Trumpcare is a De Facto Tax Hike for the Middle Class and an Eventual Tax Cut for the Rich

by Michael Dorf

The current House bill to repeal and replace the Affordable Care Act (ACA), which has the support of the White House and can thus fairly be called "Trumpcare," would, as widely acknowledged by the reality-based community, make health care less affordable for millions of the working poor and others who currently receive subsidies to purchase health insurance on the ACA-authorized exchanges. By greatly reducing such subsidies and scaling back Medicaid, Trumpcare would thus allow the repeal of the surcharge that the ACA placed on people with high incomes to pay for expanded coverage under the ACA: a "0.9 percent payroll tax on earnings and a 3.8 percent tax on net investment income (NII) for individuals with incomes exceeding $200,000 and couples with incomes exceeding $250,000."

But Trumpcare would not merely make health care less affordable for those with low incomes in order to benefit those with high incomes. It would also result in a de facto shifting of the financial burden from the wealthy to the middle class--including the vast majority of people with employer-based health insurance--people who may think that they will be unaffected by ACA repeal/replace because the ACA is mostly not about employer-based health insurance.

Why? Because people without health insurance still need health care. One impact of the ACA was a substantial reduction in people without insurance showing up in emergency rooms with conditions that could be treated by a primary-care physician or, worse, that could have been treated cheaply and effectively by a primary-care physician but were made worse, and thus more costly to treat, by the delay in treatment. Increasing the number of uninsured people will reverse that development, which, in turn, will require hospitals and doctors to cross-subsidize more uncompensated treatment for people without insurance or other means to pay from people who have insurance.

That, in turn, will lead hospitals and doctors to increase charges to insurance companies for treatment of people who do have insurance coverage. Patients would not necessarily see those increases directly, but higher charges to insurers means higher insurance premiums for employers, which means less money left over for salaries and other benefits. As a consequence, people with employer-based health insurance will take home less money than they would if the ACA were to remain on the books.

High earners with such insurance will receive a tax cut (the repeal of the surcharges imposed by the ACA) that may leave them on-net better off (and the wealthier they are, the more better off they will be), but people who were not subject to the surcharges--that is to say, individuals earning less than $200,000 per year and couples earning less than $250,000 per year--will not receive any compensating financial benefit.

Thus, Trumpcare is essentially a transfer program from the working poor and middle class to the well-to-do. And that's to say nothing of the costs to lives and health.