Bill Risks Higher Health Premiums for Millions

The House is slated to consider a bill tomorrow that could cause over 100,000 modest-income people to forgo health coverage and boost premiums for millions more — to pay for expanding health tax breaks that mainly benefit high-income people.

Under health reform, people receive advance premium tax credits each month, based on their estimated income for the year, to help them pay for their health insurance.  But they calculate their final premium tax credits for the year when filing their tax returns, based on their actual income.  People who report their income accurately and receive subsidies based on their estimate but then experience a change in circumstances — such as finding a job with employer-based coverage or getting married — can end up owing money to the IRS, even if they report the change promptly. 

Changes in circumstances are often impossible to foresee, so health reform strikes a balance: it requires repayment when the year-end recalculation shows people were eligible for a smaller subsidy than they received, but it caps the repayment based on their income and tax filing status.  The House bill would upset that balance by:

• doubling the cap for moderate-income families with incomes between 250 and 300 percent of the poverty line ($29,700 to $35,640 for an individual), exposing them to potential repayment of $1,500 or $3,000, depending on their tax filing status; and
• eliminating the cap altogether for people with incomes above 300 percent of poverty.     

This provision would offset the costs of two other provisions in the bill that would: (1) dramatically expand health tax shelters for high-income earners and (2) repeal a limit on using tax-advantaged health accounts to buy over-the-counter medications.  (We described those two provisions here and here.)

People nearing retirement age receive the largest premium tax credits and, under the House legislation, therefore risk the largest repayments.  More than one-quarter of enrollees in the state and federal marketplaces are between ages 55 and 64, and another 21 percent are between 45 and 54. 

An estimated 130,000 people would decide to forgo coverage and become uninsured if these changes took effect, Congress’ Joint Committee on Taxation estimates.  Those forgoing coverage would largely be healthier than average, so those remaining in the marketplaces would be sicker, on average, and thus costlier to cover.  This would push up premiums for millions of people buying coverage in the marketplaces and could weaken the marketplaces’ ability to function effectively over time.