Affordable Care Act Proposal Would Drastically Cut Funding for Tax Credits

The Empowering Patients First Act could cut tax credits by 60% in 2027.

Long before the election of President Donald Trump, GOP lawmakers have been working to repeal the Affordable Care Act (ACA). The legislators are now tasked with formulating a replacement plan that would receive widespread support, which has proven difficult.

A recently leaked proposal document, the House Discussion Draft, indicated that some lawmakers support replacing federal subsidies with premium tax credits for individuals who purchase individual health plans, with changes to the way the credits are formulated. Similarly, the Empowering Patients First Act, proposed by Rep Tom Price (R-GA), would tie tax credits to age, and not income.

A new study conducted by the Kaiser Family Foundation indicates that replacing ACA tax credits with those outlined in proposals would reduce financial assistance by at least 36% in 2020.

The study authors also found that tax credits would increase more slowly under the proposals. The average tax credit for current marketplace enrollees would increase from $2957 in 2020 to $3729 in 2027, while the current tax credits would increase from $4615 in 2020 to $6648 in 2027, according to the study.

The authors estimated the average tax credits for individuals with low, middle, and high incomes at age 27, 40, and 60 in 2020. They also took into account markets with low-, average, and high-cost health plan premiums.

Individuals with low incomes, who are older or live in markets with high premiums, would receive larger tax credits under the ACA, compared with the replacement proposals, according to the study. However, individuals with higher incomes, who are younger, or who live in places with lower premiums, would receive larger tax credits from the replacement plan.

The authors found that the individuals would receive 41% less funding in 2022 under the House Discussion Draft, and decreases to 44% in 2027, according to the study. The Empowering Patients First Act would cut tax credits by 56% in 2022, and by 60% in 2027.

Despite differences, the ACA and replacement proposals all rely on tax credits that are used to reduce the amount of money is paid in federal income taxes to be used for health insurance premiums.

The ACA calculates tax credits by taking into account factors such as family income, cost of insurance, and age. Tax credits under the ACA are based on premium growth, and are not available to those with incomes of more than 400% of the federal poverty levels.

Replacement proposals suggest varying tax credits based on age, and increases based on inflation plus 1%, according to the study.

Prior to implementing a certain replacement plan, lawmakers should review fact-based studies regarding how tax credits may impact patient health.

“The underlying details of health reform proposals, such as the size and structure of health insurance tax credits, matter crucially in determining who benefits and who is disadvantaged,” the study authors concluded.