Upper-middle-class Americans are quiet winners under the GOP health plan

Buried in the details of Hillary Clinton’s campaign health care plan — which, be honest, you probably remember almost nothing about — was a tax credit meant to fill a political and policy gap left by Obamacare. It was $2,500 for individuals and $5,000 for families, for the purpose of helping people with health insurance afford high out-of-pocket spending on medical bills, and the Clinton campaign promised it would help the middle class.

The new Republican health care plan, quietly, is offering a similar middle-class gift. As Monday’s Congressional Budget Office analysis confirms, the bill includes what you might call a new upper-middle-class entitlement program. It will deliver tangible, though diminishing, benefits annually to Americans who earn more than four times the federal poverty limit, and thus do not qualify for Obamacare subsidies.

The health plan includes tax cuts that will flow primarily to high earners. But it also shifts how the government subsidizes health coverage, and the biggest beneficiaries of the change will be individuals who earn between $50,000 and $75,000 a year. That group resides on the higher end of the broadly defined middle class; the median individual in the United States earned about $30,000 in 2015.

Obamacare helped a lot of Americans get health coverage, but it didn’t offer much direct help for those upper-middle-class workers who earned too much to qualify for Medicaid expansion or even subsidies on the individual insurance marketplace. The American Health Care Act flips that equation, by calculating subsidies by age, not income. The subsidies begin to phase out at $75,000 for individuals and $150,000 for dual-earning households.

In practice, that would mean more money for the high end of the middle class, and less for the poor, than under Obamacare. As CBO explains:

For many lower-income people, the new tax credits under the legislation would tend to be smaller than the premium tax credits under current law. In an illustrative example, CBO and JCT estimate that a 21-year-old with income at 175 percent of the FPL in 2026 would be eligible for a premium tax credit of about $3,400 under current law; the tax credit would fall to about $2,450 under the legislation (see Table 4). In addition, because cost-sharing subsidies would be eliminated under the legislation, lower-income people’s share of medical services paid in the form of deductibles and other cost sharing would increase. As a result, CBO and JCT estimate, fewer lower-income people would obtain coverage through the nongroup market under the legislation than under current law.

Conversely, the tax credits under the legislation would tend to be larger than current-law premium tax credits for many people with higher income—particularly for those with income above 400 percent of the FPL but below the income cap for a full credit, which is set by the legislation at $75,000 for a single tax filer and $150,000 for joint filers in 2020. For example, CBO and JCT estimate that a 21-year-old with income at 450 percent of the FPL in 2026 would be ineligible for a credit under current law but newly eligible for a tax credit of about $2,450 under the legislation. Lower out-of-pocket payments toward premiums would tend to increase enrollment in the nongroup market among higher-income people.

The politics of that switch are debatable. It could help Republicans court, say, middle-income truck drivers and yoga instructors who buy individual-market health care plans and had not received Obamacare support.

It also could alienate many lower-income Americans who relied on Medicaid expansion or health exchange subsidies for care (and perhaps voted for Trump over Clinton last fall). As Jacob Leibenluft of the Center on Budget and Policy Priorities points out, Americans at the lower end of the middle class would likely end up paying more for their premiums, deductibles, and other out-of-pocket costs under the new plan.

From a policy standpoint, there’s a lot here to worry about, for wonks on the right and on the left. Conservatives generally don’t like the idea of expanding middle-class entitlements — even conservatives who have pushed Republicans to do more to help middle-income workers, such as Michael Strain, an economist at the American Enterprise Institute.

“I think the middle class has a lot of entitlements, and they’re expensive,” Strain said in a recent interview, discussing the GOP health plan. “When I look at the country and ask, where should the marginal dollar of tax revenue go, it’s not to the middle class.”

Liberal economists, who often favor expanded government help for middle-class workers, note that this particular form of help could prove fleeting, at best, because the value of the tax credits will almost certainly grow more slowly than the cost of health care over time. The ongoing issue for those families, said Emily R. Gee, a health economist at the Center for American Progress, is “about the total cost you pay for care.”

Clinton, incidentally, proposed capping the total cost of health care at no more than 8.5 percent of income for a middle-class taxpayer. You may not remember that part of her plan, either, but you probably remember how she wanted to pay for it: She was going to raise taxes on the rich.