Republican Proposals Would Raise Taxes for Enrollees in Affordable Care Act Marketplaces

House Republicans are considering resurrecting a 2017 proposal that would raise taxes for people who buy their health coverage through the Affordable Care Act (ACA) marketplaces, as part of their menu of cuts to offset tax breaks that are skewed toward the wealthy.  

Most marketplace enrollees get an advance tax credit to help pay for their premiums. The amount of the credit is based on the person’s estimated household income for that year, with lower-income households receiving more assistance. If their income estimate turns out to be too low, they must repay any excess tax credit received — but only up to a certain amount. The caps are designed to limit what would otherwise be large, unexpected tax bills when someone is unable to predict changes in their circumstances that result in large reductions in their advance tax credit.  

The Republican proposal would eliminate this repayment cap, penalizing people for mid-year changes to their household or financial situation that are frequently impossible to predict and subjecting them to large repayment amounts — in some cases raising their taxes by more than a thousand dollars unexpectedly.  

Eliminating the advance premium tax credit (APTC) repayment limits would expose people to large tax increases if they experience a change in their circumstances such as marriage, a promotion, a new job, or changes in claiming a dependent or in tax filing status during the year. Removing the repayment limitation would be particularly harmful for people who are older, because they are eligible for larger APTC amounts and so can end up with larger repayments if their income ended up being higher than anticipated. They would also harm people with fluctuating income, like freelancers, gig workers, and small business owners, who make up a large share of marketplace enrollees. In some cases, enrollees would still have large repayment burdens even if they make reasonable predictions about their income and promptly report any changes. 

At the same time, some Republicans are considering eliminating PTC enhancements that have reduced enrollees’ premium costs. Letting these enhancements expire at the end of 2025 would be massively disruptive on its own: premiums for nearly all enrollees would rise significantly and some 4 million people would become uninsured. If the enhanced PTCs are eliminated in tandem with eliminating repayment caps, people with low and moderate incomes would face severe financial burden from both policies: without the enhanced PTC and repayment caps, they would face higher percentage increases in their premiums and could owe back a larger share of their income, compared to higher-income enrollees.  

Eliminating the repayment caps would also reduce marketplace enrollment over time and increase premiums for those who remain enrolled. According to the Joint Committee on Taxation, the 2017 bill that this proposal is based on would have reduced enrollment by up to 250,000 people. With no caps to protect against excessive repayments, people exposed to large, unexpected tax increases may be reluctant and ultimately choose not to enroll. People with lower health risks would be most likely to drop or forgo coverage, resulting in a sicker risk pool and higher premiums for those who keep their marketplace coverage. 

APTC amounts are based on estimated income and household size, with larger, lower-income households getting a larger credit. To help applicants estimate their income for the coverage year, the marketplaces use trusted sources such as federal tax returns and credit reporting agencies. People are required to submit additional documentation to verify their estimated income if it varies from those data sources by more than a specified amount.  

But people’s incomes often change over the course of a year, and at tax time enrollees must “true up.” If a person earns less than expected, they can claim an additional PTC amount on their tax return. If their income is higher than predicted, they must repay some or all of the excess APTC received. Since the ACA was enacted, repayment of the APTC has been capped for people with incomes below 400 percent of the poverty line to protect them from large repayment amounts. (See Table 1 for repayment limits by income and household type.) 

Eliminating the repayment caps would require all marketplace enrollees to repay all excess APTC received, regardless of their income. In many circumstances, people would face significant tax increases because of unexpected or unforeseeable events, even if they make reasonable projections about their income and report changes to the marketplace in a timely manner.  

Table 2 lays out some of the different scenarios. In some cases, people would owe thousands more under the Republican proposal.