House Reveals Proposed Health Care Revision

The Republican-led House of Representatives revealed their legislative proposal, called the American Health Care Act (AHCA), to revise health care/insurance. It was touted to repeal and replace Obamacare. It contains some significant changes, but “repeal” exaggerates. It revokes the individual mandate to buy health insurance and penalties for not buying insurance. On the other hand, even some Republicans call it ”Obamacare Lite.”

The AHCA appears to give more coverage choices to individuals buying medical insurance and getting a premium subsidy to do so. Obamacare established so-called "marketplace exchanges" with tight rules about what a policy must cover, deductibles, etc. What I’ve read so far doesn’t specifically address these exchanges, but it seems they could be abandoned or less controlled.

The AHCA calls for a new scheme of (refundable*) tax credits for buying health insurance. The credit is age-based, from $2,000 for a young person to $4,000 for a person age 60+. The family limit is $14,000. CNN complains that Obamacare offers much higher premium subsidies for low-income folks. That’s true, but the amounts under Obamacare are very complicated, varying by income and zip code. An income-based phase out of the AHCA subsidies starts at $75,000 for a single person and $150,000 for married filing jointly. (The Wall Street Journal says for every $1,000 in income over $75,000 the tax credit would be reduced by $100. That’s presumably for a single taxpayer). This subsidy will be available to a larger number of moderate- and lower-income folks, since buying coverage is not restricted to a “marketplace exchange.” The tax credit will not be available for employees who contribute to employer-provided health insurance.

I predict this new tax credit scheme will make tax returns more complex. Doing a return for a taxpayer in the phase-out income range will face a decision between credit or deduction and how much of the premium to use towards each.

The contribution limit to Health Savings Accounts would nearly double in 2018. AHCA repeals some miscellaneous taxes, such as on medical supplies. The Obamacare imposed tax of 3.8 percent of certain net investment income of individuals, estates, and trusts with income above certain amounts is repealed starting in 2018.

One thing the AHCA doesn’t do is sever or even weaken the tie between health insurance and a job. Employer-provided coverage remains mostly the same. Penalties on large employers not purchasing such coverage are removed, and the Obamacare tax on "Cadillac plans" is delayed four more years. In my opinion, breaking or weakening this tie is the best step towards a vibrant, competitive free market for individuals less than age 65 buying health insurance. (The Medicare supplement market for individuals over age 65 is vibrant and competitive now.)

* A refundable credit can be obtained even when one's tax otherwise owed is zero. A nonrefundable credit is limited by one's tax otherwise owed.

Link.