The Republican overhaul of the tax code could have a big impact on some Americans’ healthcare costs, though much will depend on how you buy health insurance and where you live.

A main component of the tax plan, which both houses of Congress passed this week, is the repeal of the individual mandate, the requirement put in place under the Affordable Care Act that most people buy comprehensive health insurance or pay a fine.

Though the mandate still exists in federal law, the tax bill eliminates the penalty, thus thwarting the mandate's intent. The change takes effect in 2019. So, if you don’t have insurance in 2018 and aren’t eligible for an exemption, you will still owe a fine, which is $695 for each adult in a household and $347.50 per child or up to 2.5 percent of your household income, whichever is bigger.

The individual mandate is a key underpinning of the health insurance marketplaces created by the ACA. The idea was that if the pool of insured people were balanced between the healthy and sick, premiums could be lower for everyone. With no enforced mandate, some experts predicted that large numbers of younger and healthier individuals would opt out of insurance, with spiking premiums a result.

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But even with the mandate, premiums for ACA plans have risen sharply the past few years. That’s partly because insurers had a tough time pricing their policies on the insurance exchanges, which rolled out in 2014. Some charged too little in the first years and then had to raise premiums sharply to make up the difference.

Premiums were expected to increase more moderately for 2018 policies as insurers got a better handle on the markets. But faced with uncertainty about the law's future due to repeated efforts by the Trump administration and Republicans in Congress to repeal and replace the ACA, some insurers dropped out or raised prices even more sharply for 2018.

The new tax law makes no changes to other major parts of the ACA. Insurers still can’t deny coverage to people with pre-existing health conditions. The federal government must pay tax subsidies to help lower-income people pay premiums. And the millions of people who gained coverage through the expansion of Medicaid under the ACA will continue to receive it.

Even so, the Republican tax plan could have a far-reaching impact on how much Americans pay for their healthcare and the coverage options they have in the coming years. Here's how it could play out for you.

 

You Buy Your Own Health Insurance

If you’re one of the 7 million people who buy their own health insurance and make too much to qualify for premium subsidies, you’ll likely be paying even more for comprehensive health insurance starting in 2019 when the mandate penalty goes away.

How big an impact the absence of the penalty will have is uncertain. 

According to projections by the Congressional Budget Office, 13 million fewer people will have health insurance in 10 years, and premiums will rise an average of 10 percent a year. 

Other analyses of the individual mandate penalty repeal say the impact will be more modest. A report by S&P Global Ratings estimates that about 4 to 5 million fewer Americans will carry insurance, though rates will still increase.

That’s partly because the individual mandate as it is currently designed is weak, says Deep Banerjee, one of the authors of the S&P Global Ratings report. Already millions of people who don’t have insurance aren’t paying a penalty because there are numerous exceptions to the rules.

Nearly 13 million people claimed an exemption from having to buy health insurance, roughly twice the 6.5 million who paid the fine in 2015, according to the IRS. Even though the penalty could be as much as several thousand dollars, the average penalty paid in 2015 was $470.  


Find out more about how to manage your healthcare costs with 
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If you're one of roughly 9 million who get tax subsidies to buy insurance, you may not feel much impact from the coming price increases. That's because the more premiums rise, the more financial help lower-income people get to buy insurance. 

Banerjee says those financial subsidies are much more effective than the penalty at spurring people to buy health insurance. If fewer people than projected drop out of the market, as S&P expects, that could prevent premiums from rising as sharply as feared, blunting the impact on the non-subsidized.

“People who get subsidies aren’t going to stop buying health insurance,” says Chris Sloan, a senior manager at Avalere Health, a healthcare consulting firm.

The cost of insurance will also vary depending on what plans are available and where you live, says Sloan.

Some states have robust exchanges with multiple insurers, which has helped tamp down premiums. But more sparsely populated and rural areas, which already struggle to attract insurers, could be left with fewer or no options to buy health insurance through an ACA exchange.

If that happens, you have alternatives to buy health insurance. You can buy comprehensive plans that meet ACA standards directly from insurance companies or brokers, off the exchanges. If you don't qualify for financial help, plans sold off-exchange may even be cheaper.

The market for lower-cost insurance plans with less-comprehensive benefits is also expected to grow now that there is no penalty for not having ACA-compliant health insurance, says Banerjee.

"There have always been cheap plans available. We’ll see an increase in the number of insurers selling limited-benefit plans and in the number of people buying them," he says.

Those plans may not offer the same consumer protections as ACA-compliant plans, such as limits on out-of-pocket costs and exclusions for pre-existing health conditions, so they carry a risk if you have a major medical issue. But they could be attractive to people who don't want all the mandated benefits and can't afford to pay the high premiums of ACA plans.

You Have Big Medical Bills

A tax deduction for medical expenses will be more generous for the next two years under the Republican tax plan. You will be able to deduct healthcare expenses that exceed 7.5 percent of your gross income, down from 10 percent currently. The deduction goes back to 10 percent in 2020.  

About 9 million people use the medical expense deduction, many of whom are low-income seniors who have health problems and major medical bills.

You Are on Medicare

The GOP tax plan doesn’t explicitly address Medicare. But it could possibly trigger large cuts to the health insurance program for people 65 and older, starting in 2018. That’s because a 2010 law, known as Pay As You Go, requires cuts to certain federal programs if Congress passes legislation that increases the federal deficit. The tax bill is estimated to add $1.5 trillion to the federal deficit in the next decade, according to the CBO.

Medicare would be the largest program affected, with a potential 4 percent, or $25 billion a year, cut to its budget. If that happens, people aren’t expected to be kicked off Medicare but could pay more for the benefits they get, says Banerjee from S&P. Senate GOP majority leader Mitch McConnell and House Speaker Paul Ryan say the cuts to Medicare will be waived but have not proposed any specific legislation to do that yet.