Less Premium Help for Poor in ACA Repeal-Replace Bill

March 07, 2017

A House bill that would repeal and replace the Affordable Care Act (ACA) generally offers low-income Americans much smaller tax credits to buy a private health plan, according to a county-by-county comparison from the nonpartisan Kaiser Family Foundation (KFF).

The bill, called the American Health Care Act (AHCA), would eliminate the ACA premium tax credits in 2020 and introduce the new credits that year. While ACA tax credits are based partly on income, those in the AHCA are based on age, although they begin to shrink once an individual's annual income surpasses $75,000 ($150,000 for joint filers).

The new credits range from $2,000 per year for the youngest adults to $4,000 for those aged 60 or over. They are capped at $14,000 for an entire family.

A 60-year-old person in Kanawha County, West Virginia, who makes $20,000 a year would receive an AHCA tax credit of $4,000 in 2020. That's 73% less than the $15,080 he or she would get under the ACA to buy the second-lowest-cost silver plan available in that county. The AHCA tax credit of $3,000 for a 40-year-old at that income level would be 55% less than the ACA tax credit. And a 27-year-old would receive an AHCA tax credit of $2,000, 62% less than its ACA counterpart.

In contrast, many affluent individuals and families who are not eligible for a premium tax credit under the ACA would receive one under the House bill, KFF states. A 60-year-old person making $75,000 in Kanawha County wouldn't qualify for any ACA premium subsidy, but he or she could receive a $4,000 AHCA tax credit toward the cost of a health plan.

The bill crafted by House Republican leaders has drawn flak from both sides of the political spectrum, and the new tax credits are one reason why. Sen. Charles Schumer (D-NY) called the AHCA a "giveaway to the wealthy" in a news release. Meanwhile, Tim Phillips, president of the conservative Americans for Prosperity, told The Hill that the measure "trades one form of government subsidy for another government subsidy."

Reduced premium subsidies for the poor in the AHCA also trouble two major medical societies. In a news release, Nitin Damle, MD, president of the American College of Physicians, faulted the bill for replacing "income-based premium subsidies with aged-based tax credits that will make coverage far more expensive for poorer, sicker, and older persons."

Wanda Filer, MD, the board chair of the American Academy of Family Physicians, struck a similar note in a letter today to the House Energy and Commerce Committee. The House bill, she said, "would compound the economic strain on a large percentage of individuals and families — requiring them to spend a larger percentage of their income on premiums and deductibles."

Of course, how much anyone spends out of pocket on health plan premiums depends on their cost, and Congressional Republicans along with President Donald Trump have proposed to make health insurance less expensive, in part by allowing it to be sold across state lines. That's not a part of the AHCA, but Trump tweeted today that it will be "in phase 2 & 3 of healthcare rollout."

Tax Credit Drill-Down

Like the ACA, the AHCA makes tax credits immediately available, or advanceable, to pay a portion of a health plan premium. Likewise, both credits are refundable, meaning that a taxpayer will receive any portion of the credit in excess of the taxes he or she owes. If no tax is owed, which is the case for many low-income individuals, the taxpayer receives the credit in full.

One important difference between the ACA and AHCA tax credits is how they grow over time. ACA tax credits automatically increase in step with premiums. That's because the law caps how much individuals must pay out of pocket for the second-lowest-cost silver plan in their area (such a plan is a benchmark for premium rates in KFF tax-credit comparisons), depending on their income. Individuals are eligible for ACA tax credits if their income is 100% to 400% of the federal poverty level (FPL), or $12,060 to $48,240 for an individual in 2017. If someone is 250% of FPL, his or her out-of-pocket share of a benchmark premium is capped at 8.21%, meaning the government kicks in the rest.

In contrast, the AHCA states that its premium tax credits would keep pace with the inflation rate plus 1%. However, health insurance premiums have generally grown faster than inflation, according to a study of healthcare reform tax credits published by KFF earlier this month. The study projects that the average premium tax credit received under the AHCA would grow more slowly over the next 10 years than ACA tax credits would have. Accordingly, people receiving AHCA subsidies would pay more and more out of pocket for their health plans.

An interactive map on the KFF website allows visitors to compare estimated tax credits under the ACA and AHCA in any county of the nation in 2020. The comparisons are limited to any combination of three ages — 27, 40, and 60 — and six levels of annual income ranging from $20,000 to $100,000.

The map is color-coded to show how much an ACHA tax credit is higher or lower than an ACA credit. Various shades of blue signify that the ACHA credit is 5% to more than 75% less than the ACA credit. Shades of tan show where the ACHA credits are more generous.

Set the parameters to a 60-year-old person making $20,000 a year, and almost the entire nation turns a shade of blue. Jack up that person's income to $75,000, and the darkest shade of tan takes over.

The map does not address the cost-sharing subsidy in the ACA that lowers deductibles and copayments for low-income individuals. The AHCA repeals this subsidy.

As KFF explains, the ACA calculates premium tax credits in a far more complicated way than the AHCA. ACA credits reflect not only income, but also age and the local cost of insurance — the higher the premium, the higher the premium subsidy.

The variable of insurance cost also factors into whether an individual stands to gain or lose under the AHCA. In states such as Alaska and Arizona, where premiums are especially high, KFF says, individuals are generally better off with an ACA tax credit. The reverse is true in states such as Massachusetts, New Hampshire, and Washington, where premiums are on the low end.

The House Ways and Means Committee plans to meet Wednesday in a so-called markup session to discuss and possibly amend a section of the AHCA that includes the premium tax credits. The House Energy and Commerce Committee also is scheduled to mark up another chunk of the bill Wednesday.

Follow Robert Lowes on Twitter @LowesRobert

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