Income-based Subsidies vs. Tax Credits Under Trumpcare

When President Obama first tried to sell the Affordable Care Act to the American public, he indicated that there would be tax subsidies to help low-income families to pay their insurance premiums. Obama knew that insurance companies were not going to help keep costs down, so he pushed the burden to the American taxpayer.

While the idea of making taxpayers foot the bill for health insurance costs sounds invasive, it was actually successful. Thanks to those subsidies, nearly 16 million Americans were able to afford healthcare and prevent hospitals from taking significant financial hits. The overall effect was positive as hospitals had more patients with insurance, and that prevented hospitals from having to absorb lost revenue due to uninsured patients.

But president-elect Donald Trump looks at Obama’s tax subsidies much differently. Trump sees ACA subsidies as socialism that are destroying the national economy. Trump claims that subsidies given out based on income put an unfair burden on taxpayers, regardless of the long-term positive effects.

What are the Obamacare Tax Subsidies?

The Obamacare subsidies come in four different types:

  • Premium Tax Credits: used when you file your federal income taxes to help compensate for the cost of health insurance premiums
  • Cost-Sharing Subsidies: used to help keep out-of-pocket costs out of control for certain portions of the population
  • Medicaid: Obamacare significantly altered the funding for Medicaid in every state
  • Children’s Health Insurance Program (CHIP): another state-run program bolstered by federal money

If your income falls at a level that is less than 400 percent over the Federal Poverty Line (FPL), then you can get Premium Tax Credits. There is a chart that shows you how much of a credit you get for your income level. People who make 250 percent or less over the FPL can get access to the Cost-Sharing Subsidies if they are on silver marketplace plans. In order to benefit from Obamacare subsidies, you must be on a marketplace plan.

Trumpcare’s Tax Subsidies

Based on what we’ve seen and heard so far, Donald Trump is no fan of giving people tax subsidies to help pay their health insurance cost. The popularity of the Obama subsidies made them a political hot potato during the campaign that Trump did not want to touch. Instead of addressing the tax subsidy issue head-on, Trump offered vague information and implications that can help us to understand what his plans could be.

The part of his health care plan that Donald Trump did publicize was his intention to allow everyone to write off the portion of their health care premiums that they pay on their federal taxes. It sounds great, but it does not offer the same level of financial assistance that the Obamacare subsidies did. People who earn more – and can therefore afford to buy higher-cost health insurance – will benefit most from this system since their premiums are already higher.

Trump also plans to significantly alter Medicaid and CHIP. His plan will give states block grants for Medicaid, which will in turn allow each state to administer its own Medicaid program independently. He will remove the strict guidelines Obamacare created, but he offers no way of making sure that the grants will be proportionally correct to each state’s need.

To really understand where Trump is headed with tax subsidies, you need to read between the lines in a November 11, 2016 article that appeared on the HIT Consultant website. Trump’s subsidies will be used to motivate people to get coverage while they are young and healthy instead of waiting until they get older. This could imply that subsidies under Trumpcare will be based on age and health status instead of income.

If Trump alters the subsidies, he will price health insurance out of the affordable range for millions of Americans. While Trump’s idea of allowing everyone to write off the cost of their premiums will mitigate this to some extent, it will only be a real benefit to people who pay very high premiums. If Trump guts Obamacare, he will likely remove the tax penalty for not having health insurance. If he does that, then low-income families can go back to not having health insurance without the fear of a tax penalty. But nothing in Trump’s plan helps those families to actually get insurance to write off.

When Donald Trump is inaugurated as president on January 20, 2017, the country can expect a stream of announcements regarding the changes the new Republican president and Congress will make to health care laws. Right now, it looks like many of those changes benefit the young and wealthy citizens of the country and leave low-income families uncertain about their future.