(LHP Photo/Allison Bell)

The design of the new Patient Protection and Affordable Care Act (PPACA) health insurance purchase tax credit could hold down the cost of providing the tax credit but sharply limit the number of married couples that will qualify for the credit.

The staff of the House Oversight and Government Reform Committee come to that conclusion in a report on the PPACA individual tax credit subsidy system. 

The committee held a hearing on the PPACA tax credit earlier today.

If PPACA takes effect on schedule and works as drafters expect, the new tax credit system is supposed to help individuals and families with incomes ranging from 133% to 400% of the federal poverty level buy health coverage.

Individuals could use the tax credit to buy coverage through a new system of health insurance exchanges if they had no access to employer-sponsored insurance, or if they were offered access to employer-sponsored insurance and the out-of-pocket premium for the coverage would amount to more than 9.5% of the employee’s income.

Use of the federal poverty level ratio will reduce married couples’  access to the tax credit to some extent, because the federal poverty level does not increase by the same amount for each additional household member, according to House Oversight staff members.

In proposed regulations, the U.S. Department of Health and Human Services has suggested that a couple should not be eligible to use the tax credit if at least one of the two spouses was offered employer-sponsored insurance, and the out-of-pocket premium cost for self-only coverage for that spouse would exceed 9.5% of the compensation the employer has paid that spouse.

If an employer offered a working husband affordable self-only coverage, but family coverage for an out-of-pocket premium that clearly was not affordable, “the rest of the family is not eligible for the PPACA tax credits,” the staff members say. “The family would be faced with the decision of buying private coverage at an annual cost exceeding $10,000 for the mom and the kids (unless the kids are covered by the state’s [Children's Health Insurance Program]  or foregoing insurance and being forced to pay the tax penalty instituted by the health care law for individuals who lack health insurance.”

If the current rules and rule interpretations prevail, the percentage of married couples that qualify for the tax credit may be as low as 3.3%, the staff members estimate.

About half of the people who qualify for the credit could be single people without children, and about half could be single parents, the staff members say.

Richard Burkhauser, a researcher at Cornell University, notes in written testimony submitted to the committee that family coverage typically costs about 3 times as much as individual coverage, and that employers often expect employees to pay a larger share of the premiums for family coverage than for individual coverage.

If affordability cut-offs depended on whether a worker could afford family coverage, rather than single coverage, the number of employed workers eligible for the subsidy because of a lack of access to affordable coverage could increase to 7.1 million, from 5.8 million, Burkhauser says.

If employees pay 100% of the premiums, then about 9.9 million workers who need self-only coverage would be eligible and about 15 workers who need family coverage would qualify.

Policymakers need to look at ways to avoid put large numbers of spouses and children in a tax credity subsidy “no man’s land,” Burkhauser says.