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].