KHN On Call: Answers To Questions On Tax Credits, Penalties And Age Ratings

For years, Republicans in Congress have promised to repeal and replace the Affordable Care Act, claiming that its requirement for nearly everyone to buy insurance or pay a fine is burdensome and costly, and that it doesn’t give people enough flexibility to get the coverage they need.

Now that they’re in charge, the bill they’ve released as an alternative (the American Health Care Act) would effectively eliminate the requirement to buy coverage and might open up more health care choices. It’s also under fire because it may cause millions of people to lose their coverage. According to the nonpartisan Congressional Budget Office, up to 24 million more people could be without insurance by 2026 if it passes.

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So what are the differences between the ACA and the GOP alternative, and what does it all mean to you and your health care? We put some of your questions from our Twitter chat (#ACAchat) earlier this month to Alison Kodjak, NPR health policy correspondent, and Julie Rovner, chief Washington correspondent for Kaiser Health News.

Many questions came in about the elimination of the requirement to buy insurance, known as “the mandate,” and how the lack of one might affect the health insurance market.

Is the mandate in the GOP bill? It won’t work if people sign up only when they are sick.

Kodjak: The mandate is technically still written into the law, but since no one will enforce it under this new bill, it’s unlikely to have any impact. In fact, the Internal Revenue Service has already issued some guidance that suggests it may not enforce the mandate very actively even now, before this bill becomes law. The result? People who think insurance is too expensive and don’t expect to need it are unlikely to sign up for a health plan.

Rovner: It’s true that the GOP bill technically preserves the mandate, but it eliminates the penalties. Instead, the bill would require those with a lapse in insurance of more than 63 days to pay an insurance premium that’s 30 percent higher for one year. Analysts say that could actually serve as a disincentive for healthy people to purchase insurance if they’ve had a break.

Can someone wait until they are sick to buy insurance, knowing that they would have to pay a 30 percent fine?

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Rovner: Not exactly. There will still be standardized open enrollment periods once a year, and you will only be able to buy insurance outside of those windows if you have a life change, like moving or losing a job. But if you’re willing to wait as long as 11 months, then, yes, you can wait and buy insurance after you get sick.

Kodjak: It’s not without risk. The Department of Health and Human Services has already proposed regulations that would reduce that open enrollment period to six weeks from the current three months. So a patient may incur some health care costs while awaiting the open enrollment, and then face the 30 percent penalty when they do buy a health plan. However, if the individual has a health issue where treatment can wait, then they certainly can enroll at the correct time and then seek medical care.

We also got a lot of questions about the GOP bill’s new tax credits to help people buy insurance, and how different they would be from the structure of purchasing help in the ACA.

Explain the difference between tax credits and subsidies, and will tax credits be distributed quarterly or at the end of the year?

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Kodjak: Both the ACA and the AHCA use advanceable, refundable tax credits. That means the government each month sends the tax credit amount to your insurance company.

We refer to the Obamacare financial assistance as a “subsidy” in part because the amount fluctuates and is based on your income — the idea is to limit your health costs to a specific percentage of your income. In addition, under the ACA, there are payments to insurers to help cover the copayments and deductibles of lower-income people.

Rovner: The tax credits differ in how large they are and how they are calculated. The ACA tax credits are based on income and how much insurance costs in a given area. The GOP credits, by contrast, are based primarily on age and do not vary according to the cost of insurance in an area, so in low-cost parts of the country they will go further than in very high-cost areas.

In addition, the ACA has a series of subsidies that help those with low incomes (under 250 percent of poverty; about $50,000 for a family of three) pay their deductibles and other out-of-pocket expenses in addition to the tax credits to help pay for premiums.

Why does the GOP bill provide age-based tax credits instead of income-based ones?

Kodjak: The basis for age-based tax credits is that people who are younger tend to have fewer health costs, so insurance policies are likely to be lower-priced for them than for older people.

Republicans prefer the fixed credits in part because they are cheaper, and more predictable, than the income-based credits under the Affordable Care Act. That’s because those ACA credits rise as premiums rise, giving insurers little incentive to keep their premiums low. Republicans hope that by restraining the government’s financial help to patients, insurance companies will offer cheaper policies that better match the cost of the tax credits.

Rovner: Younger adults, on average, need less health care than older adults. The ACA limited the differential in premiums for older adults to three times more than the amount charged to younger adults. The GOP bill would change that so older adults could be charged five times more. The change would make insurance less expensive for younger people, likely enticing more of them to enroll, and lowering premiums for all, at least marginally, according to the Congressional Budget Office. But it would dramatically increase premiums for older adults, particularly those aged 55-64, just under the age to qualify for Medicare.

Which brings us to this question, which represents several we received about how the AHCA appears to disproportionately penalize people ages 55-64.

Do I face a penalty for waiting to buy health insurance until I’m eligible for Medicare in three years? I’m concerned that I’ll be stuck with an expensive plan.

Kodjak: No 30 percent penalty if you wait for Medicare, but remember, if you get sick while you’re waiting, you could be in financial trouble.

Rovner: That is correct. Also, remember, if you fail to sign up for Medicare when you first become eligible at age 65, you would also pay a premium penalty. It’s 10 percent per year, forever.

Got more questions? We’ll keep answering them as the GOP bill moves through Congress. Send them to us via Twitter at #ACAchat or via email at KHNHelp@kff.org.