Steve Heronemus

Tax Credits For Health Insurance A Bad Deal

Here is the deal-making prowess of the current government: the average family’s health insurance costs are about to double. As expected, the Republican “plan” to replace the Affordable Care Act is coalescing around providing tax credits to people who pay privately for health insurance. Other than repealing the ACA and doing nothing, tax credits are the worst-possible option for the majority of Americans and disproportionately benefits the well-off.
Let’s use an example of the median American family with $60,000 in annual income and two children. For grins (since there are zero details in the so-called plan), let’s assume the proposed tax credits equal  the actual cost of a Silver health insurance plan, or  $1021/month courtesy of eHealth. In the unlikely event our hypothetical family could pay that premium, that amounts to a tax credit of $12,252, which sounds pretty good at first.
But there two huge problems in this scenario. First, this family’s federal tax burden is, at most, $3648. Since the family can’t owe negative tax, the actual tax credit benefit is reduced by 70% to $3648. On the other hand, families earning $100,000 and more would receive the full $12,252 credit. In fact, the well-to-do family could upgrade to the Gold insurance package, get more benefits and still deduct the entire premium. In other words, the average family’s health is worth 70% less to Republicans than wealthier families.
The other problem is that a tax credit system means we are forced to front all that money to the government for as much as 18 months. Our average family, if they file taxes at the deadline, are going to see that miserly “benefit” maybe in June of the following year. Here is a cash-flow comparison between the subsidized ACA and the proposed tax-credit system: 


​After subsidies and tax credits, our average family faces a doubling of costs for their health insurance premiums. There can be no doubt that a tax-credit system as proposed by the Republicans will drive families off of health insurance.