Last Updated- March 2017:

Comparing Tax Credits: Affordable Care Act vs. American Health Care Act

Which individuals would get more assistance and which would get less under the proposed legislation?

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                    ACA Tax Credit         AHCA Tax Credit
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                    ACA Tax Credit         AHCA Tax Credit
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                    ACA Tax Credit         AHCA Tax Credit

Overview

The US Congress is considering legislation, the American Health Care Act (AHCA), that would generally result in older and lower-income individuals receiving less help paying for health insurance than they receive under current law. The impact is due to proposed changes to tax credits that offset monthly health insurance premiums. This installment of the ACA Spotlight focuses on the tax credit provisions of the Affordable Care Act (ACA) and the tax credits proposed in the AHCA. (Note that on March 20, 2017, the House Rules Committee amended the AHCA to potentially enhance subsidies for some individuals. These additional subsidies are not addressed in this installment.)


Under the current ACA, individuals get more assistance if they have lower incomes and/or face higher premiums due to their age or the costs of coverage in their area. The ACA’s tax credits are only available to individuals with incomes below 400% of the federal poverty level (FPL). The proposed AHCA would instead offer fixed age-based tax credits to all individuals with incomes below $75,000, which is more than 620% of FPL in most states. Because AHCA tax credits would not be based on the actual cost of coverage to the individual, which varies by age and region, they would result in less assistance for older and lower-income individuals. The magnitude of the impact would vary around the country.


This installment of the ACA Spotlight compares tax credits for individuals in 2020 under the AHCA to projections of ACA tax credits for 2020, based on data from the Kaiser Family Foundation. It shows the difference in tax credits based on age and income by state.


As seen in the interactive charts above:


  • Older individuals are likely to lose the most assistance under the proposed AHCA compared to the ACA. The impact varies by region and income. For example, the average loss of assistance for a 60 year old earning $20,000 ranges from $11,360 in North Carolina to $1,000 in Massachusetts.
  • Younger low-income consumers are also likely to lose assistance under the proposed AHCA. In more than 25 states, a 27 year old earning $20,000 would lose at least $1,000. In more than 15 states, the loss would be at least $1,500, which is 7.5% of the individual’s gross income. And in more than 10 states, 27 year olds earning $20,000 would lose more than $2,000 in tax credits.
  • Consumers with relatively higher incomes, regardless of age, are likely to gain assistance under the proposed AHCA compared to the ACA. In all states, an individual earning $75,000 would gain between $2,000 and $4,000 in assistance.

The averages reflected in this ACA Spotlight are based on three ages (27, 40, and 60 years old) and three annual income levels ($20,000, $40,000, and $75,000). Users can click to see the national average as well as the averages for individual states.


Background

The Affordable Care Act (ACA) established health insurance Marketplaces, either through State-based Marketplaces or the Federally-facilitated Marketplace available via HealthCare.gov, for individuals and families to purchase and enroll in Qualified Health Plans (QHPs). As of March 2017, 39 states use HealthCare.gov for their residents to purchase and enroll in plans, while the remaining 11 states plus the District of Columbia have State-based Marketplaces.


As with most health insurance options, plans offered through the Marketplaces charge enrollees a monthly premium. Under the ACA, low- and middle-income enrollees qualify for a premium tax credit (PTC) to subsidize a plan’s premium costs and lower the amount the enrollee pays each month. The ACA PTCs are available to qualified individuals and families with incomes below 400% of the federal poverty level (FPL) ($80,640 for a family of three in the 48 contiguous states and DC).


The amount of an individual’s ACA PTC is calculated based on age, income and location. These factors are applied against the premium cost for the second-lowest cost silver plan (also known as the benchmark plan) available through HealthCare.gov or their State-based Marketplace in the enrollee’s county. The ACA’s PTC is designed to ensure that one or more insurance options are available to an individual at a cost at or below 9.69% of the enrollee’s household income (for 2017), a threshold set by the ACA.


The U.S. Congress is considering legislation, the American Health Care Act (AHCA), that would offer fixed age-based tax credits to all individuals with incomes below $75,000. The AHCA would result in older and lower-income individuals receiving less help paying for health insurance than under the ACA.


On March 20, 2017, the House Rules Committee amended the AHCA. According to the House Energy and Commerce Committee, the amendment provides “the financing for additional support for those with high health care costs before the bill goes to the Senate… This change provides the Senate flexibility to potentially enhance the tax credit for those ages 50 to 64 who may need additional assistance.” This installment of the ACA Spotlight does not reflect the impact of a reserve fund on individual enrollees, but will be updated when details are available.


Depending on the details incorporated into any final ACA replacement legislation, actual results may differ. The data here likely understate the net impact on individuals from the loss of ACA PTCs. For example, the AHCA proposes to give states the power to allow health plans to charge older people five times more than younger people (the ACA limits this to three times what they charge younger people), which would further increase costs for older Americans. The Congressional Budget Office (CBO) report on cost estimates for the AHCA states that the change in age-rating rules “would directly change the premiums faced by different age groups, substantially reducing premiums for young adults and raising premiums for older people.”


Methodology

This installment of the ACA Spotlight compares the tax credits proposed by the AHCA for 2020 to projections of ACA tax credits for 2020.


The ACA PTCs projections for 2020 are based on state-level data from the Kaiser Family Foundation. The Kaiser Family Foundation created its data by inflating all 2017 premiums based on projections from the National Health Expenditure Accounts. This method applies the same premium growth across all ages and geographic locations.


The AHCA’s tax credits are based on an individual’s age. The proposed AHCA age-based annual tax credits are:


  • Up to 29 years old: $2,000 ($165 per month)
  • Ages 30 to 39: $2,500 ($208 per month)
  • Ages 40 to 49: $3,000 ($250 per month)
  • Ages 50 to 59: $3,500 ($292 per month)
  • 60 years or older: $4,000 ($333 per month)

The ACA Spotlight’s comparison results are based on three ages (27, 40, and 60 years old) and three income levels. For the 48 contiguous states, these annual income levels are:


  • $20,000 (about 175% FPL based on 2016 FPLs)
  • $40,000 (about 350% FPL based on 2016 FPLs)
  • $75,000 (>400% FPL based on 2016 FPLs)

FPLs are slightly higher in Alaska and Hawaii and are accounted for in the results.


Social Interest Solutions (SIS) used its MAGI Visualization Cloud to support the presentation of the infographics seen in this ACA Spotlight. The MAGI Visualization Cloud is a component of SIS’ MAGI Cloud platform, used throughout SIS’ ACA Spotlight series to produce its data and infographics. Learn more about the MAGI Cloud platform.


Data used in this Spotlight are available upon request to info@socialinterest.org.


Additional Resources