IMF urges US to ‘protect’ gains won under Obamacare

As the US Senate continues the heated debate over repealing the Affordable Care Act implemented under Trump’s predecessor, the IMF released its annual report on the US economy and warned of potential damage threatened by the proposed replacement.

“Health care policies should protect those gains in coverage that have been achieved since the financial crisis (particularly for those at the lower end of the income distribution),” the IMF staff said in its Article IV report.

Maintaining those gains will help the US economy by increasing productivity and labor force participation, they said.

“This, in turn, will strengthen growth and job creation, reduce economic insecurity associated with the lack of health coverage, and have positive effects for the medium-term fiscal position,” the report said.

The changes currently up for debate would either lead to a loss of coverage or the need for increased federal subsidies to sustain the same level of coverage.

The report said such reforms would also cause “a significant increase in costs for older and poorer individuals whereas the embedded tax relief would be mostly incident on higher income households.”

While the IMF recognized the “polarized societal views over the appropriate way forward” — which makes reaching an agreement difficult — it urged caution in the design of a healthcare reform.

“Such changes ought to be undertaken carefully” and should avoid “excluding those with limited incomes from the healthcare system,” they said.

The US authorities responded to the report by saying Obamacare is “fundamentally flawed and a new approach is required.”

– ‘Significant policy uncertainties’ –

The IMF last month released the main points of the Article IV report, including cutting the growth forecast for the US economy 2.1 percent in 2017 and 2018, down from 2.3 percent and 2.5 percent, respectively.

The downgrade came after it became clear the details of expected fiscal stimulus and tax reforms promised by the Trump administration remained unclear and the US was facing “significant policy uncertainties.”

In the full report released Thursday, the fund said “strengthening growth outcomes and ensuring a more broad-based improvement in living standards will require a transformation of the US economic model.”

That will include some policies President Donald Trump has said he favors including tax reform, more effective regulation, infrastructure spending, “reprioritizing federal spending,” and “a free, fair, and mutually beneficial trade regime.”

The report however said its discussions with US officials “revealed differences in a range of policy areas and left open questions as to whether the administration’s proposed policy strategies are best suited to achieve their intended purpose.”

– Avoid import restrictions –

Among the other policy prescriptions, the Washington-based fund warned the US against erecting new restrictions on imports, stressing that “open international trade has long supported US growth and job creation.”

The report noted the effort underway to “revitalize” trade relations — including renegotiating the North American Trade Agreement — saying there are gains to be won from updates.

The fund also welcomed “the administration’s commitment to free, fair and mutually beneficial trade.”

Meanwhile, in testimony to Congress on Thursday, Treasury Secretary Steven Mnuchin indicated the administration is pushing the IMF to get other countries to reduce their trade surpluses.

While he did not mention any particular countries, Mnuchin told legislators: “We have pressed the IMF to increase its focus on the need to address global economic imbalances. This will help to improve prospects for US jobs and exports.”

The Trump administration repeatedly singled out Germany and China for their large surpluses, but also has said it wants to reduce the trade deficit with Mexico in the NAFTA talks.

In fact, the IMF for years has stressed the need for countries with large imbalances — surpluses or deficits — to implement policies to reduce them.

In its report on Germany earlier the month, the IMF again urged Berlin to increase domestic spending, allow wages and prices to rise somewhat, and encourage consumption in order to reduce its large surplus.