BEYOND THE NUMBERS
A leaked draft House Republican health proposal includes a tax credit to help Americans buy health insurance, but it would fall far short of the Affordable Care Act’s (ACA) tax credits that more than 10 million families used in 2016.
The issue is important and now more timely because, as part of his address to a joint session of Congress, President Trump endorsed the idea of giving tax credits to buy health insurance as part of a plan to replace the ACA, although he did not provide any details about how such a credit would work.
The ACA’s premium tax credits vary by income and the cost of insurance. The share of the premium that low- and moderate-income families must cover is calculated as a percentage of their income, and the subsidy covers the rest of the cost of a benchmark health plan. Once this formula sets the credit’s value, consumers can use the credit to help pay the premiums of any qualified health plan offered in the marketplace.
An income-based credit enables lower-income people — who are most likely to be uninsured and least likely to be able to afford coverage on their own — to get the bulk of the benefit, while higher-income people get less (or no) help. And because the credit is set based on the second-lowest-cost silver plan available where people live instead of a flat dollar value, it’s sensitive to price variation due to geographic differences, age, and family composition.
By contrast, the House Republican proposal would provide a flat credit that varies only by age. The proposed tax credit, which would be available to people at any income level, ranges from $2,000 for people under 30 years old to $4,000 for people 60 and over. Delinking the credit from both income and the cost of insurance would leave many low-income people — especially older people — without enough help to make insurance affordable.
On average, the GOP’s credit in 2020 would be 36 percent lower than the ACA’s, a new Kaiser Family Foundation analysis shows. But for lower-income and older people, and people living in high-cost areas, the differences could be much greater. For example, a 60-year-old in Reno, Nevada, with an annual income of $20,000 would get $9,030 in assistance under current law, but only a flat $4,000 credit under the Republican proposal. In the costlier insurance market in Mobile, Alabama, the same consumer would get a premium tax credit of $13,235 under the ACA, $9,235 more than the maximum GOP credit. This disparity would grow further due to the proposal in the House Republican draft to allow insurers to charge older people premiums up to 5 times higher than younger people — up from the current 3-to-1 ratio.
Even these comparisons understate how the GOP proposal would worsen affordability. While the ACA’s tax credits account for growth in annual premium costs, the GOP proposal would raise the flat credit amounts each year only by general inflation plus 1 percent, meaning the value of the credits wouldn’t keep pace with premium growth. In addition, the GOP proposal would eliminate the cost-sharing reductions that help reduce deductibles and co-payments for those with low and moderate incomes, further increasing families’ out-of-pocket costs. For low- and moderate-income consumers, that change could increase typical deductibles by $2,500 or more — on top of the premium increases that would result from reduced tax credits.
Some lawmakers would put even these inadequate credits further out of reach for low-income people. Some reportedly object to giving the credits in advance to help defray costs throughout the year, and without upfront help many low-income taxpayers couldn’t afford their monthly premiums. Some also reportedly balk at making the credit refundable, so that low-income taxpayers who have no tax liability could claim it. Making the credit non-refundable would keep many low-income taxpayers from receiving the credit at all. Losing either advanced or refundable aspects of the tax credits, both central to the success of the ACA’s credit, would stack the deck against low-income taxpayers.