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Republicans may means test healthcare tax credits

Some Republicans in Congress want to means test tax credits used to help buy coverage on the individual market. All Obamacare replacement proposals to come out of the House thus far only peg the credit to a person's age.

There are some strong arguments for means testing: It would help lower-income people afford coverage and, if the credit phases out the more someone makes, it would bring down the overall cost of the replacement plan.

"The age adjustment thing I think is an important one, because obviously it costs more to get coverage as you get older and your health needs increase," Sen. John Thune, a member of the GOP leadership, said. "But I think that the income issue to me is one too that needs to be further looked at, and that would certainly I think free up some additional dollars that would probably make that assistance a little more helpful to people at the lower end."

Oh, the irony: Obamacare currently bases subsidy size on income, and since subsidies are tied to premium costs they vary with age (as premiums are higher the older a person is).

Ways and Means Chairman Kevin Brady told me no final decision has been made, but "I would think" means testing would save money overall. "We're looking at the tax credit, how it's targeted, looking at how to deliver it best. That whole range of issues," he said. "So all those elements are under consideration."

Conservatives — who have not been thrilled by the idea of a refundable tax credit — also like the idea of adjusting it by income. Mark Walker, the Republican Study Committee chairman, said he supports means testing "even though that creates another component that we've got to figure out.

"I believe the consensus of the RSC, as well as potentially, maybe HHS, would be willing to do something that's means-tested," he said.

The argument against: Republicans have historically argued for giving people of all incomes the same amount of financial help, increasing that amount the older they get. This is partially to equalize the tax treatment of health insurance, as people who get coverage through their employer aren't taxed on those benefits.

Sen. Bill Cassidy brought up this argument, telling me that while offering a credit to everyone on the individual market would actually create a system more expensive than Obamacare, "through employer-sponsored insurance, people are getting a credit. Conservatives have said, 'equalize the credit between those who get it and those who don't.'"

Details matter: Cassidy also said he thinks there needs to be more variation by age. In a leaked version of the House GOP plan, people in their 20s were to receive $2,000 a year, doubling to $4,000 annually by the time someone was in their 60s.

"I do think there's a chance to kind of squeeze the tube of toothpaste and make it more adjusted," he told me. "There's obviously a pool of money they're looking at. So I think when you end up using that pool of money and maybe distributing it a little bit differently, you can get some folks some richer benefits."

Sen. Richard Burr put it bluntly to me: "Everything should be means tested. I mean, you have to have a cutoff – or a transition – between subsidy and non-subsidy."

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