The approach that congressional Republicans are planning to use when repealing the Affordable Care Act (ACA) would leave inadequate resources for funding a replacement that provides at least comparable coverage to a similar number of people. Eliminating the ACA’s major coverage expansions — as under the repeal bill that Congress passed and President Obama vetoed a year ago, which GOP leaders say is the model for the repeal bill they will move in early 2017 — would produce roughly $1 trillion in net savings over the next decade. But rather than devoting all those savings to ensuring that millions of Americans don’t lose coverage, Republicans plan to use roughly two-thirds of this money to pay for tax cuts — with the wealthiest households benefitting the most from those tax cuts.

As a result, policymakers would have to find additional savings to pay for coverage if a replacement bill is to come anywhere near matching the ACA’s coverage levels — let alone live up to Senate Majority Leader Mitch McConnell’s recent pledge that “surely [we] can do better for the American people” than the ACA with respect to coverage. The ACA has cut the number of uninsured Americans by more than 20 million. Given Republicans’ opposition to revenue increases they most likely would turn to Medicaid and Medicare as their primary source of savings.But the Urban Institute estimates that repealing the ACA without replacing it would lead to the near-collapse of the individual insurance market and increase the number of uninsured by 30 million by 2019, bringing the uninsured rate even higher than before the ACA was passed.[1]

Given Republicans’ opposition to revenue increases, such as those used to fund the ACA, they most likely would turn to Medicaid and Medicare as their primary source of savings to finance a “replacement” measure, creating tremendous pressure to radically restructure those programs along the lines of past Republican proposals. Such changes would put the health and financial status of tens of millions of Americans at risk — including low-income families, people with disabilities, and seniors covered through Medicaid and Medicare — on top of the people who would lose coverage due to ACA repeal.

Repealing ACA Revenues Would Use Up Two-Thirds of Savings From Coverage Repeal

The Republican “repeal without replace” bill will likely eliminate the ACA’s major provisions to expand health insurance coverage — the Medicaid expansion and the marketplace subsidies — after two or three years. It likely will also repeal the ACA’s revenue-raising provisions, which primarily target households with incomes above $250,000 and insurers and other companies benefiting from health reform. The Congressional Budget Office’s (CBO) analysis of the repeal bill that President Obama vetoed in January 2016 found:

Rolling back the ACA’s coverage expansions after two years would produce roughly $1 trillion in net savings over the next decade. (Specifically, repealing the Medicaid expansion and marketplace subsidies would produce gross savings of roughly $1½ trillion, offset by reduced revenues from the repeal of the individual and employer mandate penalties and other factors.)

Repealing the ACA’s revenue-raising provisions would cost about $670 billion over the decade.

The bill’s overall net savings would total $317 billion over the decade, or roughly one-third of the savings from eliminating the ACA coverage expansions.[2]

Thus, if the vetoed bill is a guide, Republicans will use roughly two-thirds of the net savings from eliminating the coverage expansions to roll back the ACA’s revenue raisers (see Figure 1). (Note that the vetoed bill left largely in place the ACA’s Medicare and Medicaid savings, such as provisions reducing the overpayments to Medicare Advantage plans, which also helped finance the cost of the coverage expansions.)

Moreover, the wealthiest families would be the greatest beneficiaries of these tax cuts. New analysis by the Urban-Brookings Tax Policy Center finds that people with incomes above $1 million would receive tax cuts averaging over $50,000 apiece.[3] The top 0.1 percent of households — those with incomes over roughly $3.3 million in 2017 — would receive tax cuts averaging almost $200,000 apiece.[4]

The majority of these tax cuts would come from eliminating two so-called “Medicare taxes” faced by only the highest-earning and wealthiest taxpayers.[5] Millionaire households would receive over 80 percent of the benefits from repealing these two taxes. The top 0.1 percent of households alone would receive over 60 percent of the benefits. Moreover, these tax cuts for high earners and the wealthy — and for pharmaceutical companies and insurers, among other corporations — would take effect immediately, even as repeal would create uncertainty for millions of working Americans regarding their access to coverage.

Fiscal Bind Created by “Repeal Without Replace” Would Create Pressure to Radically Restructure Medicaid and Medicare

With two-thirds of the net savings achieved by repealing coverage expansions likely to be used to roll back the ACA’s revenue provisions, crafting an adequate ACA replacement bill that doesn’t leave tens of millions more Americans uninsured than under the ACA would require hundreds of billions of dollars in new budgetary offsets, or would increase deficits by that amount. Further, Republican leaders’ approach of repealing the ACA in one bill and replacing it in some future bill faces roadblocks under congressional budget rules, in terms of even using the remaining savings from the repeal bill to help pay for a replacement plan. Conceivably, none of the savings from the repeal bill would be available to help pay for a replacement bill, further jeopardizing coverage for millions of Americans. (See box.)

Without the benefit of new revenues (which Republicans have consistently taken off the table) and with many of the most politically acceptable spending cuts in the health area already having been enacted in the ACA and other recent health legislation, Republicans will need to seek a new source of savings to replace the coverage provisions that would disappear as a result of repeal. Moreover, depending on the need for additional offsets to pay for lost revenue due to tax cuts in a separate tax plan, Republicans could require hundreds of billions in spending cuts beyond what they may need to pay for a replacement bill.

Would Any Savings From ACA Repeal Be Available for Replacement Bill? Congressional Republican leaders say they plan to repeal the ACA quickly in January, before developing any replacement plan. However, repealing the ACA without replacing it in the same legislation would create special budget problems. Savings generated by the repeal bill could not help pay for new coverage provisions in a later bill without violating congressional budget rules. In particular, Republicans would likely run afoul of Senate “pay-as-you-go” rules. And if they chose to do the replacement bill through the expedited “reconciliation” process, they would face additional procedural hurdles. Media reports indicate that Republicans are considering ways to circumvent these budget rules, hoping to “bank” the savings from the repeal bill to make them available for an eventual replacement bill. However, some Republican members may oppose such an approach in order to increase their ability to force radical restructuring of Medicaid and Medicare that produces funding reductions that grow increasingly large over time. Even if a replacement bill could use the savings from an ACA repeal bill, significant additional offsets would be needed, as this analysis explains. But if it couldn’t use the savings from an earlier repeal bill, policymakers would face even greater pressure to subject Medicaid and Medicare to draconian cuts.

This dynamic could create pressure to enact measures, such as those included in past Republican budgets, to radically restructure and cut Medicaid and Medicare. Such measures could be particularly attractive to congressional Republicans not only because they would provide health care savings to offset health care spending, but because these deep cuts could generate significant savings beyond the ten-year budget window, which may be necessary if Republicans seek to enact a replacement plan through the expedited “reconciliation” process.[6] In particular, two likely paths that Republicans might pursue are: