Earlier this week, the Republicans issued their plan to replace the Affordable Care Act (Obamacare). As the Republican plan became public, I joined the CNBC Nightly Business Report to discuss the plan and how the markets are likely to react. You may view the segment here.
The Republican plan seeks to replace the ACA subsidies that reduce the cost of insurance purchased on government-run exchanges with refundable tax credits that may be used to defray the cost of insurance purchased in private markets. The credit amount would be based on a recipient's age and income level.
The plan also effectively would repeal the Medicaid expansion beginning in 2020, and would turn Medicaid from a federal entitlement into a state-run program with capped annual federal grants, leaving the states to bear any future cost increases.
The plan repeals virtually all of the taxes used to fund the ACA, including the 3.8% surtax on investment income, the 0.9% surtax on earned income, and the medical device tax.
The open questions are how many people who currently have coverage under the ACA will lose that coverage under the Republican plan, and how much the Republican replacement plan will cost. The plan eliminates most of the funding sources, such as the 3.8% surtax on investment income. If non-partisan Congressional "scoring" determines the plan would balloon the deficit, it will run into pushback from the deficit hawks in Congress and might concern the equity markets. Similarly, if many families who have coverage under the ACA lose that coverage under the alternative, the plan will run into opposition from moderate Republican Senators who insist that their constituents not be harmed. Also to be determined is whether the plan will prompt enough healthy people to purchase insurance to attract insurers willing to issue riskier policies that cover pre-existing conditions on the same terms.
Andrew H. Friedman is the principal of The Washington Update, LLC and a former senior partner in a Washington, D.C. law firm. He and his colleague Jeff Bush speak regularly on legislative and regulatory developments and trends affecting investment, insurance, and retirement products. They may be reached at www.TheWashingtonUpdate.com.
The authors of this paper are not providing legal or tax advice as to the matters discussed herein. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. It is not intended as legal or tax advice and individuals may not rely upon it (including for purposes of avoiding tax penalties imposed by the IRS or state and local tax authorities). Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.
Copyright Andrew H. Friedman 2017. Reprinted by permission. All rights reserved.
