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ACA premium tax credit math

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The new version of the Republican Affordable Care Act change bill draft looks an awful lot like the kind of draft moderate Democrats and Republicans might have cobbled together if Hillary Clinton had become president.

I can see why conservative free-market Republicans might dislike the draft. The draft includes new health savings account and health reimbursement arrangement provisions, and new anti-abortion provisions. But it really would create a different version of “Obamacare,” not a wildly different health care system.

Related: GOP plan could give states pots of commercial health cash

I see some ACA supporters complaining that the age-based tax credit might be about one-third less rich than the current tax credit.

But, because the current tax credit is available only through the ACA exchange, and about one-quarter to one-third of individual coverage buyers get their coverage outside the exchange system, the total amount of tax support going to insurers would be comparable.

Right now, the fact that the tax credit is available only through the ACA exchange system is great for the ACA exchange programs, but it creates weird market distortions. In Colorado, for example, people who use tax credits to pay for coverage end up with much more expensive coverage than off-exchange buyers. For some levels of coverage, the net price exchange users pay after getting the tax credit is comparable to the price unsubsidized off-exchange buyers pay.

Maybe freeing the tax credit from the exchange system will ease those strange pricing distortions.

And, if off-exchange buyers can get the tax credit as easily as users, maybe that’s a challenge for But at this point, is that a bad thing, even from a point of view? Is a marketing force on its own, or is its ability to offer access to the tax credit the only thing propping it up? This might be a good test.

Moreover, for insurers, the individual market is the individual market. What really matters to them is the total amount of support they get, not the amount contributed by each individual enrollee.

If lack of means testing is a problem, it’s certainly easy to come up with means testing mechanisms. Simply apply the same kinds of rules that determine whether people pay taxes on Social Security benefits. But apply some kind of time-tested, usable rules; shift away from the current income-forecast-based, clairvoyance-friendly tax credit adjustment system. People shouldn’t need to be psychic to have predictable health coverage costs.


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