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Today in Obamacare: what kind of health insurance can the GOP tax credits actually buy you?

piggy bank

A fierce policy battle is quickly developing around a crucial potential element of GOP replacement plans: tax credits to make individual coverage more affordable.

Republican leadership currently faces flak from both liberals and conservatives over this proposal. On one side, a slew of new think tank reports argue that the proposed tax credits are significantly less generous than those under Obamacare, and could leave low-income enrollees unable to afford coverage.

On the other, conservative legislators argue the exact opposite: that the tax credits are much too generous and amount to just another entitlement program. The tax credits, in their view, shouldn't exist at all.

This leaves congressional leadership in an increasingly difficult bind. As of March 2016, there were 10.5 million Americans who already receive subsidies under Obamacare who would have to pay more out of pocket if the credits became less generous.

Conservative Republicans who don't want to see any version of a subsidy in the final replacement plan haven't offered another solution for maintaining the current costs of those Americans' care. In between the two positions is little to no common ground.

GOP tax credits are, on average, 36 percent lower than the Obamacare tax credits

Both Obamacare and replacement plans from House leadership provide tax credits to help make insurance more affordable. Obamacare’s credits are based on income, meaning poorer people get more help. The Republican plans base tax credits on age. Under their plans, older people get more help and younger people get less help. The idea is that older people need more support because they get charged higher premiums.

But the result is regressive: Wealthy people would get more help buying insurance, while poor people would likely get less assistance.

The Republican plans are also generally just less generous with financial help than the Affordable Care Act. The Kaiser Family Foundation estimates that the tax credits outlined in the recently leaked GOP plan would be 36 percent lower on average than those currently available through Obamacare.

And there would be significant variance from person to person. Low-income Americans who benefit from the health law's income-based credits would get significantly less help, while people who earn just a little bit too much for a tax credit under the ACA (individuals earning more than $47,550) would benefit from getting help for the first time.

"The upper-middle-income people who strain to afford coverage right now, because they make just enough not to qualify for a tax credit, that group is one of the biggest winners," says KFF study author Cynthia Cox.

So how far could those lower tax credits get you?

Linda Blumberg at the Urban Institute released new data this morning estimating what type of plan you could buy if you only used the proposed tax credits in the Empowering Patients First Act from Health and Human Services Secretary Tom Price — and didn't spend anything beyond.

Her idea was to explore how low-income Americans who wouldn't have additional income to spend on premiums might fare under these plans.

Blumberg found that young adults who are between 18 and 20, who would receive a $1,200 tax credit, would be able to afford a plan that on average covers 70 percent of their costs.

Anyone older that that, however, would not be able to afford such a robust plan.

Older Americans would not fare well at all. The tax credits wouldn't grow nearly as quickly as the premiums do for Americans in their 50s and 60s. Blumberg estimated that people in their 60s would only be able to afford a plan that covers an average of 25 percent of their medical bills if they were to rely solely on the tax credit.

"Some of the proposals, including the one from Price, repeal the Medicaid expansion," Blumberg says. "So this would be the amount you're giving to somebody at and below poverty. A plan that covers a quarter of your costs is beyond the reasonable definition of what you would consider insurance."

The GOP subsidies are way less than what Democrats want. They're also way more than the Freedom Caucus says it will support.

One thing that struck me in the most recent leaked proposal from Republicans is that the tax credits have become more generous over time. For example: The Price plan includes a $1,200 credit for those between 18 and 35. The newer leaked plan has a $2,000 tax credit for those between 20 and 30, and $2,500 for those between 30 and 40.

That's a big jump, and it would make the transition to a GOP plan less dramatic for those who currently rely on subsidies.

The KFF report, for example, finds that the Price plan released two years ago would cut subsidies 51 percent — a significantly sharper decline than the 36 percent cut in the more recent plan.

Conservative Republicans, however, are moving in the opposite direction. After the GOP health plan draft leaked, conservative legislators were quick to denounce the idea of continuing any type of tax credit.

“The tax credits included in Ryan’s plan will create an entirely new entitlement program,” Freedom Caucus Chair Mark Meadows (R-NC) told Breitbart News. “We are concerned about a new federal plan that will only increase premiums and lead to higher prices. We are not going to fix healthcare by replacing Obamacare with another plan that won’t work.”

President Trump jumped into the fray with his speech Tuesday night. He said, "We should help Americans purchase their own coverage, through the use of tax credits." That wasn't an especially specific statement, but it was enough to put him on one side of an intraparty debate that is far from settled.

About last night: Trump's speech shows a GOP shift to the left

Trump used his congressional address to outline five points he wants to see in a Republican replacement plan. He only briefly explained each, but what he described is in line with what we know already has the support of House Speaker Paul Ryan and Health and Human Services Secretary Tom Price.

  • The explainer: I go deep into how each of Trump's policy proposals would work, from tax credits to insurance sales across state lines.
  • The analysis: Ezra Klein argues (convincingly, in my view!) that Trump's speech shows how Obamacare has permanently shifted America's health care debate to the left.

Kliff's Notes: Today's top 3 health policy reads

With research help from Caitlin Davis

  • "It looks like President Trump just took sides in Republican debate over Obamacare": "Conservatives in Congress have declared the idea of refundable tax credits as a non-starter, seeing it as Obamacare by another name. But so far, they have not been jumping out of the gate to condemn Trump's comments. They could be holding out hope that as Trump's ideas get more fleshed out, they could migrate more closely to the deduction-based model. Though Trump used the term 'tax credits,' he could have theoretically meant it in a more general way, and not specifically to describe the sort of refundable tax credits supported by Price and Ryan and opposed to by many conservatives.” —Philip Klein, Washington Examiner
  • "Health Care Is Front and Center in Democrats’ Response to Trump Address": "Democratic leaders are determined to make health care — particularly Medicare and the Affordable Care Act — the centerpiece of their attacks against Republicans leading into next year’s midterm elections. And as Mr. Beshear alluded to, he has a compelling story to tell about the effect of the health law in a conservative-leaning state.” —Jonathan Martin, New York Times

"Looking at the conservative 'heritage' of some core ACA features": "What the ACA does more closely resemble is a more centrist plan that was proposed by Sen. John Chafee, a Republican moderate from Rhode Island, as an alternative to the Clinton plan in 1993-94. It didn’t go anywhere at the time, but did influence the Massachusetts health care law under then-Gov. Mitt Romney, which in turn influenced the ACA." —Joanne Kenen, Health Journalism

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