Yesterday, the House Ways & Means Committee — following the instruction included in the House Budget — passed legislation that would require families who qualify for subsidies in the health care exchanges to pay higher taxes if their incomes change mid-year. The change could dissuade people from purchasing insurance, disproportionately impact women (who are more likely to experience income fluctuations), and — as a new analysis from the Center on Budget and Policy Priorities explains — could increase costs for the entire population.
Under the Affordable Care Act, families between 100 and 400 percent of federal poverty line (FPL) qualify for government assistance when purchasing health coverage through the state-based exchanges. The government will pay insurance companies a refundable amount based on an estimate of the family’s annual income (the assistance is available on a sliding scale in which higher-income earners receive smaller subsidies). Should a family’s income change during the year (were a single mother marries in the middle of the year, for instance), it is required to pay the government back a specific capped amount come tax season. Congress has increased the fee twice since the law was enacted (the original legislation set the cap at around $400) and now the Republicans are hoping to boost the amount to the full overpayment.
The Joint Committee on Taxation and the Congressional Budget Office estimate that the higher tax bill would discourage 350,000 people from signing up for the subsidies in the first place. Many would be dissuaded from enrolling in insurance because “the amounts they could be required to repay to the IRS if they received subsidies would be more than five times higher than the penalty they would owe if they remained uninsured in 2014.” Judith Solomon and Robert Greenstein explain what this means:
If the caps on repayment are eliminated, the amounts that families would be required to repay in 2014 would, in many cases, be well over five times the penalty they would face in 2014 under the ACA’s individual mandate if they failed to obtain coverage. […]
Our analysis indicates that 38 percent of the estimated $43.9 billion in savings credited to this provision comes from the reduction in the number of people who would enroll in coverage in the exchanges.
As noted, because people who decided to forgo coverage would disproportionately be healthy individuals, the pool of people enrolling with the exchanges would be sicker on average, which would push up everyone’s premiums for insurance. The higher premiums, in turn, would lead additional healthy people to forgo coverage. The result would be “adverse selection” that could weaken the viability of the exchanges. For some families, the result also would be huge marriage penalties, as the example cited at the beginning of this analysis shows. Under the House provision, the family in that example would owe the IRS almost $5,000 as a result of getting married during the year.
Solomon and Greenstein note that this repayment system is fairly unique — after all provisions that penalize people who marry or obtain jobs don’t make for smart policy. Other programs, they write, are based on eligibility on current income so that “if a household’s income rises during the year, it ceases to receive assistance or receives a reduced benefit, but it is not made to pay back the aid it received during its period of need.” And the Affordable Care Act itself takes great pains to ensure that families don’t receive more government dollars than they’re entitled to. Under rules issued by the Secretary of Health and Human Services, applicants are required “to validate and update the information on their prior tax return; if their income has increased in the interim, the updated information must be used to determine their subsidy amount.”
But all this matters little to a Republican party eager to enact the Ryan budget and unravel President Obama’s signature health care law.