Vox’s Sarah Kliff does a nice job of explaining (exposition is Vox’s stated mission) how the surcharge—and other parts of the AHCA—will work. The gist: If you have a break in insurance coverage of more than two months, insurers could tack a 30% surcharge on your premiums once you buy health insurance again. The surcharge ends after a year. The thinking is that the prospect of the surcharge will give people an incentive to maintain their coverage and keep more people in the insurance pool. The wider the pool, the more stable the market. Conceptually, the surcharge is akin to the Medicare Part B late enrollment fee.
In his tweetstorm Monday night about the AHCA, Larry Levitt at the Kaiser Family Foundation said the continuous coverage provision will have the opposite of the intended effect: “For people healthy and uninsured, a 30% premium surcharge would actually discourage them from signing up until they get sick.” Roy wrote about the flip side: the surcharge encouraging a disproportionate number of high-risk people to get coverage, so insurers will be covering them at a loss. It is, he wrote, a recipe for adverse selection death spirals. Jost notes that the surcharge will be more expensive in absolute dollars for older Americans because their premiums are higher. And under the AHCA, they might get even more expensive for older American because the bill proposes loosening the age ratios on premiums from the ACA-mandated 3 to 1 to 5 to 1.
Previous Republican proposals would have made the tax credits available to anyone buying insurance in the individual market—even affluent Americans. That was done partly in the name of the simplicity.
But last night’s AHCA phases the credits out starting at incomes of $75,000 ($150,000 for joint filers) at rate of $100 per year for every $1,000 in income. The tax credits are refundable, which means that if your federal income tax bill is less than the credit you are owed, you’ll get the difference as a tax refund. They are also advanceable, which means people can get them when the premiums are due.
Kaiser tweeted out a chart last night that supports criticism that the AHCA scheme tax disadvantages low-income Americans. According to Kaiser’s calculations, in 2020, on average, a 40-year-old with an income of $20,000 would receive $1,143 more in tax credits under the ACA than under the AHCA ($4,143 vs. $3,000). It's the reverse for 40-year-olds earning $40,000: They would receive $1,979 more under the AHCA than under the ACA ($3,000 vs. $1,021). In addition, Roy pointed out that the AHCA phases out tax credits at a much higher income level than the ACA. This year, the ACA tax credit tapers off at an income of $48,240 whereas under the AHCA it would end at an income of $105,000, by Roy's figuring. (Jost came up with slightly different numbers).