Analysis Finds Tax Credits Shrink for the Poor Under GOP Replacement Plan

The House GOP plan would let insurers charge older adults more while younger ones pay less. But low-income Americans nearing retirement age would see tax credits sliced in half at a time when premiums would rise.

An analysis by the Kaiser Family Foundation finds that Americans with lower incomes would get less help paying for healthcare than they have today under a draft House Republican plan to replace the Affordable Care Act (ACA).

By contrast, those with middle incomes would be better off, especially if they live in markets where health costs are comparatively low. And the wealthy would be the biggest winners, because they would get the same tax credits, while they get none today.

The Kaiser analysis, by Cynthia Cox, MPH; Larry Levitt, MPP; and Gary Claxton, compared the value and likely growth of tax credits under the current healthcare law under multiple scenarios, as well as those in the draft Republican plan that circulated in the past week. Parts of their report also compared the ACA credits with those contained in a bill previously introduced by HHS Secretary Tom Price, MD, when he represented Georgia in Congress.

Under the ACA, the working poor can benefit in 1 of 2 ways. First, if they live in a state that has expanded Medicaid, they can get coverage if the household income does not exceed 138% of the federal poverty level (FPL). Second, refundable premium tax credits are available to those earning 100% to 400% of the FPL on a sliding scale based on income and region, and cost-sharing is also available for those earning up to 250% of FPL to help cover deductibles and co-pays. The ACA also caps how much income can be spent if a person gets the benchmark silver plan.

The House Republican draft offers tax credits based on age only: $2000 for those under age 30; $2500 for those 30 to 39; $3000 for those 40 to 49; $3500 for those 50 to 59; and $4000 for those 60 and older. Older Americans get higher tax credits, but their costs would also rise, because the House plan allows insurers to charge them up to 5 times what younger adults pay. The House plan would put the difference between what older and younger adults pay back where it was before the ACA, the Kaiser brief said.

Of note, the House Republican draft also calls for ending the requirement that insurers offer plans that cover 10 essential health benefits, which would allow companies to sell stripped-down plans or catastrophic-only coverage. Thus, the smaller tax credits might be applied to policies that cost less. However, these plans might leave enrollees with coverage gaps that would not be uncovered until an illness was diagnosed.

The Kaiser brief outlined the following scenarios for a 40-year-old at different incomes and in different locations. In all 3 scenarios, the person would get $3000 under the House GOP plan:

  • Today, if the person earned $20,000, he or she would get $4745 in tax credits in low-cost areas, $4143 at the US average, and $5725 in a high-cost area.
  • A $40,000 earner would get $623 in a low-cost area under the ACA, $1021 at the US average, and $2603 in a high-cost area.
  • A person earning $100,000 gets no tax credits today, but would get them under the House GOP plan.

Tax credits would also grow more slowly under the GOP plan, the analysis found. The average credit under the ACA would grow from $4815 in 2020 to $6648 by 2027, while the average credit would grow from $2957 to $3729 under the House GOP draft over that same period.

The shift is designed to woo younger adults back to the market by allowing them to buy coverage that should cost less. However, low-income Americans nearing retirement—who have been some of the heaviest users of the ACA—would face large drops in subsidies of their plans.

According to the analysis, a 60-year-old earning $20,000 gets an average tax credit of $9874 under the ACA. Under the House GOP plan, that credit is more than sliced in half to $4000. If the person lives in a high-cost city (the example used is Mobile, Alabama), the credit would fall from $13,235 to $4000. Meanwhile, a 60-year-old earning $100,000 who gets no tax credit today would also get $4000.

Last week, the foundation’s Kaiser Health Tracking Poll found that support for the ACA is at its highest level since polling began in 2010, and Americans overwhelming favor keeping federal funds for Medicaid expansion.