra 0.9% tax on wages, compensation and self-employment earnings over a minimum level. The minimum level is $200,000 for an individual and $250,000 for couples.
Both the Senate BCRA bill and the House American Health Care Act bill would eliminate the net investment tax for tax years starting after Dec. 31, 2016.
Both bills would eliminate 0.9% Medicare surtax for tax years beginning after Dec. 31, 2022.
Today, developing strategies to deal with the net investment tax and the Medicare surtax is difficult, because no one knows whether the taxes are here to stay.
The outcome of the BCRA fight might give financial advisors a good idea about the fate of those two taxes. It could also determine what any efforts to reform the Internal Revenue Code look like.
Would-be Republican tax code changers are hoping they can use hundreds of billions of dollars in Affordable Care Act-related budget savings to ease any pain that simplifying the tax code might cause.
2. The health bill fight could lead to heated discussions involving AARP.
AARP has been running television ads urging 11 U.S. senators in eight states to vote against any bill that resembles the House American Health Care Act bill.
Both the House bill and the Senate bill would increase the gap between the amount insurers can charge their oldest adult enrollees and their youngest adult enrollees to 5 to 1, from 3 to 1 today.
Both bills would replace the current income-based premium tax credit subsidy system with a new system based more on a consumer’s age. The new system would provide bigger credits for older consumers, but not big enough credits to make up for the premium increases for older enrollees, according to analyses by AARP, the Henry J. Kaiser Family Foundation and other organizations.
AARP is calling the House bill tax credit system, and any similar systems, an “age tax.”
AARP has been urging members across the country to contact their senators to oppose any premium tax credit system that resembles the systems in the House bill.
At least one of the senators on AARP’s target list, Dean Heller of Nevada, has announced that he cannot support the current version of the Senate’s health bill.
Over the past 20 years, AARP has changed the boundaries for mainstream discussions of Medicare policy. Few players in Washington now question whether Medicare should exist.
Whether AARP succeeds at blocking the current premium tax credit change proposals or not, its visibility on this issue could make senators think twice about how they address a range of topics, ranging from long-term care finance to the idea of turning all 401(k) plan accounts in Roth accounts.
3. The health fight could push the White House and Republican leaders in Congress to seek bipartisan compromises.
When Donald Trump took the oath of office, it looked as if he might pursue a bipartisan approach to crafting legislation. Just a few years earlier, he was helping the current Senate Democratic leader, Chuck Schumer (pictured above), raise money for Democratic Senate candidates.
Since then, Trump’s administration has been taking a strongly partisan approach to legislation.
That could change.
Reporters at Politico today quoted anonymous sources who say Mitch McConnell is telling colleagues that, if the current Republican Affordable Care Act change efforts fail, “the GOP will lose all leverage and be forced to work with Chuck Schumer.”
A shift in Washington back toward bipartisan policymaking could hurt the chances for big, highly partisan measures, such as tax code simplification, but it could help the odds of smaller measures with some bipartisan appeal, such efforts to kill the Cadillac plan excise tax, sweeten the rules for holders of health savings accounts, or create new mechanisms for paying for long-term care.