Much of the early response to Republican lawmakers’ plan to repeal and replace Obamacare has understandably centered on the bill’s potential impact on participants in the federal health insurance program. But advocates of the American Health Care Act also face another challenge: convincing people that they’re not getting a raw deal as taxpayers.
A range of analysis, from health industry experts, economists and other researchers, conclude that the House bill creates large tax breaks for the wealthiest Americans, while middle- and low-income families may see no tax relief and much higher price tags for health insurance. Here’s a look at how the plan, should it ever wind up as law, affect tax policy:
Tax repeals. Starting next year, the House bill would repeal two Affordable Care Act (ACA) revenue-producing taxes: The hospital insurance tax and the Medicare tax on unearned income. Only individuals with incomes above $200,000 ($250,000 for married couples) pay these taxes. Families with annual incomes up to $200,000 wouldn’t see any break in their tax bill, according to a recent report from the Center on Budget and Policy Priorities. Millionaire households, however, would see a tax cut of around $50,000 a year, giving them an after-tax income boost of about 2 percent, the liberal-leaning think-tank noted.
In addition to these rollbacks, the House bill calls for the elimination of all but one of the other taxes used to fund Obamacare, including taxes charged to insurance providers, pharmaceutical companies, and medical device manufacturers. The bill would even eliminate the 10 percent sales tax charged at indoor tanning salons, according to a report from tax services firm Wolters Kluwerk. The so-called Cadillac tax on high-cost, employer-sponsored health plans would remain, but would be delayed until 2025.
Refundable tax credits. Under the ACA, tax credits designed to help consumers pay for marketplace insurance plans are based on income and the cost of a benchmark plan in an individual’s exchange. The House bill, however, provides refundable tax credits solely based on age, ranging from $2,000 a year for people under 30 to $4,000 a year for people over 60. There is a cap of $14,000 in credits per household. Full credit would go to any individual with $75,000 or less in annual income ($150,000 for married couples ), then phase out by $100 for every additional $1,000 in income.
The Kaiser Family Foundation estimates that the Republican plan would provide an average of $1,700 less in tax credits to health care consumers in 2020 compared to the ACA.
According to another recent report from the Center on Budget and Policy Priorities, the House bill would also make purchasing health care in high-cost states far less affordable. “Consumers in 11 high-cost states would see their tax credits to purchase health insurance fall by more than $3,000 on average -- or more than 50 percent,” according to the CBPP analysis. For examples, a 45-year-old consumer would get the same $3,000 refundable credit whether he or she lived in Alaska, where the benchmark health insurance policy costs $12,600 this year on average, or in New Hampshire, where the average annual premium is $3,600.
The Republican bill would also repeal the cost-sharing assistance low-income families receive to make out-of-pocket health care costs, such as deductibles, co-pays and co-insurance more affordable. Nearly 6.3 million people earning less than $30,000 ($60,000 for families) receive this assistance, said Lydia Mitts, associate director of affordability at Families USA, a healthcare advocacy group. The funds often make it possible for low-income consumers to afford health plans with deductibles as low as $500.
“Without this assistance, a family making $30,000 a year could see their deductible increase by $5,000 on average,” she said.
Health Savings Accounts. These accounts allow qualified taxpayers enrolled in high-deductible health plans to save money for medical expenses tax-free. Contributions to and withdrawals from these accounts are also tax-free, making them a particularly generous tax break. The House bill would increase the maximum contribution limits to these plans to $6,550 for individuals and $13,100 for families in 2018. For those who have access to HSAs, the increased limits are welcome news. But they are not particularly helpful for people who cannot afford to pay health insurance premiums or save for medical bills.
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