The Patient Protection and Affordable Care Act (PPACA, also called the ACA or ObamaCare), enacted in March 2010, brought big changes to American health care.
While the specifics may vary slightly depending on your state, beginning in 2014, all health insurance plans are required to cover certain basic things, commonly referred to as the 10 essential health benefits. Also included in the sweeping changes: Insurers can no longer legally deny you coverage because of a pre-existing condition or because your plan has a limit on lifetime or annual coverage. Insurers can no longer legally increase your premiums if you get sick, nor can they determine your rate according to your sex.
Those are just a few high-level points about what's covered, though, and while important to know, many Americans have a lot of questions about the details of how health insurance plans actually work for our families and for each of us individually. You're not alone if you find yourself wondering, do I have to purchase health insurance? Do I have to buy private health insurance through an exchange? If I choose not to purchase a plan, will I be covered if, say, I need emergency services? (Answer key: 1. No, 2. No, and 3. No).
And if you're among those wondering how you'll afford a policy (or you assume you can't afford it), the answer to that concern is: maybe you can.
Under the PPACA, every American — no matter what your income level — is expected to have health insurance that meets those required minimum essential health benefits. To help make that a reality, some people may be eligible for federal subsidies to ease the financial burden of paying insurance premiums and out-of-pocket expenses.
There are a few ways you can meet the insurance requirement. In 2014, the first year mandated insurance took effect, more than 8 million Americans enrolled in a private health insurance plan through the Marketplace (also known as the Health Insurance Marketplace, or just the Marketplace). About 5 million people purchased private health insurance through insurance brokers outside the Marketplace. Additionally, nearly 5 million people were enrolled in Medicaid (and CHIP). Others enrolled in employer-sponsored plans or Medicare, or they were insured through another public health insurance plan such as through the military. As many as 42 million Americans remain uninsured [sources: HHS, ASPE Office of Health Policy].
If you purchase health insurance through the Marketplace, whether you've been living uninsured or you've found your premiums too pricey, you might be eligible for financial assistance.
Tax subsidies are provided to low- and moderate-income individuals and families, and they offer two ways to lower insurance costs: a tax credit that lower your monthly insurance premiums and reductions to out-of-pocket expenses. Together, the average financial assistance of those premium and cost-sharing subsidies comes out to be about $5,000 [source: ObamaCare Facts].
More than half of those who remain uninsured report they're unaware subsidies are available for people in low-to-moderate income brackets, though, so let's break down what those subsidies include, who is eligible, how you qualify and how you use those credits [source: Kaiser Family Foundation].
Premium Tax Credit
The U.S. Department of Health and Human Services (HHS) oversees the Marketplace. That includes deciding which health plans may (or may not) be offered and what the requirements for those health plans are. Shopping for health insurance through the Marketplace is also the only way to get federal financial assistance for insurance costs.
Eligibility, in addition to the amount of financial assistance you qualify for, is decided on a sliding scale. It's based on your family size and your income level and is determined during the enrollment process through the Marketplace. The lower your income level, the greater your tax credit.
Households reporting income between 100 percent and 400 percent below the Federal Poverty Level (FPL) qualify for premium tax credits. (And when it comes to households, individuals are single people seeking self-insurance only, while families, according to the federal definition, include the taxpayer plus spouse and any dependents.) Let's look at 2014 as an example. If in 2014 your annual income fell into the following ranges, your income qualified you for a tax credit [source: HealthCare.gov]:
- $11,670 to $46,680 for individuals
- $15,730 to $62,920 for a family of 2
- $19,790 to $79,160 for a family of 3
- $23,850 to $95,400 for a family of 4
- $27,910 to $111,640 for a family of 5
- $31,970 to $127,880 for a family of 6
- $36,030 to $144,120 for a family of 7
- $40,090 to $160,360 for a family of 8
(Note that qualifying income ranges are higher if you live in Alaska or Hawaii.)
If you're eligible, how much assistance will you receive? The amount of financial assistance isn't a fixed rate; it's calculated based on the amount of the premium for the second lowest costing silver-tier health insurance plan offered. That's one with an actuarial value of 70 percent, which means those enrolled are responsible for, on average, 30 percent of the costs of covered benefits [source: Kaiser Family Foundation]. While this specific plan level is used to determine your tax credit, you don't have to purchase that plan in order to claim the credit. The premium tax credit can be applied to any tier of insurance plan (platinum, gold, silver, bronze or catastrophic). However, if you choose a platinum plan with greater premiums than that of the second-lowest priced silver plan, it'll be your responsibility to make up the price difference after you've applied the credit; and, conversely, if you choose a lower-priced bronze plan, that same tax credit will go further toward your total policy cost.
By law, the minimum premium for individual coverage can be considered affordable only if the amount doesn't exceed 8 percent of your household income; if it does exceed 8 percent, you may be eligible for Medicaid (if your state expanded its Medicaid program, that is) rather than for assistance tax credits on a private plan [source: IRS].
In addition to the premium tax credit, cost-sharing subsidies are another form of financial assistance.
Let's use 2014 as our example again: If your 2014 income level fell between 100 percent and 250 percent of the FPL, you qualified for cost-sharing reductions, which means lower out-of-pocket costs. Specifically, you qualified for cost-sharing subsidies if your 2014 annual income fell into the following ranges [source: HealthCare.gov]:
- $11,670 to $29,175 for individuals
- $15,730 to $39,325 for a family of 2
- $19,790 to $49,475 for a family of 3
- $23,850 to $59,625 for a family of 4
- $27,910 to $69,775 for a family of 5
- $31,970 to $79,925 for a family of 6
- $36,030 to $90,075 for a family of 7
- $40,090 to $100,225 for a family of 8
(Just as with premium tax credits, qualifying income ranges for cost-sharing reductions are higher if you live in Alaska or Hawaii)
Qualifying for cost-sharing subsides means you'll have lower co-payments, lower deductibles and lower coinsurance. Although the health care law sets the maximum amount an insurer can expect you to pay when it comes to out-of-pocket costs, the actual costs vary from plan to plan — which means that although plan A and plan B may have the same monthly premium cost, plan A may have a higher co-pay, for instance, than plan B, but plan B may have a lower deductible than plan A. So it pays, literally, to choose a plan not solely based on premiums, but also one that best suits your out-of-pocket budget.
If your household income falls into the lowest income category, it's expected you'll pay no more than 6 percent of that plan's out-of-pocket expenses. On the other hand, if your income falls into the highest range, your cost-sharing subsidy will reduce your cost to 27 percent of the plan's out-of-pocket expenses [source: ObamaCare Facts].
Unlike the premium tax credit, cost-sharing assistance is available only when you purchase and enroll in a silver-level health plan through the Marketplace. In 2014, as many as 76 percent of people who were eligible for a cost-sharing subsidy selected a silver plan and received the credit [source: ASPE Office of Health Policy].
If your income and family size qualify you for subsidies or the premium tax credit, there are a few additional criteria you need to meet before you really, truly qualify.
Claiming Subsidies and Premium Tax Credit
During open enrollment in 2014, 8.7 million people out of the 13.5 million who were eligible to enroll in a plan through the Marketplace actually met the criteria for subsidies or the premium tax credit — and of those 8.7 million, 6.7 million enrolled in a plan and took advantage of the financial assistance [source: ASPE Office of Health Policy].
As we've already mentioned, the premium tax credit is available only when you purchase your insurance through the Marketplace. But that's not a done deal. You aren't eligible if someone claims you as a dependent (they may be eligible for subsidies, but as a dependent, you aren't). And even if you meet the income and household criteria, if you have a government or employer-sponsored health plan you don't qualify. And are you married? You can't claim the premium tax credit if you file your tax return as married filing separately (single, married filing jointly, head of household or qualifying widow/widower are all eligible filing statuses, though).
While the qualifications may seem a bit restrictive, they've been making a difference for those who do use them. In 2014, about 70 percent of people who purchased health insurance through the Marketplace qualified for coverage costing no more than $100 a month; for 46 percent, the premium tax credit dropped coverage costs to $50 a month or less [source: HHS].
If you do qualify for premium tax credit, you can claim it credit in one of two ways: You may apply it as an advance payment that's made directly to your insurance company, or you may claim it as a credit on that year's federal tax return (as a refund). Regardless of the method you choose, the premium tax credit must be reported on your federal income tax return.
Applying your financial assistance in advance lowers the amount of the cost of the monthly premium payments you pay to your insurance company that year. Because advance credit payment amounts are decided based on your estimated income and family size for that year, your actual final expenses may end up differing from the expected expenses. That means it's important to report any changes in your family size or your income to the Marketplace. If your income is greater than the estimate for that year, you'll have a balance due when you file your tax return; if your income is less, you'll be eligible for a refund.
Alternatively, you can choose to claim your total tax credit as a refund when you file your federal tax return. The premium tax credit is refundable, so if you or your household have no tax liability (which means your income level is either zero or below the amount required to owe income tax) you're still eligible to receive the benefit.
But this tax reporting applies only to the premium tax credit. While you need to qualify for subsidies to be eligible for cost-sharing reductions, unlike the premium tax credit, the amount of cost-sharing assistance you receive isn't reconciled when you file your taxes for that year. Instead, the funds for those estimated costs are paid directly from the federal government to your health insurer, who then applies the reduction when you use your benefits.
In the end, if you feel you or your family should qualify for the premium tax credit but were denied by the Marketplace when you applied, you have the right to appeal.
Oh, and don't overlook that if you're one of 42 million who remain without health insurance, and you don't have an exemption, you're expected to pay what's called an individual shared responsibility payment, which is a penalty paid when you file your federal income tax return [source: Mangan].
Author's Note: What are the tax subsidies from the Affordable Care Act?
Most Americans probably haven't read the full text of the Patient Protection and Affordable Care Act to get a handle on the law and how it impacts their health care and costs. Never mind the legal language; just the table of contents itself is an unfriendly 30 pages. The PPACA is a monster, and it's not surprising that many Americans — and even politicians — don't fully know (or understand) everything that's in there. Despite having written several articles about the law, before and after it took effect, there continue to be surprises for me every time I dive into it. For instance, this time I learned that if you're married and you want to claim the premium tax credit, you better not file as married filing separately. Noted, IRS, noted.
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