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Proposal Raises Financial Risk for Health Reform Subsidy Recipients

March 14, 2016 at 4:00 PM

The House Ways and Means Committee will consider a proposal this week that would cause up to a quarter of a million people with low or modest incomes to forgo health coverage, lead to higher premiums for millions of others, and possibly weaken the health insurance marketplaces, as we explain in a new paper.  The proposal, which would eliminate caps on the repayment of premium tax credits, would put low-income families and people nearing retirement age at particular financial risk.

Unlike most other programs for people with limited incomes, the amount of the monthly premium subsidies that health reform provides to help people afford health insurance is preliminary; final premium tax credits for the year are calculated when recipients file their tax returns.  People who report their income accurately and receive subsidies based on that projection 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.  Therefore, health reform strikes a balance: it requires repayment when the year-end recalculation shows a family or individual was eligible for a smaller subsidy than they received, but it limits the maximum repayment amount based on income and tax filing status.  The Ways and Means proposal would eliminate the caps, burdening families with potential tax bills they could have trouble paying.  

This could be particularly difficult for low-income families and people nearing retirement age because they receive the highest subsidies and therefore would assume the risk of the highest repayments.  Two-thirds of the people enrolling in the federal marketplace have incomes below 200 percent of the poverty line, recently released 2016 enrollment data show.  In addition, 26 percent of enrollees in the state and federal marketplaces are between ages 55 and 64, and another 21 percent are between 45 and 54. 

The Joint Tax Committee estimates that eliminating the caps would lead 220,000 to 250,000 people to forgo coverage and remain uninsured.  Those who forgo coverage would largely be healthier than average, so the people who remained in the marketplaces would be sicker on average — which would push up premiums and potentially weaken the marketplaces’ ability to function effectively.  In short, this proposal is another measure from health reform opponents that would weaken the law and could undercut its long-term viability.

Click here to read the full paper.

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