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Premium Assistance and the Affordable Care Act

Premium Assistance and the Affordable Care Act


A Couple at a desk with a Doctor A primary reason many individuals don’t have health insurance is they can’t afford it. In 2012, the average cost for individual health coverage through an employer plan was $5,615. For family coverage, it was $15,745.

The issue of affordability is also a problem in the individual market. According to the Commonwealth Fund, 60% of adults looking for an individual health insurance policy found it “very difficult or impossible” to obtain affordable coverage. Health Care Reform expands access to health insurance to 24 million Americans. But access to health insurance is no help if a person can’t afford the premium.

The Affordable Care Act (ACA) tries to address this by offering premium assistance to individuals and families below a certain income level. This assistance takes the form of a refundable premium tax credit. The credit will become available in 2014. To get premium assistance, you must purchase your coverage through your state’s Health Insurance Exchange. You can not be eligible for other coverage, such as “affordable” employer sponsored coverage. (We will discuss what “affordable coverage” is in a subsequent article). You also must be a legal resident of the United States.

You are entitled to premium assistance if your income falls between 133% and 400% of the Federal Poverty Level (FPL). The income level for a family of four at 400% of the FPL is $92,200, based on 2012 FPL guidelines. Premium assistance may be available down to 100% of the FPL for those who are not eligible for Medicaid. The lower your income, the more you receive in premium assistance. At 133% of the FPL, you will only have to pay 3% of your income. At 400% of the FPL, you will pay 9.5%. A person with a family of 4 who makes $34,575 will pay $1,383 toward the cost of their health insurance. The Federal Government will pay the rest.

The Federal Government will base its premium assistance on the cost of the 2nd lowest Silver plan sold in your area on the Exchange. (A Silver plan is a plan that pays 70% of eligible medical expenses). You can buy any plan you want on the Exchange. If you select a plan that costs more than the 2nd lowest Silver plan, you will pay the additional premium. If you select a plan that costs less, you will pay the lesser of the premium for that plan or the amount of the premium assistance.

If you can not afford to pay for your insurance upfront, the Federal government will pay its portion of the premium in advance to the carrier whose plan you select on the Exchange. This means the credit is determined using your prior year’s income tax return. Your current income will probably be different from this amount. As a result, the credit could be lower or higher than the amount paid.

When you file your tax return at the end of the year, you must reconcile the actual credit against the advanced payment. If the premium assistance you received is higher than what you should have received, you will be required to pay back a portion of this amount. You can also receive a refund if it is lower. The Exchange will calculate the potential tax credit based on the income in your prior year’s tax return. In 2014, the income that determines premium assistance will be your income for 2012, as filed on your April 2013 tax return. The Exchange will notify you of the premium assistance you are entitled to and the Federal Government, through the Treasury, will pay the insurance carrier the amount of premium assistance monthly. You will receive a bill from the carrier for the balance.

The ACA attempts to accomplish two goals simultaneously. It guarantees those who want insurance can get it. And, it makes it more affordable to a large number of lower and middle class families. Even with this, it does not extend affordable coverage to all Americans. It is uncertain who will take advantage of premium assistance and how much the program will ultimately cost. The cost of the program will depend on a number of factors including:

  • the premiums the carriers charge for their Exchange products;
  • the number of people who use premium assistance;
  • the economy;
  • and how many employers drop health insurance and have there employees purchase coverage through the Exchange.
Still, with all the uncertainty, the ACA goes a long way to accomplish its goals of access and affordability.

Disclaimer: This article may not be used, reprinted or republished without the written consent of Rocky Mountain Health Plans. This analysis is for informational entertainment purposes only. Consult with a tax or health care professional regarding personal impact of this law.