Sherry Glied is with the Robert F. Wagner Graduate School of Public Service, New York University, New York, NY.
Corresponding author.Correspondence should be sent to Sherry Glied, New York University Robert F. Wagner Graduate School of Public Service, 295 Lafayette St, New York, NY 10012 (e-mail: ude.uyn@deilg.yrrehs). Reprints can be ordered at http://www.ajph.org by clicking the “Reprints” link.
Peer Reviewed Accepted February 14, 2018. Copyright © American Public Health Association 2018The recently passed Tax Cuts and Jobs Act will reduce total federal revenues by about 4% between 2018 and 2027. The law makes multiple changes to the taxation of individuals and corporations.
It also repeals the Affordable Care Act’s (ACA’s) individual mandate penalties, which will erase some of the gains in insurance coverage achieved since implementation of the ACA’s coverage expansions. The resulting increases in rates of uninsurance will likely lead to increased uncompensated care and deflect hospitals and health departments from addressing other prevention and public health needs.
In addition, the law is expected to lead to substantial increases in the federal debt and, consequently, to calls for reductions in spending on entitlement programs, particularly Medicare, and on discretionary programs, including public health. Many other provisions of the law could also have second-order effects on public health.
Late in December 2017, Congress passed—and the president signed—H.R. 1, the Tax Cuts and Jobs Act (TCJA; https://www.congress.gov/bill/115th-congress/house-bill/1), the 12th-largest tax cut (measured as a share of gross domestic product, or GDP) in US history. 1 The law is expected to reduce federal revenues by a total of $1.649 trillion between 2018 and 2027, amounting to a 4% reduction in revenues over the period. 2 To put this in a public health context, the reduction in revenue from the TCJA is about equal in magnitude to earlier estimates of the cost of all the Affordable Care Act’s (ACA’s) coverage expansions (Medicaid and insurance subsidies) over the same period. 3
The TCJA reduces individual income tax rates for most Americans through 2025, after which most of these provisions expire and rates revert to those that existed prior to the law. Among its provisions, it raises the standard individual deduction and the child tax credit and it repeals deductions for personal exemptions; together, these provisions will mean that fewer Americans will itemize taxes and claim other deductions (such as those for charitable giving). 4 The law reduces the maximum tax rate on corporate earnings—which, at 35%, had been relatively high compared with those in other high-income countries—to a flat rate of 21%. To pay for a portion of these and other provisions, the law caps the deduction for state and local taxes at $10 000 and eliminates the individual mandate penalties in the ACA.
Proponents of the tax law claim that it will increase the growth of the American economy and raise wages for lower-income workers. 5 Skeptics argue that its provisions will have little macroeconomic effect, particularly in today’s robust and growing economy. 6,7 On the basis of the evidence available, the US Congress Joint Committee on Taxation, the government’s official scorekeeper on tax proposals, projects that the law will increase the rate of gross domestic product (GDP) growth by about 0.7% a year through 2027. 4 This commentary assesses the potential impacts of these substantial changes on public health.
Many of the provisions of the law could have meaningful second-order effects on public health. Increases in wages—or in wage inequality—induced by the law might improve or diminish health outcomes. Increases in the personal exemption will make the pocketbook cost of charitable donations higher for middle-income households who no longer benefit from itemizing their deductions. 8 Hospitals, clinics, and social service organizations that rely on public donations may feel the bite of this change. Limits on the deductibility of state and local taxes may lead these jurisdictions to reduce tax rates for higher-income residents, who will otherwise face greater inducements to move to lower-taxed places. 9 This cascade of tax reductions could pinch state and local finances and, therefore, critical funding for public health. Taxes affect almost every American individual and corporation, so the consequences of a large tax bill such as the TCJA will diffuse across the entire economic and policy landscape.
Two aspects of the law, however, are notable in their more direct implications—and lessons—for public health. The first of these is the repeal of the ACA’s individual mandate penalties, effective in 2019. According to the Congressional Budget Office (CBO), elimination of these penalties will reduce federal expenditures by $318 billion over the 10-year budget window, which will save enough money to offset about 40% of the federal cost of the corporate tax provisions in the law. 10 The CBO also expects that, relative to previously projected levels, repeal of the penalties will increase the number of Americans without insurance by four million in 2019 and by 13 million in 2027.
It is not immediately obvious why removing a penalty from the federal tax code would lead to savings on the federal budget. The mandate penalties were projected to generate about $5 billion annually in federal revenues, and these revenues will be forgone when the penalty is reduced to zero. That penalty was the principal element of the ACA designed to encourage healthy, higher-income people not eligible for subsidized coverage to obtain health insurance. In its absence, some share of this population will drop out of the nongroup insurance pool. 11 When this group of healthier people leaves the risk pool, average premiums for those who remain are expected to rise by about 10%, according to the CBO’s projections. 11 New regulations being promulgated, which will allow the formation of association health plans and short-term coverage plans not required to comply with many of the ACA’s benefit and coverage regulations, will further facilitate this exodus. 12 These higher premiums will, in turn, lead to more flight from the nongroup insurance market. The effects will likely be greatest in states like Alaska, where nongroup premiums for those not receiving subsidies are already very high. 13 But although these changes with respect to healthier, higher-income people will raise uninsurance rates, they will generate losses, rather than gains, in federal revenue.
The budget benefits of repealing the mandate penalty come about because, in the absence of the penalty, the CBO anticipates that lower- and middle-income people, who are eligible for coverage under Medicaid, in subsidized marketplace coverage, or in employer plans (which are also tax-favored), will fail to take up these options. The penalty encourages people to participate in coverage both by providing a financial inducement and because it signals the importance of coverage. Eliminating it is likely to reduce coverage among people for whom obtaining insurance was less immediately relevant. These are likely to be people who do not have current illnesses requiring treatment, who are busy, or who face other spending decisions and time pressures. 14 Decades of prior research have documented that, for this group, even making coverage free is not inducement enough for timely enrollment.
The effects of lower participation in coverage are sizable. The CBO projects that, by 2025, more than five million fewer people annually will enroll in Medicaid in the absence of these penalties, because they will no longer find enrollment as relevant and no longer face immediately tangible consequences by failing to participate. Reduced Medicaid enrollment will save the federal government $179 billion over the 2018–2027 budget window. The CBO also projects that more than eight million fewer people will enroll in nongroup or employer-sponsored insurance. Many in this group would also have been eligible for subsidies or tax benefits, so this reduction will generate an additional $185 billion in savings over the budget window. 10
The TCJA’s elimination of the individual mandate penalty will almost surely lead to a substantial reversal in the gains in insurance coverage that have been achieved under the ACA, and it will raise premiums for many middle- and higher-income purchasers of coverage. Recent research shows that the gains in coverage from the ACA have improved access, utilization, and health—therefore suggesting that these losses in insurance coverage will likely have correspondingly negative effects on health outcomes. 15 In addition to these direct effects on the health status of the population, increases in uninsurance will almost certainly lead to increases in uncompensated care. 13,16,17
These increases in uncompensated care, in turn, will shift some of the cost of caring for the uninsured from insurance programs to hospitals and health departments. Such a shift will almost certainly deflect both finances and attention away from the growing efforts to have community health providers, hospitals, and health departments invest in public health, social determinants, and prevention.
Repeal of the individual mandate penalties thus has the potential to harm public health both directly and indirectly. Yet there are opportunities for the public health community to counteract at least some of these effects. The Medicaid expansions and marketplace subsidies in the ACA remain in place, making insurance affordable for many lower-income people. Without the mandate, the public health community will need to redouble its efforts to encourage people to gain coverage, by making the process as straightforward as possible. The public health community can also consider working to persuade state governments to pass their own individual mandate penalties. The Massachusetts mandate penalties, which predate the ACA and remain in place, serve as an example.
The second element of the TCJA with implications for public health is the substantial growth in federal deficits—and consequently in the federal debt—that the law is expected to produce. The CBO has projected that the law will increase deficits by about $1.5 trillion between 2018 and 2027, thus raising publicly held federal debt from 91.2% of annual GDP in June 2017 to 97.5% of annual GDP in 2027. 2 This increase compounds the nearly 15-percentage-point growth in the projected share of debt in the GDP that had been expected over the coming decade before the TCJA passed, largely because of increases in spending on Medicare and Social Security as baby boomers retire. It also compounds the 33-percentage-point increase in the proportion of debt to the GDP that occurred between 2008 and 2013. 18,19 That rapid run-up in debt was driven primarily by reductions in the denominator of the debt-to-GDP ratio—that is, the drop in GDP caused by the Great Recession—as well as by increases in the numerator that resulted from the federal fiscal stimulus put in place to address the recession.
Increases in the federal debt seem, at first, to have few implications for public health. Until recently, however, many federal policymakers were very concerned about increasing the debt. For example, when the ACA passed, both Democrats and Republicans were adamant that the net effect of the law be deficit reducing. Without that requirement, the design of the law might have been much more generous. Congress’s willingness to ignore the debt implications of the TCJA may mean that debt fears have now been exorcised forever. That, however, is unlikely; deficit hawks are likely to persist.
Some in Congress are likely to argue that the growing US debt—including the increase generated by the TCJA—must be offset by reductions in spending. 20 The most likely target of such spending reductions will be entitlement programs, particularly Medicare, Social Security, and Medicaid, which already constitute a significant share of federal spending and are expected to grow rapidly in the near future. Restructuring these programs will clearly affect public health—both directly, through the effects on program beneficiaries, and indirectly, through the effects of any restructuring on the health system. Efforts to maintain these entitlement programs in an era of debt fears could also have serious effects on public health by leading to cuts to the discretionary programs, such as those administered by the Centers for Disease Control and Prevention, which fund the nation’s public health infrastructure.
One glimmer of hope for public health advocates in the face of growing debt—and likely pressures to reduce it—comes from the TCJA itself. Proponents of the law argued that the increases in deficits it might produce were a reasonable price to pay for more rapid economic growth. Although the TCJA would raise the numerator of the debt-to-GDP ratio, they asserted, it would lead to compensating increases in the denominator—a growing debt would be an acceptable price to pay for increases in GDP. That argument may be a useful one to consider with respect to public health. Of course, gains in GDP are not the primary purpose of public health programs, and many very worthwhile programs cannot be expected to generate economic gains at all. But investments in the social determinants of health, in childhood health, and in public health infrastructure might well generate economic gains. Developing these arguments will likely become ever more important as the debt grows.
I thank the Commonwealth Fund for financial support of this research.
I thank Joanna Wexler for research assistance.
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