Provisions to make health insurance affordable

2 types of subsidies

    • Cost sharing reductions: to protect enrollees from very high out-of-pocket costs for covered, in-network benefits
    • Premium tax credits: assistance with the cost of coverage for anyone purchasing insurance in the new health insurance marketplace.

What are cost sharing reductions?

Cost sharing reductions have been established to protect consumers from high out-of-pocket costs for covered, in-network benefits. Individuals and families who fall under 250% of the federal poverty level, and are enrolled in a silver plan, will be automatically eligible and enrolled in the cost sharing reductions. Yearly income for an individual at this level would be up to $28,725.00, and for a family of four would be up to $58,875.00.

There is also a cap on what an enrollee has to pay in cost-sharing charges each year. The limit is set each year, and applicable to services used in each person’s insurance network. In 2014 the limit amount is $6,350/individual and $12,700 for family coverage. This out-of-pocket limit does not mean that each person or family has to spend that amount of money each year.

What are premium tax credits?

Premium tax credits have been established to be administered through the tax system and health insurance marketplace to help make health insurance affordable for low to moderate income families and individuals. People are able to get advanced tax credits to ensure that they can afford insurance coverage. Eligible individuals and families, once approved for the credit, will avoid coordinating hassles with insurance companies. Tax credits will be sent directly to the insurance company on behalf of the beneficiary.

How do I qualify?

To qualify, an individual must not have access to affordable employer sponsored health insurance coverage. Individuals and families with incomes between 100% and 400% of the federal poverty level are eligible for premium credit subsidies. For a family of four to be eligible, this would mean earning an income of up to $94,200. For an individual to be eligible, it means earning an income of up to $45,960. If a family or individual is covered by Medicaid, Medicare, VA insurance, Tricare or other Employer Sponsored Insurance they do NOT qualify to for these tax credits.

To calculate the premium tax credit, the insurance marketplace will first identify the second lowest cost silver plan available, and deem that as the “benchmark plan.” The amount of credit will then equal the cost of that benchmark plan, minus the individual or families expected contribution.

The individual or family is expected to contribute to their premium payment based on their income, and the amount of a tax credit a person receives is determined on a sliding scale. For individuals and families who make less, the tax credit will be larger, while families and individuals who make more will receive smaller credits.

What are the different levels of plans available to purchase?

There are four levels of health insurance plans that you can purchase through the exchanges: bronze, silver, gold and platinum. Each level of coverage provides all mandatory benefits as specified in the ACA. However, each level corresponds with a particular percentage of all enrollees’ healthcare costs that they are expected to cover, and what percentage is covered by the insurance plan. Insurance plans that cover a higher percentage of the cost of care are platinum plans. However, the premiums for this level of coverage will likely be higher. The table below shows the average percentage that is covered by the different health care plans:

Amount of tax credit

The Kaiser Family Foundation has created a tool to help individuals and families estimate the amount of the premium tax credits. In general, the amount of the credit is on a sliding scale where the more income you have the lower the credit.

How do you get the credit?

Individuals and families can apply for the tax credit through the insurance market place online, by telephone or mail. Information on income, number of family members, how each family files its taxes and if health coverage is offered through a person’s job must be provided to accurately assess the eligibility. After the submission and eligibility is established, credits will be sent directly to the insurer on behalf of each family or individual.

You can get the tax credit in one of two ways with different benefits:

      1. Taking the tax credit in advance will lower monthly payments, and families and individuals will not have to wait to file their taxes before getting reimbursed.
      2. If not taken in advance, families and individuals can wait to get the credit once they file their annual taxes.

For those getting the tax credits in advance, the determined amount of tax credit is based on a family or individuals estimated income for the year. The final amount of the credit is based on the actual income for that particular year.

People receiving the credit will have to “reconcile” at tax time the amount of tax credit they received with the amount that they were actually eligible for if they are different. This means that people who have an income that is higher than they previously estimated, could have to pay back some of the advanced tax credit they received when enrolling in the health insurance marketplace. Alternatively, for those whose income was less than expected, they will be able to get a tax refund when their taxes are filed.

When will these provisions go into effect?

January 1, 2014

For more information

Consumers Union and the Robert Wood Johnson Foundation have prepared brochures and state specific information about the premium tax credits. They can be found here.