The U.S. Senate is considering a bill that would make it more challenging for low- and middle-income families moving up the income ladder to purchase affordable health insurance.
H.R. 436 – which passed the U.S. House of Representatives in early June – eliminates a tax on medical device companies. The Minnesota Budget Project strongly objects to the fact that the bill asks low- and middle-income families to pay the tab for the $30 billion in lost tax revenue.
Last Monday, the Minnesota House of Representatives Tax Committee held a hearing to learn more about the ramifications for Minnesota’s medical device companies. What was absent from the hearing was a full discussion of who is being asked to pay for a bill ironically called the “Health Care Cost Reduction Act of 2012.”
The reality is that the cost of this $30 billion bill falls entirely on low- and middle-income folks – every one of them living below 400 percent of the federal poverty line (that’s an individual with a household income below $44,680 a year, or a family of three with a household income below $76,360).
Here’s why these families are the ones who will pay. Starting in 2014, the Affordable Care Act uses tax credits to make insurance premiums more affordable for low- and middle-income individuals and families. Minnesotans with yearly household incomes below 400 percent of the poverty line who cannot get affordable care through their employer are eligible for the credits. The tax credits are based on an estimate of yearly income and are given in advance to reduce the monthly out-of-pocket cost for an insurance premium. The amount of the credit varies by income, with lower-income families qualifying for a larger tax credit.
But what happens if a family’s household income unexpectedly increases during the year and it turns out they actually qualify for a smaller credit? The Affordable Care Act requires them to repay the excess. For individuals and families under 400 percent of poverty, however, the amount they must repay is capped, protecting them from a large, unexpected tax bill. For example, a married couple whose income has risen during the year could still have to repay up to $2,500 in tax credits.
H.R. 436 would eliminate that cap and require all individuals and families to repay the full amount due. That could mean thousands of dollars in additional taxes for an unsuspecting family moving up the income ladder. And the fear of a large tax bill will lead other families to decline the credits altogether, meaning premium costs will take a larger bite out of their monthly incomes.
Let’s look at how this might play out for a couple with two children. Dad manages a store and makes $53,000 a year (about 225 percent of the poverty line), but doesn’t get health insurance through his employer. This family is likely to qualify for $1,127 per month in tax credits to reduce their premiums to about seven percent of their income. Then Mom, who has been unemployed for several years due to the recession, finally lands a job making $40,000 a year. The family is now just under 400 percent of the poverty line and their monthly tax credit would fall to $710. Under current law, they would have to repay no more than $2,500 in tax credits as a result of Mom getting back into the workforce. But if H.R. 436 passes, this family might end up owing twice that amount. (The Kaiser Family Foundation has a helpful calculator where you can test other scenarios.)
There are many common situations – a good farming year, a promotion, a new job or an unexpected bonus – that should mean good news for a family who has been struggling through the prolonged economic downturn. Unfortunately, H.R. 436 would transform personal economic progress into a large tax bill.
H.R. 436 would be a significant step backward in making health insurance affordable for Minnesotans. Asking low- and middle-income families to kick in an additional $30 billion over the next ten years is not the right way to pay for eliminating a business tax.