The Health Costs of Tax Reform
Late last year, Republicans rammed a tax package through Congress with no debate whatsoever as to its potential effects on the US health-care system. Unfortunately, the legislation will most likely result in fewer Americans with insurance, stripped-down public programs, and less access to substance-abuse treatment.
NEW YORK – The sweeping tax bill that US President Donald Trump signed into law on December 22, 2017, may have been presented as an early Christmas gift. But to the millions of Americans whose health outcomes will worsen as a result, the legislation looks more like a costly white elephant.
The Tax Cuts and Jobs Act targets health care in the United States in three major ways. First, it eliminates the individual mandate, a provision of the 2010 Affordable Care Act (Obamacare) that imposes a tax penalty on people who go without health insurance. According to the Congressional Budget Office (CBO), this repeal alone will reduce the number of insured Americans by 13 million over the next decade, and increase average health-insurance premiums by about 10%. Moreover, eliminating the individual mandate could disrupt health-insurance markets, because there will be fewer younger, healthier people purchasing insurance.
Second, the CBO estimates that the law will add $1.45 trillion to the deficit over the next decade, which could trigger spending cuts to health-insurance programs for the elderly, poor, and disabled, such as Medicare and Medicaid. These programs are already some of the government’s largest budget items, accounting for $1 trillion in spending – 26% of the federal budget – in 2016. Any cuts to them made in the name of deficit reduction will disproportionately harm the most vulnerable.
Third, the tax law will decrease consumer health-care spending and adversely affect health outcomes among poor and at-risk populations. Although the law was sold as a tax “cut,” it will actually reduce the after-tax income of some 53% of Americans, while boosting the incomes of the richest 5%.
According to the Joint Committee on Taxation, an independent body that evaluates tax proposals before Congress, Americans earning more than $1 million per year will see their annual tax bill fall by an average of $12,865 over the next decade. For the poorest Americans, however, the tax burden will rise during this period. Those earning less than $10,000 per year will be subject to an average annual tax hike of $152, and those earning $10,000-$20,000 per year will face an average annual increase of $2,563.
Income has a huge impact on health outcomes. A 2016 study published in the Journal of the American Medical Association found that American men with incomes in the top 1% live 15 years longer than the poorest 1%; for women in these respective groups, the gap is ten years. The tax law could worsen these disparities by lowering the incomes of low- and middle-income Americans, many of whom are already living shorter lives, owing partly to the opioid crisis that is ravaging much of the country. In 2016, for example, life expectancy fell for the second consecutive year, by 0.1 years, to 78.6.
Because the poor, unemployed, and uninsured suffer disproportionately from opioid abuse and addiction, the tax law puts their health further at risk. Falling incomes and rising deficits could translate into less stable health-insurance markets and cuts to Medicaid, which reimburses prescriptions for naloxone, a drug used to reverse opioid overdoses.
Evidence from two of the states that have been hit hardest by the opioid epidemic is sobering. Last year, researchers at Harvard University found that in Massachusetts, which has expanded its Medicaid coverage in recent years, 868 opioid-related deaths were averted in 2016, whereas only 11 opioid-related deaths were averted in Tennessee, which did not expand its Medicaid program. The researchers concluded that, “Medicaid expansion helped put more purchasing power into the hands of laypersons and in so doing, expanded the use of naloxone, thereby saving lives.”
Each of the tax law’s injustices – fewer Americans with health coverage, stripped-down public programs, lower incomes for the poor, less access to substance-abuse treatment – is unambiguously bad for health outcomes. Taken together, they will have an adverse effect on worker productivity, thus undermining overall economic growth.
Some argue that the CBO’s initial forecast of the impact of repealing the individual mandate was overly dire, and that many Americans will purchase insurance even in the absence of a penalty. And, to be sure, there is no guarantee that spending for Medicare and Medicaid will be cut, given that the expansion of Medicaid under Obamacare has made the program even more popular among those it serves.
But even if these two assumptions prove to be unfounded, the unintended consequences of the new tax law will still threaten Americans’ wellbeing. The bill was rushed through Congress and signed into law without any meaningful debate about its potential effects on health care. As the law’s provisions take effect, policymakers must start paying closer attention. Otherwise, the legislation could end up costing Americans something more valuable than money: their health.