Premium Surcharge Could Hit Millions Under Republican Plan

The GOP proposal to replace the Affordable Care Act includes a penalty for forgoing insurance that can be higher than the current charge. As many as 30 million people could be affected, according to a Commonwealth Fund analysis.

Critics of the Affordable Care Act have directed special ire to the tax penalty for failure to buy healthcare insurance, but the Republican plan for repealing Obamacare would impose a surcharge that could be even higher for some people.

An estimated 30 million working-age adults could be hit with the higher penalty, according to The 2016 Commonwealth Fund Biennial Health Insurance Survey.

"The American Health Care Act" (AHCA), introduced by Republicans to repeal and replace certain provisions of the ACA, would replace the ACA's individual requirement to have health insurance with a requirement to maintain continuous coverage.

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Anyone who applies for insurance in the individual or small-group markets can be charged a penalty by their insurer equal to 30% of their monthly premium if they had a gap in their insurance of more than 63 days in the prior year.

Insurers can levy the penalty for 12 months regardless of how long the gap was. The Commonwealth Fund survey suggests that an estimated 30 million working-age adults would be affected by the penalty, which in some cases is higher than what the ACA imposed on the uninsured.

The Commonwealth Fund estimated premiums for a plan in 2018 with the average medical costs covered for people enrolled in silver-level plans under the ACA. Insurers can currently charge older people only three times more than younger people, but the House bill allows them to charge up to five times more.

That means premiums rise significantly with age under the House bill, and it also means that the amount people can be charged for not maintaining continuous coverage is significantly higher for older people than for younger people, according to a survey report written by Commonwealth Fund Vice President for Healthcare Coverage and Access Sara R. Collins and Senior Research Associate Munira Z. Gunja.

For people with incomes under $100,000 a year, the GOP's repeal bill's penalties probably will be more punitive than what they would have faced under the ACA, the report says.

It cites the example of a 30-year-old with a gap in coverage of longer than 63 days in the past 12 months. That person would face a surcharge of $84 per month for the next 12 months, for a total of $1,007. A 50-year-old with a gap in coverage of the same length would be charged $96 more than a younger person per month, or $1,154 more over 12 months, for a total of $2,161.

If the same 50-year-old under the ACA had an income of $30,000 and had a coverage gap of four months, he would owe $232 in penalties through his taxes, compared to the $2,161 in premium surcharges under the repeal bill.

In 2016, 21% of adults ages 19 to 64, an estimated 40 million people, had experienced a gap in their health insurance, the survey report says. About 75% of them, 30 million people, had been uninsured for longer than three months, putting them beyond the 63-day gap period allowed under the House bill.

"Overall, because people who had a coverage gap would face higher premiums when they enrolled, they would have a strong disincentive to re-enroll, leading to larger numbers of people uninsured," they write. "This effect would be most visible among lower-income people, for whom the surcharge would fall most heavily relative to income."