Proposed Tax Credits Raise Affordability Concerns for Older Adults

Did you know that over 3 million older adults ages 50-64 rely on Affordable Care Act (ACA) tax credits to purchase health coverage? In fact, pre-ACA, almost half of them were uninsured.

These credits help older adults with low to moderate incomes offset some or all of the cost of their health insurance premiums. They are a critical form of financial assistance for those without access to health insurance through an employer or public program.

The American Health Care Act (AHCA), as introduced on March 6, 2017, would repeal current-law tax credits and replace them with a new “flat” tax credit adjusted by age. We find that compared to current law, the proposed tax credit amounts would mean substantially less for low- to moderate-income older adults, hitting the oldest particularly hard. Such changes could lead to older adults becoming uninsured or underinsured.

Lower- and moderate-income persons would get less

As figure 1 shows, under the AHCA, tax credits for those making $15,000 a year would be significantly less than what they receive today: between $2,200 and $5,900 less. Our paper also shows that for those earning $25,000 and $45,000 a year, tax credits would be between $850 and $4,500 less.

 

Figure 1

 

Older persons face larger reductions

Protections in current law provide larger tax credits when premiums are higher to ensure insurance remains affordable. Even though tax credits under AHCA would increase by age, the increase isn’t sufficient to offset the much higher premiums that older adults pay relative to younger adults in the individual market. As a consequence, older adults would face greater reductions in tax credits under AHCA than younger adults. A 64-year-old earning $25,000, for example, would face a reduction five times greater than that of a 50-year-old.

Combined effect of tax credit changes and increasing age-rating

Potentially exacerbating the financial hit even further, the “flat” tax credits proposed under AHCA come alongside other changes that could further reduce health insurance affordability for older adults, including weakening limits on age-rating for health insurance premiums. In combination, the tax credits and age-rating changes could increase premiums for 50- to 64-year-olds by as much as $8,400 a year (figure 2).

 

Figure 2

 

Thirty-five percent of all non-elderly adults eligible for tax credits are between the ages of 50 and 64. They simply cannot afford to pay more for their health insurance. The lower tax credits proposed in AHCA will force millions of older Americans to forgo insurance or buy less expensive insurance that covers less, leaving them without the care that they need.

 

Dean, Olivia