Congressional Republicans are looking to the Affordable Care Act (ACA) to help pay for their $1.5 trillion tax bill. The Senate tax legislation, as passed by the Senate Finance Committee, includes a repeal of the ACA’s individual mandate to have health insurance. In this new analysis, we look at the potential impact of the repeal on premiums and whether those increases are offset by the estimated tax cuts under the bill.
The Congressional Budget Office (CBO) projects that the repeal would save the federal government $338 billion between 2018 and 2027, resulting from lower federal costs for premium tax credits and Medicaid. By 2027, 13 million fewer people will have health insurance, either because they decide against buying coverage or can no longer afford it. Since many of those expected to drop coverage in the individual market would be healthy, insurers would increase premiums to cover costs for a pool of less-healthy enrollees. CBO projects that premiums in the individual market — which includes the ACA marketplaces — would be 10 percent higher nearly every year over the next decade. About 7 million of the estimated 17 million people who buy their own coverage on the individual market do not receive ACA premium subsidies that rise with the cost of premiums, and therefore would face the full increase.
For this analysis, we use U.S. Department of Health and Human Services data on 2018 marketplace premiums in the 39 states using the federal marketplace, HealthCare.gov, to project what that increase would mean on average for the 7 million people who buy their own, unsubsidized coverage. We then compare these average increases to projected tax cuts in the Senate tax bill for different age and income groups. We find that only some Americans who are expected to experience premium increases as a result of the mandate repeal would have those increases offset by tax cuts. As for the rest of the tax bill, repealing the mandate would mean that people with higher incomes would experience the most benefit, and older adults with moderate incomes would see their costs rise the most.
A Bigger Premium Increase for 7 Million People Who Buy Coverage Without Subsidies
We estimated the dollar amount of the annual premium increase of 10 percent associated with the mandate repeal alone, relative to estimated premium increases under current law. CBO recently projected premiums would grow by about 5 percent per year under current law over 2019–27 (see Methodology). Looking at the average increase in dollars for each age group for the lowest-cost ACA marketplace silver or gold plan, whichever is lower in each rating area in 2018, (Exhibit 1), we find:
- 27-year-olds would see an increase of $492 in 2019, rising to $726 by 2027;
- 40-year-olds would see an increase of $598 in 2019, rising to $883 in 2027;
- 60-year-olds would see an increase of $1,269 in 2019, rising to $1,875 in 2027.
State Variation in Premiums
Because premiums vary across states, the additional cost also varies by state (Exhibits 2–4; Tables 1–3). Were CBO able to estimate the percent increase in premiums resulting from the mandate repeal in each state, variation might be wider than indicated below.1
- For 27-year-olds, the additional cost in 2027 would range from $456 in North Dakota to $1,036 in Nebraska.
- For 40-year-olds, it would range from $556 in North Dakota to $1,264 in Nebraska.
- For 60-year-olds, it would range from $1,182 in North Dakota to $2,684 in Nebraska.
Tax Cut Offsets Are Better for Younger and Higher-Income People
We assume that most people affected by premium increases would have incomes over 400 percent of the federal poverty level, or about $48,200 for an individual to $98,400 for a family of four, which means they would be ineligible for premium tax credits. We restrict the analysis to individuals, since our estimated premiums are for individuals.
The Tax Policy Center (TPC) estimated the effects of the Senate tax bill on people at different points across the income distribution.2 The TPC projects that the average tax cut ranges from about $850 in 2019 for those in the third income quintile ($49,600 to $87,400), to $1,430 for those in the fourth quintile ($87,400 to $150,000), to $2,230 to those in the 80th to 90th percentile of the income distribution ($150,100 to $217,800).
The average tax cuts are projected to decline for most income groups by 2025 mainly because of the expiration of some of the bill’s provisions and its inflation-related changes. Because the Senate bill sunsets nearly all individual tax cuts after 2025, the tax cuts dwindle further after that year. By 2027, the TPC estimates that the tax cuts drop on average to $50 for those in the third income quintile, to $150 for those in the fourth quintile, and to $340 for those in the 80th to 90th percentile.
It is important to note that these tax cuts are averages. The TPC analysis shows that some tax payers in these income groups will get deeper tax cuts and others will see tax increases. In 2027, the share of those projected to face tax increases climbs to 54 percent to 66 percent of the households in the income ranges we analyze here.
Comparing the average tax cut to the average premium increase due to the mandate repeal, among individuals in the third quintile ($49,600 to $87,400) (Exhibit 1), we find:
- Individuals age 40 and under would on average have a tax cut high enough to cover their premium increase in 2019 and 2025, but by 2027, the premium increase would be considerably higher than their tax cut.
- People 60 and over in this income group would not have a tax cut sufficiently high to cover their premium increase in any year.
Among those in the fourth quintile ($87,400 to $150,000), we find:
- Those age 40 and under would have a tax cut high enough to cover their premium increase in 2019 and 2025, but by 2027, premium increases would exceed their tax cuts.
- Adults 60 and over would have a tax cut high enough to cover their premium increase in 2019, but by 2025, and likely earlier, premium increases would exceed their tax cut.
Among those in the 80th to 90th percentile ($150,100 $217,800), we find:
- Those age 40 and under would have a tax cut high enough to cover their premium increase in 2019 and 2025, but by 2027, premium increases would exceed their tax cuts.
- Adults 60 and over would have a tax cut high enough to cover their premium increase in 2019 and 2025, but by 2027, premium increases exceed their tax cut.
Older Adults with Moderate Incomes Are the Worst Off
Based on this analysis of the Senate tax bill, recent claims that the bill’s tax cuts would provide relief to Americans who are expected to experience premium increases as a result of the mandate repeal are only partly true. Like the rest of the tax bill, this relief will be tilted heavily toward people with higher incomes. In addition, although we do not estimate the tax cut offsets at the state level, analysis by the Institute on Taxation and Economic Policy of the Senate’s tax bill shows that tax cuts will vary dramatically across the country. People who face both large premium increases and either small tax cuts or tax increases would be the most adversely affected by the tax bill. In particular, older adults with modest incomes buying their own health insurance would likely face the biggest hits to their income.
The authors thank Chrissy Eibner, Richard Frank, and Sherry Glied for helpful comments.