The Democratic $1.9 trillion spending bill would dedicate tens of billions in temporary subsidies for Obamacare plans, a measure meant to address a long-running complaint about the program: that coverage is unaffordable for many in the middle class.
The provisions could benefit families earning more than six figures, a reflection of the burdensome underlying costs of the plans.
Currently, only those earning between 100%-400% of the federal poverty level are eligible for premium tax credits to help pay for policies on the Obamacare exchanges. The COVID-19 relief bill will not only expand tax credits for those earners but will also expand them to anyone making above 400% for the first time. Both were planks in the Biden campaign’s healthcare reform plan.
The expansion of the tax credits will cost about $36 billion, according to the Congressional Budget Office.
The expansion, slated to last from 2021-2022, is the latest effort by Democrats and other Obamacare supporters to make health insurance on the exchanges more affordable. Critics contend that the result will be to make insurance on the exchange even more expensive and that it is an ineffective way to deal with health insurance problems resulting from the pandemic.
COVID RELIEF BILL WOULD INCREASE OBAMACARE PREMIUM TAX CREDITS
For those making above 400% of the federal poverty level, about $51,500 for an individual and $106,200 for a family of four, affordable coverage on the exchanges has been a growing concern in recent years. For a 45-year-old making just over 400% of the federal poverty level, the average “benchmark” plan on the exchanges runs $509 a month. For a 45-year-old with 2 children at just over 400%, the monthly premium is $1,558.
In 2013, the CBO estimated that 25 million people would be enrolled in the exchange by now. However, enrollment has seldom exceeded 10 million, likely a reflection that people with higher incomes who are ineligible for tax credits find the coverage too expensive. Indeed, the latest numbers from the Department of Health and Human Services find that only 14% of those with exchange coverage do not qualify for tax credits.
The COVID-19 relief bill caps the amount of income that earners making over 400% of the poverty level must pay toward an exchange plan at 8.5%. As a result, the 45-year-old earning just above 400% would qualify for a monthly tax credit of $143, while the family of four headed by a 45-year-old couple would receive $804 a month.
Proponents say that the expansion is needed to make coverage more affordable.
“We know that about half of the people under 200% of federal poverty who are eligible for coverage on the exchange don’t get it, most likely because it is unaffordable to them,” said Frederick Isasi, executive director of the nonpartisan Families USA, a group that advocates for liberal healthcare policies. “And for people above 400%, coverage can be completely out of reach because there is no subsidy available.”
Others see it as only adding to the problem created by Obamacare in the first place.
“Obamacare made premiums unaffordable,” said Brian Blase, the head of Blase Policy Strategies and senior fellow at the conservative Galen Institute. “But instead of pursuing policies to lower premiums, Democrats are sending tens of billions of dollars to insurance companies so upper-income households can get relief from the high cost of the plans.”
Blase is also critical of tax credits going to high earners, saying that “the benefits are much greater for upper-income households.” According to Blase’s calculations, a family of four headed by a 45-year-old couple making $132,500 annually, or 500% of the federal poverty level, would qualify for a monthly $621 premium tax credit.
Isasi also says the expansion will help those who lost coverage during the pandemic.
“The No. 1 issue during the pandemic has to be both protecting people’s ability to be healthy and protecting their financial security as many have lost employer-based coverage,” Isasi said. “Providing enhanced subsidies in the exchange does both things.”
Exactly how many people have lost employer-based coverage during the pandemic is difficult to determine. Estimates range from 2 million to 12 million. Health and Human Services reported that about 500,000 people who lost employer-based coverage during the pandemic joined the exchanges.
Blase said that the expansion of tax credits doesn’t help that problem, especially since, according to the CBO, 75% of the benefits will go to those who already have exchange coverage.
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“It’s not targeted to the pandemic. If the goal is to help people who lost coverage, this is not tailored to that,” Blase said. “You are providing benefits to people who are already on the exchanges. You are replacing private spending on the exchanges with taxpayer spending.”
