BEYOND THE NUMBERS
The payroll tax-cut extension that the House passed yesterday includes a damaging change to the subsidies that health reform (that is, the Affordable Care Act or ACA) will give many families (starting in 2014) to help them afford health coverage. The congressional Joint Tax Committee estimates that the provision would cause 170,000 people to go without subsidized health coverage because, otherwise, they might owe large repayments at tax time for subsidies they had received during the year.
Extending the payroll tax cut is essential, but, as our report explains, the House provision should not be part of the legislation.
Here’s the issue. Under the ACA, people who aren’t eligible for Medicaid and lack access to affordable employer-sponsored coverage can get subsidies to help them buy private coverage if their income is below 400 percent of the poverty line. But people whose income rises during the year (because they got a promotion, got married, etc.) must pay back some or all of the subsidy they received when they file their income taxes. That’s true even if they received the correct subsidy amount based on their income in the months they got the subsidies.
To prevent this requirement from undermining the ACA’s goal of covering uninsured people while they are out of work or otherwise in need, the ACA capped the repayments at $400 per family ($250 per individual) unless the family’s income ends up over 400 percent of the poverty line.
Over the past year, however, Congress has raised the $400 cap twice to help pay for other legislation, tripling it for many families and increasing it for others by as much as six times.
The House payroll tax-cut bill would raise the cap further, with serious consequences for tens of thousands of families.
Consider a working mother with two children and income at 150 percent of the poverty line (a little under $28,000) who received subsidies for the first nine months of the year but married at the end of September, switched to her husband’s employer plan, and stopped receiving subsidies. If this couple’s combined income for the year equaled a little over 350 percent of the poverty line, they would have to pay $3,200 to the IRS when they filed their tax return.
Facing such large potential repayments, many families would opt not to receive subsidies in the first place and remain uninsured instead. The ACA imposes a penalty on people who fail to obtain coverage, but that penalty would often be much smaller than the repayment — the family above, for example, would owe only about $500 in 2014.
Moreover, the option to remain uninsured would be most appealing to relatively healthy people, so the pool of people seeking coverage through the health insurance exchanges would become sicker, on average. That would drive up premiums for insurance bought through the exchanges and weaken their ability to function effectively.
Congress has already raised the repayment caps to a danger point; the Joint Tax Committee estimates that the most recent enacted increase will cause several hundred thousand people to forgo coverage. Going further by raising the caps again would be extremely unwise.