How Republican health reform could damage Medicare’s long-term solvency

The Republican proposals to repeal and replace the Affordable Care Act (ACA) would be a disaster for older Americans not yet on Medicare – but they also endanger Medicare itself.

The Better Care Reconciliation Act (BCRA) under consideration in the U.S. Senate would mean higher premiums and reduced cost-sharing subsidies for lower-income older people. The Congressional Budget Office (CBO) has estimated, for example, that under this bill the annual premium for a 64-year-old person who earns $56,800 would skyrocket by $13,700. And the Medicaid cuts will put the squeeze on states’ ability to fund long-term care.

Meanwhile, tax cuts for the wealthy contained in some of the Republican proposals would bring closer the projected insolvency date of the Medicare Part A trust fund, which pays for hospital, skilled nursing facility, home health and hospice benefits. Insolvency would require either a new revenue source or a reduction of healthcare services the program provides.

The trustees of Medicare and Social Security released their respective annual reports on Thursday on the health of the programs. The news about the Part A trust fund was encouraging: the Medicare report said that lower-than-expected program spending in 2016 has pushed out the predicted date of insolvency for the Hospital Insurance Trust fund by one additional year, to 2029.

But the Republican reform efforts could worsen that outlook. The American Health Care Act approved by the House of Representatives in March would repeal the Medicare payroll surtax on high-income workers, which was added under the ACA to shore up the hospital insurance trust fund. The first version of the BCRA also repealed the payroll surtax.

On Thursday, however, Senate Republicans scrambling to save their struggling proposal unveiled a new version that would keep the tax – along with the net investment income tax. That tax imposes a 3.8 percent surtax on investment income for joint filers with more than $250,000 of adjusted gross income (AGI), and single filers with more than $200,000 of AGI. (Receipts from the investment tax go into the federal government’s general revenue coffers.)

Both of these tax cuts could easily reappear as the horse trading continues. So it is worthwhile to consider how elimination of the payroll surcharge, in particular, could damage Medicare’s financial health. Learn more in my Reuters Money column.

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