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Previewing a House GOP Leaders’ Health Plan, #4: Health Insurance Subsidies

In place of the Affordable Care Act’s (ACA) subsidies for marketplace coverage and its Medicaid expansion, a health plan from House GOP leaders would likely provide only modest tax subsidies to buy health insurance in a largely unregulated individual market.  These subsidies — probably delivered through a refundable tax credit or standard tax deduction — would likely be highly insufficient, leaving many people who now have Medicaid or marketplace coverage unable to afford coverage or needed care. 

New refundable tax credit.  For example, the 2015 health plan from Senate Finance Committee Chairman Orrin Hatch, House Energy and Commerce Committee Chairman Fred Upton, and Senate Finance Committee member Richard Burr would replace the ACA’s premium tax credit, which is based on family income, with a credit that varies by age but not income.  That means lower-income people would pay a greater share of their income in premiums than those with modestly higher incomes.  The poor and near-poor who now qualify for coverage under the Medicaid expansion and generally pay little if any premiums would be hit especially hard.  The credit would also phase out by 300 percent of the poverty line, compared to 400 percent for the ACA’s credit, and all legal immigrants would be ineligible for it.

Also unlike the ACA credit, the Hatch-Upton-Burr credit wouldn’t be based on what decent-quality coverage costs where the recipient lives; it would be uniform nationally.  It also wouldn’t adjust for the higher premiums that people in poorer health would likely have to pay.  Nor would it fully account for differences in people’s premiums based on their age, meaning people aged 50-64 would get a much smaller credit than under the ACA.  Moreover, a House GOP leaders’ plan would likely let insurers in the individual market charge older people much more, relative to younger people, than under the ACA.

Standard tax deduction.  Another subsidy possibility for a House GOP leaders’ health plan is the House Republican Study Committee plan’s standard tax deduction — $7,500 for individuals, $20,500 for families — for those who buy coverage on their own or through their employer.  But such a deduction (applying both to federal income and payroll taxes) would do little to help most uninsured people get coverage.  Before the ACA, at least 90 percent of the uninsured were in the 0, 10, or 15 percent income tax bracket, so they’d get an income tax benefit of no more than 15 cents for every $1 they can deduct, along with a payroll tax benefit of 7.65 cents per dollar earned — not enough for them to afford anything more than flimsy coverage.  People who lose their jobs and have no earned income would receive no benefit.  Moreover, the standard deduction wouldn’t account for differences in people’s premiums based on their health status, age, or where they live.

The deduction’s primary benefit would go to people in the top income tax brackets, who least need help affording health insurance and are likelier to already have it.  The highest-income people, in the 39.6 percent bracket, would get a far greater benefit than lower-income people, who are far likelier to be uninsured.

No help with deductibles and cost-sharing.  Finally, a House GOP leaders’ health plan likely wouldn’t replace the ACA’s cost-sharing reductions, which help cover deductibles and co-payments for people below 250 percent of poverty.  For example, the Hatch-Upton-Burr plan, the Republican Study Committee plan, and the American Enterprise Institute policy recommendations don’t include this assistance, even for those below the poverty line who now qualify for Medicaid under the ACA expansion and pay only very modest co-payments.  Even if some low- and moderate-income people could afford the premiums using the tax credits or standard tax deduction, they’d often face high deductibles and other cost-sharing charges that they’d find very hard to afford.  Moreover, their insurance would likely have no annual limit on out-of-pocket costs — another significant departure from the ACA.

As a result, even if some low- and moderate-income people gained coverage, many would likely forgo some needed care because they couldn’t afford the deductibles or cost-sharing charges and they lacked coverage of critical benefits (since individual-market plans likely wouldn’t have to cover essential benefits, as they do today).

Read the rest of our series previewing a House GOP leaders’ health plan here.