When it comes to replacing the Affordable Care Act, one of the stickiest questions is how consumers will get help to pay for their health insurance premiums.

Under the ACA, that's now done through subsidies, which are tax credits that you can choose to apply directly to your monthly premiums when you buy health insurance or as a credit to reduce your taxable income when you file taxes.  

Republicans are talking about using tax credits as they work to replace the ACA. In his Tuesday address to Congress, President Donald Trump backed using them to help people buy insurance, drawing on proposals previously put forward by Senator Paul Ryan and Tom Price, the new head of the Department of Health and Human Services.

But here's where the approaches differ. The Republican proposal would change how the tax credits are calculated and cut the size of the tax credits by nearly half.

Not all Republicans back using tax credits. Conservatives in the House Freedom Caucus, for instance, say tax credits create another entitlement program. 

Democrats say that the GOP tax credits are less generous than those in the ACA. Indeed, a recent analyis by the Kaiser Family Foundation estimates that enrollees under the GOP proposal would receive an average tax credit of $2,957 in 2020 vs. $4,615 if the ACA stayed in place.

Consumer advocates acknowledge that the ACA doesn't do enough for many middle-income Americans, who often make too much to qualify for large subsidies. But they say that reducing and capping the size of tax credits as House Republicans propose would hurt lower-income people who need the most financial help.

"Millions of lower-income people will be unable to afford insurance" under the GOP proposal, says Lydia Mitts, associate director of affordability initiatives at Families USA, a nonprofit focused on consumer health issues.

Consumers say they are already worried about their ability to afford insurance: 55 percent of respondents in our recent nationally representative Consumer Voices survey voiced that concern.  

Here's how the GOP's proposed tax credits could affect the way you pay for health insurance.

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  1. Credits would be based on your age, not income. Under the ACA, the less you make, the bigger your subsidy. The GOP proposal would offer a flat credit tied to your age, ranging from $2,000 for people 30 and under to $4,000 for those over 60. According to documents obtained by Politico, wealthier Americans won't qualify for tax credits, though the level of income eligibility isn't specified yet in legislation House Republicans are drafting.

  2. Credits no longer would vary depending on where you live. The ACA provides larger subsidies to people who live in areas with higher healthcare costs, including insurance premiums. The GOP proposal does not take this into account.
  3. Assistance for out-of-pocket costs would decline. The ACA provides financial assistance for out-of-pocket costs such as deductibles and co-pays. The GOP proposal does not offer cost-sharing help like this.

  4. Health-savings accounts would become more generous. The GOP proposal tries to help consumers cover deductibles and co-pays by expanding health savings accounts. Under current law, you can open one of those accounts—which allow you to put away pretax dollars to pay for out-of-pocket costs—only if your deductible is over $1,300 (for singles) or $2,600 (for families). The GOP proposal would do away with that restriction. And it would raise how much you can contribute to an HSA, above the current limits of $3,350 for an individual and $6,750 for a family.

    While the current House proposal doesn't say how much more you would be able to put in an HSA, an earlier proposal by Ryan called for raising it to $6,550 for individuals and $13,100 for families.

    That’s great if you have the spare funds to sock away in HSAs. But if you're scrambling to come up with money to pay your premiums, you might not have much left to fund an HSA.

It's of course still unclear whether the GOP’s tax credits will make it into a final plan to repeal and replace the ACA. But with Trump, Ryan, and Price all voicing support for them, tax credits seem to have growing support.