Republican plans to repeal and replace the Affordable Care Act will ultimately steer more of its financial assistance up the income ladder and away from lower middle-class workers, experts say.
Doing so would represent a fundamental break from the original intent of Obamacare: to make individual health insurance more accessible and affordable to millions of Americans who need it but can’t pay for it.
The ACA provides federal subsidies, or tax credits, to help people purchase coverage in its health insurance marketplace. Generally, the lower one’s income, the larger the tax credit received.
Doing so would represent a fundamental break from the original intent of Obamacare: to make individual health insurance more accessible and affordable to millions of Americans who need it, but can’t pay for it.
That formula – coupled with expanded eligibility for Medicaid — helped cut the nation’s uninsured rate for health coverage to a record-low 10.9 percent in the fourth quarter of 2016.
But it also means that under the ACA, millions of higher-income Americans get no financial assistance to help them purchase marketplace coverage.
In fact, 19 percent of marketplace plan members nationwide, nearly 2.2 million people, don’t qualify for tax credits under the ACA this year because they earn at least four times the federal poverty level. That’s $47,550 for a single person or $97,200 for a family of four.
This week, the House Ways and Means Committee and the House Energy and Commerce Committee are expected to vote on GOP repeal measures that would provide flat tax credits to all who purchase individual health insurance, regardless of their income. That would help those higher-income earners.
Under the Affordable Care Act, the tax credit is based on a person’s income and the cost of coverage in their area. The Republicans would base the tax credits on age and offer annual adjustments for inflation.
While the repeal legislation hasn’t been released, a recent analysis by the Kaiser Family Foundation estimates that in 2020, the average tax credit under one GOP proposal — $2,957 — would be 36 percent less than under Obamacare — $4,615.
A lot of the coverage gains under the ACA were among lower-income people, so you might see a bit of a shift, from lower-income to higher-income, in terms of who’s taking up the tax credit.
Cynthia Cox, Kaiser Family Foundation
Under a proposal authored by Health and Human Services Secretary Tom Price, the average tax credit would be $2,256 in 2020, Kaiser found. That’s 51 percent less than under the Affordable Care Act.
In theory, making the tax credit available to everyone – albeit a smaller amount – probably would cost more. But if the smaller subsidies don’t provide enough financial assistance for low-income people to afford coverage, many may not use the GOP tax credits, said Cynthia Cox, associate director of Kaiser’s Program for the Study of Health Reform and Private Insurance.
“A lot of the coverage gains under the ACA were among lower-income people, so you might see a bit of a shift, from lower-income to higher-income, in terms of who’s taking up the tax credit,” Cox said.
People in urban areas, where coverage is typically less expensive, should fare better under the Republicans’ less-generous tax credits than those in rural areas. A lack of doctors and hospitals drives up medical costs and insurance premiums in rural areas, Cox said.
People in urban areas, where coverage is typically less expensive, should fare better under the Republicans’ less-generous tax credits than those in rural areas.
Some younger people who get less in tax credits under the Affordable Care Act because their premium costs are typically lower would also benefit under the GOP’s flat tax credit plan.
“If you look at the people who get less assistance under the (Republican proposals), it might be someone who’s in their 50s or 60s, who lives in a rural area and is low-income,” Cox said. And those likely to fare better, she said, are “younger people who live in cities who have higher incomes.”
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The flat tax credits would be easier to manage than the Affordable Care Act’s tax credits because they wouldn’t require stringent income verification, said Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget, a nonpartisan research center on fiscal issues.
The flat tax credits also would eliminate a slight work disincentive in the ACA in which people try to keep their incomes below 400 percent of the federal poverty level to remain eligible for the subsidies, Goldwein said.
But because it fails to provide more assistance to those with lower incomes, the GOP tax credit plan might lead to fewer people getting coverage overall.
Goldwein said Republican lawmakers could address that by phasing out the tax credit for people with higher incomes and using the savings to beef up financial assistance for those with lower incomes. The Committee for a Responsible Federal Budget has recommended doing so as a cost-saving measure.
These and other details of the final proposal will likely be worked out this week.
Tony Pugh: 202-383-6013, @TonyPughDC