Republicans have struggled to coalesce around a plan to repeal and replace Obamacare that would cover the poor and uninsured. Like any product, the primary barrier to purchasing insurance is its high cost. A 2016 survey by the Kaiser Family Foundation found that nearly half of the uninsured didn’t buy coverage because it was too expensive. How can the GOP fix this problem? Refundable tax credits are key.
Members of the extra-conservative House Freedom Caucus had a clear and simple answer to this problem: Repeal Obamacare’s costly insurance regulations. These regulations shift punishingly high premiums onto young and healthy individuals and mandate coverage for a variety of expensive and unnecessary benefits. The Heritage Foundation estimates they increase the cost of coverage by 44 to 68 percent.
Yet even if the Congress completely repeals Obamacare’s regulations and eliminates pre-Obamacare regulations that increase premiums, many low-income families would still be unable to afford insurance. To address this issue, many house conservatives want to offer a standard deduction to help the poor purchase insurance.
The chairman of the Freedom Caucus, Rep. Mark Meadows, R-N.C., recently wrote in the Wall Street Journal: “We should implement nonrefundable tax credits, which can be deducted from payroll taxes for lower earners. Nonrefundable credit would benefit lower-income individuals by letting them keep more of what they earn.”
However, nonrefundable tax credits would do little to help poverty-stricken families obtain health coverage. Given the progressive nature of our tax code, low-income individuals simply pay too little in taxes for nonrefundable credits to help them buy insurance. An estimated 26 percent of the uninsured make less that $10,000 and pay just $574 in taxes. None of these people would receive a large enough refund to afford health insurance.
The Lewin Group came to a similar conclusion when the George W. Bush administration proposed a standard deduction for health insurance in 2007. President Bush called for a $7,500 health insurance deduction for individuals and a $15,000 deduction for families. However, families that make less than $20,000 per years would only receive $72 from Bush’s deduction. The consulting firm estimated that offering a tax deduction would only expand coverage to 3.8 percent of families making less than $10,000 since its benefits “would be concentrated among higher income groups.”
In light of this fact, Speaker of the House Paul Ryan introduced the American Health Care Act, which offers refundable tax credits so low-income Americans without large tax liabilities could purchase health insurance. Those in their 20’s would receive $2,000; those in their 30’s would receive $2,500, those in their 40’s would receive $3,000; those in their 50’s would receive $3,500; and those in their 60’s would receive $4,000.
The Congressional Budget Office issued a scathing indictment of Ryan’s plan. The CBO projected that the AHCA’s tax credits would be grossly insufficient and dramatically increase out-of-pocket premiums for Obamacare’s recipients, particularly for the elderly. According to their estimates, the average 64-year old would see their annual premiums increase 758 percent to $14,600 under Ryan’s plan.
Conservatives could have seized this opportunity to argue for greater consumer-based reforms to lower the market price of insurance so taxpayers can cover more people for less. But Republicans were too busy fighting amongst themselves over whether the federal government should aid the less fortunate.
Refundable tax credits are by no means the ideal free-market solution to healthcare ills. But they remain the most practical means to expand health insurance to those who can least afford it.
Charlie Katebi is a contributor to the Washington Examiner’s Beltway Confidential blog. He is an advocate at Young Voices and a policy fellow at the Millennial Policy Center.
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