The tax credits in the American Health Care Act have a major flaw. The amount of financial assistance the program offers stays the same, regardless of what your income is. Whether you make $13,000 a year or $70,000, whether you live in a state with high or low costs, regardless of how the federal government regulates the private insurance market in your state, the tax credit ($3,000) doesn’t vary.
As Avik Roy explains to readers in the WSJ, AHCA’s tax credits don’t have to be structured the way they are now. By making a simple change, congressional leaders can repeal more of ObamaCare, lower premiums for everyone, and make coverage especially affordable for the working poor.
The bill itself contains a model for how to make repealing insurance regulations more relevant to the budget. Section 202 of the AHCA contains a transitional schedule of tax credits that would apply only in 2018 and 2019. These tax credits vary by both age and income, and they are set up so that they cap Americans’ exposure to high premiums.
Take a childless 40-year-old making $25,000. Under Section 202, he would be expected to pay 6.3% of his income—roughly $1,500—for out-of-pocket premiums. The tax credit covers the rest. So if he buys a policy that costs $5,000 a year, the tax credit would be $3,500.
If the AHCA’s long-term tax credits for 2020 and beyond were structured more like Section 202’s, repealing more of ObamaCare’s insurance regulations would, in fact, be relevant to the budget. That’s because rolling back regulations would lower premiums, resulting in smaller tax credits.
Say that a new and improved AHCA reduced premiums 25%. Our 40-year-old’s premium would drop to $3,750. He would pay the same $1,500 out of pocket, but the tax credit would be only $2,250, with the savings accruing directly to the federal fisc. In other words: Deploying Section 202’s system of capping Americans’ exposure would make repealing more of ObamaCare germane to the budget. That would allow Republicans to do more through reconciliation while still passing muster with the Senate’s parliamentarian.
Read more from Mr. Roy here.
Avik Roy on the Rollout of the House GOP Obamacare Replacement
Latest posts by Debbie Young (see all)
- Democrats Can’t Accept the Truth - May 23, 2019
- Key West’s Number One Restaurant: The Thirsty Mermaid - May 23, 2019
- Nadler Looking for a Dancing Bear at a Political Circus - May 22, 2019