Explaining Health Care Reform: Questions About Health Insurance Subsidies | KFF

Health insurance is expensive and can be difficult for people with low or moderate incomes to afford, especially if they are not offered health benefits at work. In response, the Affordable Care Act (ACA) provides sliding-scale subsidies to lower premiums and out-of-pocket (OOP) costs for eligible individuals.

This summary provides an overview of the financial assistance provided under ACA for individuals who purchase coverage on their own through health insurance marketplaces (also called exchanges).

Reading: What is government subsidized health insurance

subsidies from the health insurance market

There are two types of subsidies available to those enrolled in the marketplace. The first type, called a premium tax credit, works to reduce members’ monthly insurance coverage payments. The second type of financial assistance, the cost-sharing subsidy, is designed to minimize members’ out-of-pocket costs when they go to the doctor or have a hospital stay. To receive any type of financial assistance, qualified individuals and families must enroll in a plan offered through a health insurance marketplace.

premium tax credit

The premium tax credit reduces members’ monthly payments for insurance plans purchased through the Marketplace. Marketplace plans are offered in four “metal” coverage levels: bronze, silver, gold, and platinum. Bronze plans tend to have the lowest premiums but have the highest deductibles and other cost sharing, causing the member to pay more out of pocket when receiving covered health care services, while Platinum plans have the higher premiums but very low out-of-pocket costs. -out-of-pocket expenses. The premium tax credit can be applied to plans at any of these metal levels. Catastrophic health plans with even lower premiums and higher cost sharing compared to bronze plans are also offered on the market. Catastrophic plans are generally only available to people under the age of 30, and premium tax credits cannot be applied to these plans.

who is eligible for the premium tax credit?

To receive the premium tax credit for coverage beginning in 2022, a Marketplace Affiliate must meet the following criteria:

  • have a household income at least equal to the federal poverty level (fpl), which for the 2022 benefit year will be determined by the 2021 poverty guidelines: (table 1)
  • not have access to affordable coverage through an employer (including a family member’s employer)
  • not be eligible for coverage through medicare, medicaid, the children’s health insurance program (chip), or other forms of public assistance
  • have citizenship or proof of legal residency (lawfully present immigrants whose family income is less than 100% fpl may also be eligible for tax subsidies through the Marketplace if they meet all other eligibility requirements).
  • if married, you must file taxes together to qualify
  • For purposes of the premium tax credit, family income is defined as the modified adjusted gross income (magi) of the taxpayer, spouse, and dependents. The magi calculation includes income sources such as wages, salaries, foreign income, interest, dividends, and social security.

    Employer coverage is considered affordable if the employee contribution, for individual coverage, not including the cost of adding family members, is less than 9.61 percent of household income. Under this rule, if an employer covers 100% of the cost of individual coverage for its workers, but does not cover the cost of family coverage, the employer’s coverage offer would still be considered affordable, meaning that members of the the family, however, would not be eligible for market subsidies. this anomaly is sometimes referred to as the “family bug”.

    employer coverage must also meet the minimum value standard, meaning the plan has an actuarial value of at least 60 percent (equivalent to a bronze plan), with an annual cost-sharing limit no more than $8,700/$17,400 in 2021. minimum value plans must also provide substantial coverage for hospitalization and medical care. People who are offered employer-sponsored coverage that don’t meet one or both of these requirements may qualify for Marketplace subsidies if they meet the other criteria listed above.

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    In states that have expanded Medicaid under the ACA, adults with incomes up to 138% FPL are generally eligible for Medicaid and therefore not eligible for Marketplace subsidies. In the 12 states that have not adopted Medicaid expansion, adults with incomes as low as 100% FPL may qualify for Marketplace subsidies, but those with lower incomes are not eligible for tax credits and generally are not eligible for Medicaid unless they meet other state criteria. kff estimates that 2.2 million Americans living in non-expanding states are in this coverage gap.

    An exception to the rule restricting eligibility for the adult tax credit with income below the poverty level is made for certain lawfully present immigrants. other federal rules restrict the medicaid eligibility of lawfully present immigrants, other than pregnant women, until they have resided in the us. uu. for at least five years. Immigrants who would otherwise be eligible for Medicaid but have not yet completed their five-year waiting period may qualify for tax credits through the Marketplace. If a person in this circumstance has income below 100 percent of the poverty level, for purposes of tax credit eligibility, his or her income will be treated as equal to the poverty level. Immigrants who are not lawfully present are not eligible to enroll in health insurance through the Marketplace, receive tax credits through the Marketplaces, or enroll in non-emergency Medicaid and Chip.

    what amount of premium tax credit is available to individuals?

    The premium tax credit works by limiting the amount an individual must contribute toward the premium for the “benchmark” plan, or the second lowest-cost silver plan available to the individual in their market. this “required individual contribution” is set on a sliding income scale. in 2022, for individuals with income up to 150% fpl, the required contribution is zero, while with income of 400% fpl or more, the required contribution is 8.5% of household income (table 2).

    These amounts were established by the American Bailout Plan Act (ARPA) and are in effect temporarily, for coverage years 2021 and 2022 only. Prior to ARPA, the required contribution percentages for plan year 2020 ranged from 2.06% of household income for people with income between 100% and 133% fpl and 9.78% of income for people with income between 300% and 400% fpl. In addition, prior to ARPA, individuals with incomes above 400% FPL were not eligible for premium tax credits. Congress is debating extending the changes to the ARPA subsidy to future years.

    The amount of the tax credit is calculated by subtracting the individual’s required contribution from the actual cost of the “baseline” plan. So, for example, if the benchmark plan costs $6,000 a year, the required contribution for someone with 150% fpl income is zero, resulting in a $6,000 premium tax credit; if that same person’s income equals 250% of the fpl, the individual contribution is 4% of $32,200 or $1,288, resulting in a premium tax credit of $4,712.

    The premium tax credit can be applied to any other plan sold through the Marketplace (with the exception of catastrophic coverage). the amount of the tax credit remains the same, so a person who chooses to purchase a plan that is more expensive than the benchmark plan will have to pay the difference in cost. conversely, if a person chooses a less expensive plan, such as the lowest-cost silver or bronze plan, the tax credit will cover more of that plan’s premium and possibly even cover the full cost, leaving the consumer with a zero premium plan. (When the tax credit exceeds the cost of a plan, it reduces the premium to zero and any remaining amount of the tax credit is not used.) Figure 1 shows an example of how the premium tax credits would work for a 45-year-old with 2022 income equal to 250% of the FPL. the example assumes that the benchmark unsubsidized plan premium for someone this age would be $6,000 per year, while the unsubsidized premiums for the lowest-cost bronze, silver, and gold plans for this person would be $4,500, $5,500, and $6,800, respectively.

    For certain premium components of a marketplace plan, the premium tax credit will not apply. First, the tax credit cannot be applied to the portion of a person’s premium attributable to covered benefits that are not essential health benefits (EHBs). For example, a plan may offer adult dental benefits, which are not included in the definition of EHB. in that case, the individual would have to pay the portion of the premium attributable to the adult dental benefits without financial assistance. In addition, the ACA requires that premium tax credits not be applied to the portion of the premium attributable to “no hyde” abortion benefits. Marketplace plans that cover abortion must charge a separate monthly premium of $1 to cover the cost of this benefit; although insurers can spread the $1 charge into a single monthly bill and collect what members owe each month, including the $1 charge, in a single transaction. Finally, if the individual smokes cigarettes and is charged a higher premium for smoking, the premium tax credit does not apply to the tobacco surcharge portion of the premium.

    how will the premium tax credit be granted?

    To receive the premium tax credit, individuals must apply for coverage through the Marketplace and provide information about their age, address, household size, citizenship status, and estimated income for the upcoming year on their application. Immediately after submitting the application, individuals will receive a determination informing them of the amount of premium tax credit for which they qualify. the consumer then has the option of paying the tax credit up front, claiming it later when filing their tax return, or some combination of the two options.

    The advanced premium tax credit (aptc) option allows consumers to pay 1/12 of their tax credit directly to their marketplace plan insurer each month, reducing the monthly amount the consumer owes. however, because the aptc eligibility determination is based on estimated income, the enrollee is required to reconcile their aptc at the time of the following year’s tax return, once they know what their actual income was. (For people who receive an advance payment of the premium tax credit in 2021, the reconciliation would occur when they file their 2021 tax return in 2022.) If the consumer overstated his income when he applied, he may receive the unclaimed premium tax credit for which he was eligible as a refundable tax credit when he applied. If the consumer understated his income at the time of application and the excess APTC was paid on his behalf during the year, he would have to repay some or all of the excess tax credit when he applies. There are maximum reimbursement limits that vary by income, shown in Table 3.

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    Alternatively, individuals can choose to pay the full cost of the premium each month and wait to receive their tax credit until they file their annual income tax return the following year, although most market participants do not they can afford this option. The premium tax credit is refundable, which means it’s available to members who qualify, regardless of whether they owe federal income taxes. everyone who receives aptc in a tax year must file a tax return for that year to continue receiving financial assistance in the future.

    cost sharing subsidies

    The second form of financial assistance available to marketplace enrollees is a cost-sharing grant. cost-sharing subsidies reduce members’ out-of-pocket costs due to deductibles, copays, and coinsurance when using covered health care services.

    who is eligible for the cost-sharing subsidy?

    Individuals who are eligible for a premium tax credit and have a family income between 100% and 250% of the poverty level are eligible for cost-sharing subsidies.

    how are cost sharing subsidies provided?

    Unlike the premium tax credit (which can be applied to any level of metal coverage), cost-sharing subsidies are only offered through silver plans. For eligible individuals, cost-sharing reductions (CSRs) apply to a silver plan, essentially making deductibles and other cost-sharing under that plan more similar to those under a gold or platinum plan. People with incomes between 100% and 250% of the FPL can continue to apply their premium tax credit to any metal level plan, but can only receive cost-sharing subsidies if they choose a silver level plan.

    what amount of cost-sharing subsidies are available to individuals?

    Cost sharing subsidies are determined on a sliding scale based on income. the most generous cost-sharing subsidies are available to individuals with incomes up to 150% fpl. for them, silver plans that would otherwise have an actuarial value of 70% (meaning the plan would have very high deductibles) are modified to have an actuarial value of 94%. This cost-sharing reduction plan level (sometimes called CSR 94 plans) is similar to a platinum plan, and otherwise the silver plan’s deductibles, copays, and other applicable cost-sharing are substantially reduced. Slightly less generous cost-sharing subsidies are available to individuals with incomes from 151% FPL to 200% FPL that increase the actuarial value of the silver plan to 87% (CSR 87 plans), with cost-sharing more similar to that of a gold plan. . and for people with incomes between 200% and 250% fpl, modest cost-sharing reductions are available to increase the actuarial value of the silver plan to 73% (csr 73 plans) and to reduce deductibles and other cost-sharing below levels that would otherwise be applicable in a normal plan. flat silver.

    Insurers have flexibility in how they set deductibles and copays to achieve actuarial value in marketplace plans, including CSR plans. On average, in the 2021 federal marketplace plans, the annual deductibles in the csr94 plans were $177, compared to $4,816 in a regular silver plan, while the average annual deductible in the csr87 and csr73 plans was $800 and $3,835 , respectively.

    The aca also mandates maximum annual out-of-pocket cost-sharing limits under marketplace plans, with reduced limits for csr plans. in 2023, the maximum spending limit will be $8,700 ($17,400 per family) for all qhps; with lower maximum out-of-pocket amounts allowed in cost-sharing reduction plans. (table 4)

    discussion

    Subsidies to make insurance more affordable and increase insurance coverage are a key element of the Affordable Care Act. Multi-tiered premium and cost-sharing subsidies are available to individuals and families with low to moderate incomes to make coverage and care more affordable.

    Starting in 2021, ARPA temporarily increased the amounts of Marketplace premium tax credits and expanded eligibility for premium tax credits. As a result of these changes, market participants with the lowest incomes (up to 150% FPL) are now eligible for zero-premium Silver plans with cost-sharing subsidies that also lower your out-of-pocket cost for covered benefits. ARPA subsidies first became available to consumers during a pandemic-related special enrollment opportunity in 2021, and more than 2.8 million people signed up for new health insurance coverage during that time. Still, KFF estimates that millions of uninsured people are eligible for financial assistance from the Marketplace but are not enrolled. As the public learns more about more affordable coverage options on the market, even more may be able to enroll in plans with affordable monthly premiums and deductibles.

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