Improving Affordable Care Act tax credits so more families can get covered

Today, 90 percent of Americans have health coverage through their jobs, the Affordable Care Act (ACA), Medicare or Medicaid. Even more people will obtain coverage in the coming months following enactment of the American Rescue Plan (ARP), which boosts financial assistance to make ACA coverage more affordable. However, because the new law’s enhanced tax credits are only in effect through 2022, premiums will be out of reach again for many Americans in 2023 and beyond unless Congress acts to extend the changes.

What will happen if the changes to the tax credits are allowed to expire in 2023?

Approximately 11.4 million consumers enrolled in marketplace plans during the 2020 open enrollment period, and the average monthly premium after tax credits was $89. However, some consumers would pay much more if the design of the tax credits reverts back to former law in 2023. Reverting back to the previous tax credit design may cause many to give up their coverage as nearly three quarters of uninsured adults say they are uninsured because of the high cost of coverage.

Moreover, although the new law does much to make coverage more affordable in 2021 and 2022, the design of the tax credit still disadvantages younger people. This is because the cost of premiums for the benchmark plan—after factoring in the tax credits—is the same for any adult, regardless of age.

People are more likely to need health care as they get older and, thus, have a greater desire for health insurance as they age. Yet, in order to have a system in which everyone can obtain health insurance regardless of their health status, there has to be a way to balance the cost of caring for those with significant medical needs with those who are healthier and need less care. The fact that everyone pays the same amount for ACA coverage regardless of age has led to an imbalance, with nearly half of ACA enrollees being between age 45 and 64. Meanwhile, 70 percent of the non-elderly uninsured are under 45, with the largest group between ages 19 to 34. Adjusting tax credits to equalize the incentive to purchase health insurance across age groups will bring greater balance and help lower premiums for everyone.

Are there other changes that would make ACA premiums more affordable and equitable?

BCBSA has released a set of specific proposals that would expand coverage, reduce costs and make health care more equitable.  

Our recommendations to improve the premium tax credits include:

• Enhance assistance for young people. Lawmakers should adjust the tax credit design to equalize the incentive to purchase health insurance across all ages. This would encourage more young people to obtain coverage, ultimately lowering premiums for people of all ages and incomes.

• Reduce individual premium contributions. Congress should make permanent the lower portion of their income that lower-income families are asked to pay for ACA marketplace coverage. In addition, lawmakers should make permanent the elimination of the income eligibility ceiling of 400 percent of the federal poverty level.

• Increase the tax credit benchmark to gold. To ensure consumers can purchase coverage that covers 80 percent of their out-of-pocket costs at no additional premium, Congress should change the premium tax credit benchmark from silver to gold plans.