Undergraduates with family income below $200k will be tuition-free at MIT

This may have unintended consequences on chances of a successful application. Now, as a high school senior, you have to compete against an additional pool of strong students who aren't especially interested in MIT's offerings, but have parents pushing them toward the least expensive of all top universities.

It’s not an unintended consequence. Another way of phrasing your concern is “MIT will have an especially strong applicant pool” which is a desirable outcome.

100% agree, isn't this the meritocracy we want?

The other side of this is saying the status quo is; as a high school senior with wealthy parents, you don't have to compete against as many strong students if you apply for MIT because it has high barriers to entry (that aren't based on merit), and so you should apply even if you aren't particularly interested in their offering.

Also, the reality is most kids will be applying for all of the schools. MIT might want to improve their yield rate.