By 2021, federal health insurance purchase tax subsidies could amount to about 13 percent of the insurer’s total 2011 premium revenue.
Analysts at the Congressional Budget Office (CBO) have analyzed the premium assistance tax credit, a component of the Patient Protection and Affordable Care Act of 2010 (PPACA), in a general report on refundable tax credits.
An ordinary tax credit is an amount that a taxpayer can subtract directly from the amount a taxpayer owes the government.
Traditionally, if using a tax credit would make the taxpayer’s tax bill a negative number, the taxpayer simply got out of paying taxes, or possibly could apply the amount to the next year’s tax bill.
When using a refundable tax credit produces a tax obligation amount that happens to be a negative number, the government pays that amount to the taxpayer, CBO analysts wrote in their report.
The topic is of special interest this year, because the drafters of PPACA used refundable tax credits as the vehicle for helping low-income and moderate-income pay for health insurance.
When Congress created the first refundable tax credit — the Earned Income Tax Credit (EITC) program — in 1975, the goal of that program and later, similar programs was mainly to help low-income people increase their income, the analysts said.
In the past, Congress usually used spending programs such as the Food Stamp program, Medicaid and Pell Grants to help people pay for specific goods and services, such as food, health care or education, the analysts said.
Today, because tax credit programs tend to be more palatable to members of Congress and to the credit users than “government handouts,” Congress has structured more aid programs as refundable tax credit programs.
The EITC program and the child tax credit program will be by far the biggest refundable tax credit programs this year, and they are on track to generate about $125 billion of the $149 billion in refundable tax credits that taxpayers will report, the analyst said.
The new PPACA premium assistance tax credit could lead to about $35 billion in credit costs in 2014, and $110 billion of the $213 billion in total refundable credit costs in 2021, the analysts said.
U.S. health insurers took in about $864 billion in premium revenue in 2011, according to government estimates.