Obamacare Repeal: What May Replace It
Tax Credits for Health Insurance Premiums
Both House Speaker Paul Ryan (R-WI) and Rep. Tom Price (R-GA) -- Trump’s pick to lead the U.S. Department of Health and Human Services -- have developed Obamacare replacement plans that help people better afford health insurance with the use of tax credits.
These tax credits adjust with age rather than income, as current law requires. Under Obamacare, people with lower incomes receive more financial assistance to buy insurance. The Price plan does away with that. Instead, it offers tax credits ranging between $900 for kids under age 18 and as much as $3,000 per year for people age 51 and older. The amounts would be tied to the average cost of insurance in the private market.
Pros: This approach limits how much the federal government spends on tax credits to help people afford insurance, Corlette says.
Proponents also say it offers more people financial help to buy insurance, and more flexibility when choosing insurance plans. Most Republican plans do away with current requirements for insurers to cover a core set of essential health benefits. That allows more variety in the type of plans insurers can offer. Health care plans that don’t cover services such as maternity or prescription drugs are less expensive. So although tax credits offered in Price’s plan are far less generous than those available through Obamacare, because the plans would cover fewer benefits, they would also be less costly.
Like Obamacare, a number of Republican plans allow people to apply tax credits in advance as a way of lowering their monthly premium costs.
Cons: Blumberg says the fact that the tax credits don’t vary by income means that no matter how much money you earn, the financial assistance is the same.
“You’re prioritizing giving the rich a tax cut they don’t need and short-changing the guy down the street who does need assistance,” she says.
In addition, Corlette says that tax credits outlined in Ryan’s plan would rise with general inflation but are not tied to medical inflation.
“The problem with that is medical inflation has tended to grow much faster than general inflation, so if that historic trend continues, the value of the tax credit shrinks over time.”