Susan Walsh/AP
House Speaker Paul Ryan takes his notes as he and House Majority Whip Kevin McCarthy, R-California, walk away following a news conference on the American Health Care Act on Capitol Hill in Washington.

For ACA, a cautionary tale about rushing law changes through legislative short cut

This is a cautionary tale about the dangers of rushing a major change in health and tax laws through a legislative short cut – one that may prove timely in the current debate over the ACA.

I intended to write a completely different post about how repealing the Affordable Care Act (ACA) would undermine Medicare’s finances.  My story was half right: repealing the 0.9 percent additional Medicare payroll tax on high-income taxpayers would cost the Medicare trust fund about $145 billion over the next decade, enough to accelerate the date of insolvency by a few years—to 2028 according to the latest Trustees Report

But I was surprised to learn that repealing the “additional Medicare contribution”—a 3.8 percent levy on net investment income of high-income households that is projected to raise even more —would have no effect at all on the Medicare trust fund.  That’s because the additional Medicare contribution doesn’t go in the Medicare trust fund.

Instead of a story about the future of Medicare, this turns out to be a cautionary tale about the dangers of rushing a major change in health and tax laws through a legislative short cut—one that may prove timely in the current debate over the ACA.

Section 1402 of the Health Care and Education Reconciliation Act of 2010 (part 2 of the Affordable Care Act) is titled the “unearned income Medicare contribution.” Commonly called the net investment income tax (NIIT), it is a 3.8 percent tax on investment income for households with modified adjusted gross income over $200,000 for singles and $250,000 for married couples.  It is in the part of the Internal Revenue Code that stipulates payroll taxes to support Social Security and Medicare.  But it’s just another tax.

When I discovered this anomaly, I queried policy experts about why the NIIT doesn’t help finance health care for seniors.  A colleague speculated that maybe the revenue was originally intended to go into the Medicare trust fund until Congress needed the money to pay for other parts of the ACA, but that doesn’t really hold water.  The federal budget is reported on a unified basis, meaning that revenues earmarked for a trust fund are considered like any others for purposes of revenue estimates and overall budget accounting (such as computing the Federal budget deficit). 

What is clear is that in the crush of producing 1,000+ pages of healthcare legislation, the bill that passed the House somehow omitted the crucial sentence saying that there shall be an appropriation to the Medicare trust fund equal to the revenues collected from the NIIT. 

In principle, this might have been fixed when the legislation got to the Senate, where a healthy majority (56-43) voted for the bill, but that wasn’t enough to redirect the revenues to the Medicare trust fund because the ACA was enacted as a “Budget Reconciliation” bill, subject to special rules.  In particular, legislation considered as part of budget reconciliation is subject to the Byrd Rule, which makes “non-germane” amendments subject to a point of order. 

If a Senator had proposed to amend the bill so that the NIIT revenues would be allocated to the Medicare Part A trust fund, any Senator could have objected that such an amendment would have no effect on the revenue raised under the bill (recall that trust fund revenues are treated the same as general revenues) and 41 senators could have voted down the amendment.  When Senator Kennedy died and was replaced by Republican Scott Brown, the Democrats lost the super-majority necessary to overcome points of order. Thus, the Medicare investment income surtax does nothing to bolster Medicare’s finances.

How is this relevant to today’s debate?  Republicans are planning to repeal and replace the ACA as part of one reconciliation bill and then enact tax reform as part of a second bill.  Few if any Democrats are likely to support either bill, meaning that any points of order are likely to be sustained.  So GOP lawmakers might double and triple check their legislation before submitting it.

And, maybe, they should recall how precarious the ACA turned out to be given lack of even token bipartisan support.  If Republicans want to enact lasting health care or tax legislation, they might consider the pros and cons of crafting bills that could win some support from the (current) minority party.  Assuming that Democrats aren’t in full obstruct mode…

This story originally appeared on TaxVox.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to

QR Code to For ACA, a cautionary tale about rushing law changes through legislative short cut
Read this article in
QR Code to Subscription page
Start your subscription today