Silver linings and seeds in tax cut law – Part II

The give and take of policymaking in polarized times

This is the second part of John McDonough’s “Silver Linings Playbook.” Read the first installment here.

THE AMERICAN AUTHOR Napoleon Hill wrote: “Every adversity has the seed of an equivalent or greater benefit.” I see this happen in health policy, and specifically, I see it in how the Republican tax cut law signed by President Trump in late December might turn into a policy gift for Democrats. First, let’s consider two examples of this dynamic in action.

In 2003, Republican President George W. Bush and a Republican-controlled Congress passed the Medicare Modernization Act (MMA), which did two big things. First, it created an outpatient prescription drug benefit called Medicare Part D. Second, it restructured Medicare Part C that permits private insurance companies to participate in the program and sign up Medicare beneficiaries. The MMA canceled the disastrous “Medicare plus Choice” program and created “Medicare Advantage” in its place.

While Republicans generally dislike “government-run health care,” they love Medicare C and D because both use private insurers to cover senior enrollees. While Medicare plus Choice almost tanked the program between 1998 and 2003 as plans and enrollees deserted it, in the 2003 MMA Congress threw an ungodly amount of money at insurers to entice them back in. While Medicare Part C was set up in the 1970s to provide a higher quality and lower cost options for senior enrollees, by 2009 the program cost the federal government about $1.20 for every dollar spent on an enrollee in traditional fee-for-service Medicare A and B, and had quality ratings no better than traditional Medicare. When candidate Barack Obama was asked in the 2008 presidential debates what waste he would cut in the federal government, his first answer was “Medicare Advantage.”

When President Obama and congressional Democrats passed the Affordable Care Act (ACA) in 2010, they deliberately cut back the extra money to Part C plans provided in the MMA, and used the full savings of about $200 billion over 10 years to finance more than 20 percent of the cost of the ACA. While congressional Republicans cursed that Democrats were trying to kill Part C, in fact, in 2017 the Medicare Advantage program has never been healthier or more popular, now covering more than one third of all Medicare enrollees, while more than half of all new Medicare enrollees now opt to enroll in Part C rather than A and B.

So, the extra money Republicans threw at Medicare Advantage in 2003 became a key part of the financing of the Democrats’ 2010 ACA: “the seed of an equivalent or greater benefit” for sure.

Here’s a second example. In the new Republican tax cut law, the tax penalty tied to the ACA’s individual mandate was reduced to zero. (Despite numerous media reports to the contrary, the mandate itself was not repealed because that would have violated strict Senate budget reconciliation rules.) Republicans did so because they hate the ACA generally and the individual mandate in particular; though the more important reason was that the Congressional Budget Office scored zeroing out the mandate as a 10-year $338 billion savings to the federal budget – a big amount of money they used to finance the new tax cut law – because fewer people are likely to obtain health insurance absent a real mandate.

So, zeroing out the Democrats’ individual mandate penalty became a key part of the financing of the Republicans’ tax cut law, or: “the seed of an equivalent or greater benefit.”

This dynamic happens more often than you would imagine, particularly when a law is passed on an overwhelmingly partisan basis, as was true for the 2003 MMA, the 2010 ACA, and the 2017 tax cut. Let’s do some future prediction.

The Republican tax cut law includes major tax reductions and loopholes for wealthy Americans and corporations, and with lots and lots of new dollars to finance them. One future political scenario, say, in January 2021, might have the White House, Senate, and House of Representatives controlled by Democrats. If this occurs, Democrats will have promises and commitments to keep to undo damage done to the health care system in general and to the ACA during the Trump years.

In this century, Republicans seem to have an advantage over Democrats when it comes to passing laws with big price tags. In the 2003 MMA, in the 2014 Medicare and CHIP Reauthorization Act (MACRA), and in the 2017 tax cut law, most of the spending was deficit financed, not paid for with budget cuts or new taxes, just lathered onto the national debt.  By contrast, every penny spent in the ACA was fully financed by new taxes or cuts. Honest. 100 percent.

So Republicans moan about the federal debt, and then ignore it when it comes to paying for their own actions. Democrats, by contrast, talk little about the deficit, yet are far more likely to avoid passing new laws that add spending without financing them.

So, in 2021, if Democrats control the roost, it’s reasonable to anticipate budget reconciliation legislation passing the House and Senate and being signed into law to add substantial new money into the health and other social needs systems, financed significantly by repealing the 2017 tax cuts for rich families and corporations.

Meet the Author

“Every adversity has the seed of an equivalent or greater benefit.”  Happy new year, everyone.

John E. McDonough teaches at the Harvard T.H. Chan School of Public Health and blogs occasionally at