The Congressional Budget Office, or CBO, recently said that the American Health Care Act, the Obamacare-replacement plan proposed by House Republicans, would lead to 23 million Americans losing their health coverage. Additionally, the plan has been widely criticized for being a "tax cut for the rich."
At Berkshire Hathaway's recent annual shareholder meeting and in subsequent interviews, CEO Warren Buffett and Vice Chairman Charlie Munger offered their opinions on the plan, and on the U.S. healthcare debate in general. Here's a brief overview of the plan, and what Berkshire's two leaders had to say.
The American Health Care Act
Trumpcare is a nickname given to the House of Representatives' healthcare plan, formally known as the American Health Care Act. The differences between the proposed plan and the Affordable Care Act (Obamacare) that's currently the law of the land are too long to list here, but below are some of the main things to know:
- Under the new plan, there would no longer be a penalty for Americans who choose not to buy insurance.
- Most people would receive smaller subsidies to help pay for insurance under the new plan.
- Insurance companies would be allowed to charge older Americans five times more than younger Americans for their premiums.
- Under the new plan, states would be allowed to opt out of many Obamacare protections, such as the requirement to cover people with pre-existing conditions.
- The new plan rolls back Obamacare's Medicaid expansion, and also cuts Medicaid spending by nearly $800 billion over 10 years.
According to a new report from the nonpartisan Congressional Budget Office, the American Health Care Act would lead to 23 million Americans losing health insurance coverage by 2026. This is just 1 million fewer than the CBO projected for an earlier version of the bill, and 14 million of the total would become uninsured next year alone.
The majority of the coverage reductions would result from Medicaid cuts and people who buy non-employer-based health plans. Republican supporters of the plan point to the plan's cost savings over Obamacare. And to be fair, the CBO did find that the federal budget deficit would decrease by $119 billion over the next decade.
It's also important to point out that the current form of the bill is highly unlikely to become law. It still needs to go through the Senate, where it's likely to undergo significant changes.
Is the plan a big tax cut for the rich?
One of the major complaints about the American Health Care Act, aside from leaving millions of people uninsured, is that it would be a massive tax cut for the richest Americans. And billionaire investor Warren Buffett seems to agree.
If the American Health Care Act passes in its current form, "We're going to cut the hell out of income taxes for the rich on investment income," said Buffett during a CNBC interview. In fact, Buffett estimated that his own taxes would be cut by 17% under the plan.
Where did Buffett arrive at this figure? Simply put, there's an additional 3.8% tax on net investment income for high earners, which was specifically put in place to pay for the Affordable Care Act, aka Obamacare. Under the new plan, this tax would be repealed. It is currently applied to income sources such as interest, capital gains, and dividends, if the taxpayers who receive them have investment income that causes their adjusted gross income to exceed certain thresholds.
Well, Buffett is a high earner, and virtually all of his income comes from investments, so he's certainly a member of this group. The highest tax rate for long-term capital gains and qualified dividends is 20%, which is effectively 23.8% for high earners who pay the additional net investment income tax. A reduction from 23.8% to 20% represents a tax cut of roughly 16%, so Buffett's claim is indeed accurate.
In fact, once the bill was first written, the Tax Policy Center estimated that 40% of the benefit of the tax cut, which is expected to total $765 billion over the next decade, would go to the households in the top 1% of income.
Nobody is doing a good job of finding the solution
At Berkshire's meeting, Buffett remarked that "medical costs are the tapeworm of economic competitiveness." In other words, healthcare costs have gotten so out of control that they, not the corporate tax rate that politicians seem to be focused on, are the real problem preventing our companies from being globally competitive. And as my colleague Michael Douglass pointed out, there's plenty of evidence to support Buffett's claim.
It doesn't seem like either party is doing a good job of solving the problem. Munger remarked that, on the healthcare issue, "both parties hate each other so much that neither one can think rationally, and I don't think that helps either."
What's the answer?
Buffett didn't offer too much in terms of what the solution to the healthcare problems in the United States should be, but Berkshire's Vice Chairman Charlie Munger, who has firsthand experience in the healthcare industry, gave his opinion. Munger said there are some positive aspects of U.S. healthcare. For instance, the majority of pharmaceutical innovation has been done in the U.S., and for those at the top, there's no better place in the world to be sick.
However, he said that the U.S. healthcare system is ridiculous in its complexity, and that there's a lot wrong with it. Specifically, Munger said that, "the amount of waste from overtreatment of the dying is just disgusting."
It may come as a surprise, since Munger is a Republican, but he says that the best solution would be Medicare for all -- in other words, a single-payer system like the ones in Canada and much of Europe.