The AHCA provides tax credits for the individual market that would benefit high-income Americans
The Republican replacement, like Obamacare, envisions that Americans will use tax credits to purchase individual health insurance. But the structure of the tax credits is very different.
Obamacare’s tax credits are based on income, with those who earn less getting more help. Under Obamacare, people who earn less than 200 percent of the poverty line (about $24,120 for an individual or $49,200 for a family of four) get the most generous help. They would get enough money so that a midlevel plan would cost no more than 6.4 percent of their income. People who earn more than 400 percent of the poverty line ($48,240 for an individual or $98,400 for a family of four) get nothing at all. There is no cap on what they have to pay for insurance.
The Republican plans would be based mostly on age and a bit on income. Everyone who earns less than $75,000 (or $150,000 for a couple filing jointly) would get the same amount of help. Those above the income threshold would have the help slowly phased out in 10 percent increments. The tax credits would be doled out this way:
- $2,000 for those under 30
- $2,500 for those between 30 and 40
- $3,000 for those between 40 and 50
- $3,500 for those between 50 and 60
- $4,000 for those over 60
On the surface, the tax credits for the oldest Americans seem the most generous. People in their 60s, for example, get twice as much help as those in their 20s.
But under the Republican plan, insurers would be allowed to charge the oldest Americans five times as much as the youngest Americans. Their financial help would not scale nearly as much as their premiums would.
“You’re both jacking up the prices and giving people less of a subsidy, which is a damaging combination,” says David Certner, legislative policy director for the AARP, which lobbies on behalf of Americans over 55.
This new tax credit structure could also hurt to many low-income Americans, whose subsidies would fall substantially. The Kaiser Family Foundation estimates that these new tax credits would be anywhere between 31 and 82 percent lower for a 60-year-old who earns $20,000, depending on where that 60-year-old lives.
Higher-earning Americans, however, could see their benefits increase significantly. People who earned $48,280 or more under Obamacare got no help — but now anyone under the $75,000 threshold gets the biggest tax credit.
Still, this is a big difference from previous replacement plans, which had no income cap on who could receive financial help.
How it works now: One of the most important feature of the current law are insurance subsidies that are available to low- and moderate-income people who use the marketplaces to get coverage.
The current law offers these subsidies to people making less than about $48,000 a year.
There are several complicated, but very important, features of these subsidies.
First, they are linked to consumers’ incomes, so people who earn less get bigger subsidies.
Second, the size of the subsidies is also pegged to how much insurance plans cost. That means that if health plans are very expensive in one market — perhaps because hospitals there charge a lot for medical care — the subsidies in that market are larger.
This is a big deal because there are huge variations in how much healthcare costs around the country, with insurance premiums much higher in some places than in others. So people who live in higher-cost areas are protected.
It’s also important because health insurance premiums can change a lot from year to year. By pegging the size of the subsidy to the actual cost of health plans, the law protected consumers from big insurance increases.
The last important feature of the subsidies is that they are automatically applied to consumers’ monthly insurance bills. That means that low-income people don’t have to pay a large premium every month and then wait for a rebate, something that can be difficult for consumers who may be living paycheck to paycheck.
How it would change: The House plan completely scraps Obamacare’s subsidy system.
Subsidies would no longer be linked primarily to the price of healthcare plans and to consumers’ income.
Instead, Americans who don’t get coverage through an employer would qualify for a tax credit based on how old they are.
Older consumers would get larger credit, as much as $4,000 annually for people over 60. And younger consumers would get a smaller credit, as little as $2,000 for people younger than 30. This reflects the assumption that insurers charge younger people less as they are generally healthier.
The only income variation would happen for individuals making over $75,000 a year and couples making more than $150,000. Subsidies would be phased out for these higher-income households.
Linking the credit to consumers’ age, instead of their income, is much simpler. But it risks leaving some people, particularly lower-income consumers, without enough financial aid to buy a health plan.
And because the subsidies would increase annually at a rate slightly above inflation, they risk not keeping up with rising health insurance premiums.
Models of this approach suggest that younger, wealthier people would probably fare better under the new system. LA Times 3.8.2017