Republicans have said they want to move quickly to craft a replacement plan after successfully repealing Obamacare. But it is not clear how they will pay for a key part of that replacement, tax credits to pay down health insurance.
Republicans have not released a replacement plan for repealing Obamacare. However, some Republicans have introduced legislative text that give a sense of the direction the GOP wants to go.
For instance, Rep. Tom Price, the Georgia Republican who President-elect Trump nominated to be secretary of the Department of Health and Human Services, has a plan. Price’s Empowering Patients First Act includes tax credits that are pegged by age instead of income so a person who is younger would get a smaller tax credit than someone older who presumably has higher healthcare costs.
Price would give people who are seeking insurance on the individual market a refundable tax credit. People ages 18 to 35 years old would receive $1,200, and someone 50 years and older $3,000.
The tax credits would be used to purchase on the individual market, which is for people who don’t get insurance through their jobs. Obamacare’s marketplace exchanges are on the individual market.
While Price’s plan doesn’t specifically say how the credits would be paid for, the rest of the plan gives more information than the other potential Obamacare replacement, which was announced as part of the House GOP leadership’s Bettery Way agenda. The plan also calls for repealing Obamacare entirely and replacing its subsidies with age-adjusted tax credits.
But the plan doesn’t outline the amounts of those credits.
Republicans plan to repeal Obamacare early next year, but they could leave it intact while they craft a replacement, with timeframes ranging from two to four years.
However, some Republicans say that they want to move quickly on creating a replacement.
“There is a huge urgency to do it as quickly as possible. That is our motivating force right now,” a Senate GOP aide said.
Doing a replacement quickly means finding a way to pay for any tax credits that are included.
Obamacare is funded primarily through a series of taxes on insurers, the medical device industry and small payroll tax hikes. It also generates revenue from the law’s employer and individual mandates for getting health coverage.
Republicans and even some Democrats roundly criticized the taxes and mandates, so pursuing new taxes to fund any credits appears unlikely.
Republicans have been searching for other ways to fund their replacement, including creating a piggybank to capture savings from repealing Obamacare.
A bill that would have gutted major parts of Obamacare, which Congress passed and Obama vetoed this year, would have saved about $474 billion over a decade. However, a majority of those savings would come from repealing the law’s subsidies and repealing the expansion of Medicaid, which 31 states have chosen to do.
Another question is if funding an Obamacare replacement would mean reducing payments from Medicare or Medicaid and “does this cut into other areas,” said Edwin Park, vice president for health policy at the left-leaning think tank Center for Budget and Policy Priorities.
Park said any credits in a GOP plan are likely to be “very inadequate” because they don’t take into account the ratings that insurers give that could lead to higher rates.
“Most of the rating rules get swept away [in Obamacare repeal] so you could be charged more based on gender or based on what profession or industry you work in and health status,” he said.
Park added it appears likely the law won’t have any cost-sharing reduction payments, which are given to insurers to help pay down copays and deductibles for low-income Obamacare customers.
Another expert countered that varying benefits based on age would help those who need it the most.
“That matches very well with utilization of healthcare services,” said Robert Moffit, senior fellow at the Center for Health Policy at the right-leaning think tank Heritage Foundation. “The older you are the bigger your tax break.”
Any tax break for individual market customers should also be roughly equivalent to the current value of the average tax break for an employer plan, according to an article in the journal Health Affairs published earlier this month.
“The credits could be adjusted according to income, but that would make them harder to administer and would discourage work by raising implicit marginal tax rates,” according to the article written by conservative healthcare policy experts.
The tax credits would be only one part of a Republican plan. Other key parts are aimed at lowering the cost of health plans via letting insurers sell plans across state lines with the intention of lowering prices.
Republicans also have discussed turning Medicaid into a block-grant program that could lead to lower costs.
House GOP aides said earlier this week that they hope to craft a plan that would lead to “universal access” for healthcare, specifically reducing the overall costs of health insurance so that everybody could buy it if they wanted to rather than ensuring everyone in the U.S. buys it.
