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December 1, 2017

Mandate no more? Senate has votes to pass tax bill, McConnell says

Daily Briefing

    The Senate as early as Friday could hold a final vote on a tax reform bill that would effectively eliminate the Affordable Care Act's (ACA) individual mandate. The bill's health care provisions have faced widespread criticism from patient and provider groups.

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    According to Bloomberg, Senate Majority Leader Mitch McConnell (R-Ky.) on Friday said Republicans had enough votes to pass the bill. If the bill passes, Senate Republicans would need to reconcile their bill with a version (HR 1) approved earlier this year by the House, which does not include a similar individual mandate provision. Alternatively, the House could vote on the Senate-passed bill, but according to the Wall Street Journal, House leaders have opposed such a move.

    Tax reform details

    The Senate's tax reform measure was in flux Friday morning as Republican leaders sought to wrangle support for the bill. The measure currently includes a permanent 20% corporate tax cut as well as temporary tax reductions for individuals and pass-through businesses that expire after 2025.

    Individual mandate repeal

    The bill also would eliminate the penalty most U.S. residents who do not have health insurance must pay under the ACA's individual mandate. The Congressional Budget Office (CBO) has estimated that doing so would lead health premium rates to increase by approximately 10%, while about 13 million fewer U.S. residents would have health coverage in 2027, with eight million fewer U.S. residents enrolled in exchange coverage and five million fewer U.S. residents enrolled in Medicaid.

    Potential automatic cuts in Medicare, other federal programs

    The Senate bill would significantly increase the federal budget deficit, which Vox reports could trigger automatic, offsetting spending cuts under the Statutory Pay-As-You-Go Act of 2010, commonly known as "pay-go." According to Vox, that could lead to $136 billion in automatic spending cuts in fiscal year (FY) 2018, including $25 billion in cuts to Medicare spending.

    CBO in an analysis earlier this month said if Congress passed a hypothetical bill that increased the federal deficit by $1.5 trillion over a decade—roughly the budgetary impact of the House-passed tax reform measure—and did not pass separate legislation to offset the deficit increase or waive pay-go requirements, then the Office of Management and Budget "would be required to issue a sequestration order within 15 days of the end of the session of Congress to reduce spending in fiscal year 2018 by … $136 billion"—which is equal to the $150 billion annual deficit increase minus $14 billion in savings accrued from other legislation passed by Congress during this term.

    However, some Senate GOP leaders expressed confidence that lawmakers would reach a deal to avoid the pay-go requirement, Politico reports. Doing so would require support from Democrats to reach a 60-vote majority.

    Deductibility of health care expenses maintained

    In addition, the Senate bill would maintain U.S. residents' ability to deduct certain health care expenses from their taxes, while the House-passed bill would eliminate the deduction, which IRS data show was claimed by 8.8 million U.S. residents on their 2015 taxes.

    Both bills would, however, significantly increase the standard deduction that all U.S. residents can take on their taxes—meaning that fewer would benefit from itemizing their tax deductions, so fewer likely would claim health care expenses as itemized deductions, Kaiser Health News reports.

    Additional provisions targeted at drugmakers

    In addition, the Senate bill would implement a 12.5% tax on income U.S. companies generate from intellectual property, regardless of whether that property is housed in the United States or in another country. Observers have said the provision is partially aimed at drugmakers, which sometimes register their patents abroad in order to avoid paying U.S. taxes.

    Further, the Senate bill would scale back a 50% tax credit for pharmaceutical companies that develop drugs for rare diseases, known as the Orphan Drug Credit, to 27.5%. 

    Health care industry largely critical of bill's repeal of mandate penalty

    Several health care industry stakeholders have spoken out against the bill.

    In a joint statement issued earlier this month, the American Academy of Family Physicians, American Psychiatric Association, American College of Physicians, American Congress of Obstetricians and Gynecologists, American Academy of Pediatrics, and American Osteopathic Association criticized the bill's individual mandate provision.

    The Association of American Medical Colleges in separate statements issued earlier this month said it is "deeply disappointed that Senate Republican leadership has decided to put the health and well-being of millions of Americans at risk," and that the legislation "would have a damaging impact on the nation's medical schools and teaching hospitals, and on the patients we care for, the students and residents we teach and train, and the millions of Americans who gain hope from the research we conduct."

    David Certner, legislative counsel for AARP, said of the potential Medicare cuts, "You're likely to have doctors who will see less patients; you're likely to have hospitals and other health care facilities cut back on certain services," adding, "It really affects the program."

    Where the bill stands

    The Senate is seeking to pass the tax reform bill under its budget reconciliation process, which allows certain bills to pass the Senate by a simple majority of 51 votes, without being subject to a filibuster. Because Republicans currently control 52 seats in the Senate, they can afford to lose only two votes to pass the bill if all Democrats vote against it—as long as Vice President Pence casts a tie-breaking vote in favor of the bill.

    The Senate on Wednesday voted along party lines, with Republicans voting in favor and Democrats voting against, to open debate on the measure and begin 20 hours of limited debate time on the bill, Bloomberg reports.

    New budget deficit analysis creates controversy, doubt among Republicans

    According to the Journal, McConnell suspended votes until Friday at 11 a.m. to allow time to address concerns from some Republican senators about the bill's potential effect on the federal deficit. 

    Those concerns stemmed from a nonpartisan Joint Committee on Taxation report released Thursday that found the bill would not generate enough revenue from economic growth to cover its costs, and instead would add about $1 trillion to the federal deficit over the next decade. According to the Journal, the report's finding suggested the bill did not meet Republicans' goal of having the tax measure pay for itself through stronger economic growth.

    'Trigger' provision removed by parliamentarian

    Senate GOP lawmakers had attempted to ease the effect on the deficit by creating a so-called trigger mechanism, which would have automatically increased taxes to offset deficits if the economy did not meet certain growth metrics. But, according to the Journal, the Senate parliamentarian said the proposed fix ran afoul of Senate's strict budget reconciliation rules.

    Senate GOP leaders have been working to find ways to add more revenue to the bill without conflicting with Senate rules.

    Sen. Susan Collins (R-Maine), a potential swing vote, has declined to say whether she will support the bill in a final vote. Collins has said her support depends in part on an agreement she reached with Senate GOP leaders on passing two bills intended to bolster the ACA's exchange markets. One of the bills, crafted by Sens. Lamar Alexander (R-Tenn.) and Patty Murray (D-Wash.), would fund cost-sharing reduction payments to insurers called for under the ACA, and the other, introduced by Collins and Sen. Bill Nelson (D-Fla.), would fund reinsurance programs for exchange insurers.

    Next steps

    Before the Senate can vote on the bill's final passage, senators must take part in a "vote-a-rama," during which senators can propose an unlimited number of amendments that are considered with little debate. Any amendments would need 60 votes to pass.

    According to Bloomberg, it is unclear when the vote-a-rama will begin, and McConnell Thursday night said debate over the bill could continue into Friday evening (Rubin et al., Wall Street Journal, 11/30; Bloomberg, 11/30; Kliff, Vox, 11/29; Patel/Parlapiano, New York Times, 11/30; Hamblin, The Atlantic, 11/30; Cancryn/Ferris, Politico, 11/30; Kim/Wilhelm, Politico, 11/30; Rovner, Kaiser Health News, 11/2; Jane Tribble, "Shots," NPR, 11/29; Bloomberg, 12/1). 

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