Health Reform Update – The Latest on Premium Subsidy – October 25, 2013
We’ve all heard how millions of people will qualify for tax credits and premium subsidies. But is it really true? And, if so, how much premium help will it really be?
Advance Premium Tax Credits, better known as premium subsidies, are advanceable, refundable tax credits created to help qualifying individuals afford health insurance through an Exchange.
To be eligible, an individual must file a federal tax return, enroll in an Exchange plan, be a lawful resident, and earn between 100% and 400% of the Federal Poverty Level (FPL). Additionally, individuals with incomes up to 250% of the FPL will be eligible for additional premium payment help called cost-sharing reductions (e.g., lower payments).
The tax credit may be paid by government, on a month basis, starting at the time of enrollment. However, applicants must choose to have the tax credit paid in advance. Applicants also have the option of paying the full cost of their premium and receiving the tax credit as part of their refund when they file their federal tax return.
The general rule of thumb is that anyone who is eligible for minimum essential coverage (MEC) is not eligible for a premium subsidy. Examples of MEC include Medicaid, Medicare, CHIP, and TRICARE. Premium tax credits will not be available through SHOP.
Calculating Premium Credit Amount
Premium tax credit amounts will vary from person to person since it depends on an individual’s circumstances including modified adjusted gross income (MAGI), the premium of the exchange plan, and other factors. For individuals with income between 100% and 133% of the FPL, the premium contribution cap will be 2% of the household income. For those with an income between 300%-400% of the FPL, the contribution cap will be 9.5% of household income. In some instances, the credit amount may cover the entire premium. Until an individual completes an Exchange application, the Kaiser Family Foundation calculator can be used to estimate the cost of insurance.
Verifying Employer-Sponsored Coverage
Individuals whose employer-sponsored coverage meets minimum value (covers 60% of total allowed costs) and is affordable (does not exceed 9.5% of a person’s income) will not be eligible for premium tax credits or cost-sharing reductions. How will HHS know if someone has employer sponsored coverage? Applicants will have to complete Appendix A of the Exchange application for insurance to attest to the cost and extent of coverage. The information requested in Appendix A largely mirrors the information included in the Exchanges notices that employers were required to provide employees by October 1, 2013.
Once applications are received, Exchanges will then check applications against systems including the Office of Personnel Management (for federal employees), the state’s SHOP, and the IRS for fact checking. Employees who willfully falsify information can be fined up to $250,000.
No Love for Spouses
While the ACA requires employers to extend coverage to dependents ages 0 to 19, employers are not required to contribute towards the cost of that coverage. What about spouses? Per the ACA, spouses are not considered dependents. As long as an employer offers self-only coverage that is affordable and meets minimum value, the family is not eligible for premium subsidies.
Income Verification Process
This past July, HHS announced that it would rely on self-reported information and would only audit a “statistically significant sample” of individuals who reported incomes at least 10 percent below what federal records indicated. However, as part of the deal to end the recent partial government shutdown, HHS will provide a report by January 1, 2014 detailing the Exchange procedures required to verify eligibility for credits and cost-sharing reductions. Then, six months later, the HHS Inspector General must submit a report reviewing the effectiveness of the procedures.