financial assistance & the affordable care act

Center on Budget and Policy Priorities

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Financial Assistance & the Affordable Care Act

October 29, 2013Tara Straw



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Major Components of the Affordable Care Act Become Effective January 1, 2014

• Insurance reforms that allow everyone to purchase coverage

• Individual mandate to have coverage• Creation of Health Insurance

Marketplaces (Exchanges) to make buying insurance easier

• Help paying for insurance– Medicaid expansion– Premium tax credits for low- to moderate-

income individuals and families. 2


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Insurance Reforms Will Make Coverage More Accessible

• Requirement to sell to everyone• Prohibition from charging more or excluding

people based on health status or pre-existing conditions

• Premium costs can vary only based on:– Age– Number of people covered in a policy– Geographic area– Tobacco use

• Enrollment limited to defined “open enrollment” and “special enrollment” periods

3


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Individual Mandate to Make Insurance Reforms Work

• Individuals must have health insurance coverage or pay a penalty

• Most existing coverage will satisfy the mandate (e.g., employer-sponsored insurance, Medicare, Medicaid)

• Exemptions provided to certain groups, including people who can’t afford coverage– People must apply for exemptions and submit

documentation supporting their eligibility

• Penalty assessed as a tax4


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Eligibility for Premium Tax Credits

• Income between 100% to 400% FPL• US citizenship or lawful present in the US• Must not be eligible for:

– Medicare, Medicaid, or most other public coverage– Employer coverage that meets certain requirements

• Lawfully residing immigrants with incomes below 100% FPL who are not eligible for Medicaid because of their immigration status

• Must file a return for the year in which credit is used

• If married, must not file separately


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Jumping the “Firewall” Between Employer Coverage and Premium Tax Credits

Premium Tax Credits

Offer of Employer Coverage

If unaffordable or

inadequate


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When is Employer Coverage Affordable and Adequate?

• Coverage is considered affordable if employee contribution for self-only coverage is less than 9.5% of household income– Employee contribution for self-only coverage is

used to determine affordability for both employee and dependents

• Coverage is adequate if it has a minimum value (MV) of 60% – MV measures how much plan pays for coverage

of certain benefits for a “typical” population7


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Affordability of Family Coverage (Reyes Family)Mom works at Acme. She earns $35,000. Dad is an entrepreneur and earns about $12,000.

Family Income: $47,000

Premium Cost to Employee for Employee-Only Plan: $196/mo ($2,350/yr) 5% of income

9.5% Bottom Line:No one is eligible for premium tax credits because family coverage is considered affordable.

Premium Cost to Employee for Family Plan: $509/mo ($6,110/yr) 13% of income


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Coverage Choices for Young Adults

9

John is 24 years old. He holds two part-time jobs. One of the jobs offers coverage. Income: $17,000

Part-Time JobCost: $85/month 6% of incomeMV: 40%

John could accept this offer. BUT because the plan has MV under 60%, the offer doesn’t preclude premium tax credit eligibility.

Marketplace~150% FPLCost: $57/month after premium tax creditAV: 94% after cost-sharing reduction

John can apply for premium tax credits & cost-sharing reductions

Dad’s PlanCost: $0 to John (Dad pays for family coverage)

John can join his Dad’s family plan because he is under age 26. Offer does not make him ineligible for a premium tax credit.


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How Are Income and Household Size Measured for Premium Credits?• Income: Modified Adjusted Gross Income

(MAGI)

Adjusted Gross Income (1040, line 37) + Foreign income

+ Tax exempt interest+ Non-taxable Social Security benefits

MAGI

• Household size: Household unit equals tax unit


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How Is the Amount of the Tax Credit Determined?

Credit amount affected by:•Individual or family’s expected contribution based on their income•Premium cost for benchmark plan

Credit amount =

Cost of benchmark plan–

Expected premium contribution


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Expected Contributions at Certain Income Levels

Annual Household Income Expected Premium Contribution% of FPL Income Amount1 % of Income Dollar Amount2

< 133%3 < $15,282 2% < $306

133 - 150% $15,282 - $17,235 3% - 4% $459 - $689

150 - 200% $17,235 - $22,980 4% - 6.3% $689 - $1,448

200 - 250% $22,980 - $28,725 6.3% - 8.05% $1,448 - $2,312

250 - 300% $28,725 - $34,470 8.05% - 9.5% $2,312 - $3,275

300 - 350% $34,470 - $40,215 9.5% $3,275 - $3,820

350 - 400% $40,215 - $45,960 9.5% $3,820 - $4,366

> 400% > $45,960 n/a n/a

1 for a household of one (i.e. an individual)2 based on second-lowest priced SILVER health plan in the Exchange3 residents <133% FPL that would be eligible for Medicaid are ineligible for tax credits


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John: Example 1: 200% FPL

Income: $22,980

Expected Contribution: •Share of income: 6.3%•Amount: $1,448

Premium Credit: $1,570

Example 2: 150% FPL

Income: $17,235

Expected Contribution: •Share of income: 4%•Amount: $689


Age: 24 Plan Cost: $3,018


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“Rating Factors” Affect the Cost of the Benchmark Plan

• Age– Limited to no more than 3 to 1 variation– Each family member rated separately

• Family size– Total premium for family = Sum of

premiums for each family member – Exception: In families with > 3 members

under 21, count only 3 oldest children

• Geographic area


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John: Age 24

Premium: $3,018


Income:22,980 (200% FPL)

Expected Contribution:

6.3% or $1,448

Age 64

Premium: $9,054



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Benchmark Rates for APTC Calculations

Sample Family Baltimore Metro

Eastern MD

DC Metro Western MD

Individual (age 21) $ 180 $ 177 $ 168 $ 166

Individual (age 64) $ 541 $ 530 $ 503 $ 498

Couple (ages 40 and 38) $ 455 $ 446 $ 423 $ 419

Family of four (ages 60, 55, 24, and 19)

$1,185 $1,162 $1,104 $1,091

Family of five (ages 40, 38, 16, 14, and 8)

$ 797 $ 782 $ 744 $ 734

• Baltimore Metro Area: Baltimore City and Baltimore, Harford, Howard, and Anne Arundel Counties• Eastern Maryland: St. Mary’s, Charles, Calvert, Cecil, Kent, Queen Anne’s, Talbot, Caroline, Dorchester: Wicomico, Somerset, and Worcester Counties• DC Metro Area: Prince George’s and Montgomery Counties• Western Maryland: Garrett, Allegany, Washington, Carroll, and Frederick Counties


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What Factors Affect What People Will Actually Pay for Coverage?

• Tobacco use– Limit to no more than 1.5 to 1 variation– Difference due to tobacco use not

accounted for in premium credit calculation

• Plan chosen by consumer– Amount of credit pegged to second lowest

cost silver plan– But consumer can purchase any metal plan


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How Do People Get Premium Credits?

• Submit application to the Marketplace for advance payment of credits– Marketplace estimates amount of advance

payment based on projected income– Credit is sent directly to insurer, individual

pays insurer balance of premium

• Can also wait until tax filing and claim on return– Only available for months enrolled in a

Marketplace health plan


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What Happens When Estimated Income for the Year is Different from Actual Income?• Final amount of credit based on actual

income• At tax filing time, advance payments

received are reconciled with actual credit amount– If income increases, may have to repay– If income decreases, may get more credit at tax

time

• To avoid repayment, can reduce the amount of advance payment received during the year


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Cap on Amount of Advance Credits that Must Be Paid Back

Income as percentage of poverty line

Annual income for an

individual (2013 $)

Single taxpayers

Annual income for a family of

four (2013 $)

Married taxpayers filing

jointly

Under 200% Under $22,980 $300 Under $47,100 $600

At least 200% but less than

300%

$22,980 - $34,470 $750 $47,100 -

$70,650 $1,500

At least 300% but less than

400%

$34,470 - $45,960 $1,250 $70,650 -

$94,200 $2,500

400% and above

$45,960 and higher

Full reconciliatio

n

$94,200 and higher

Full reconciliatio

n


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Cost-Sharing Reductions

• People with income up to 250% FPL qualify for cost-sharing reductions that lower the out-of-pocket charges they must pay for medical care covered by the plan

• 3 levels of cost-sharing reductions based on income


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Sample Cost-Sharing Reduction Plans

Actuarial Value

Deductible (Indiv)

Maximum OOP limit (Indiv)

Inpatienthospital

Office visit

CSR Plan for 151-

200% FPL($17,236-$22,980)

87% AV

$250

$2,000

$250 /admission

$15

CSR Plan for 201-

250% FPL ($22,981-$28,725)

73% AV

$1,750

$4,000

$1,500 / admission

$30

CSR Plan for up to 150% FPL

(up to $17,235)

94% AV

$0

$1,000

$100 / admission

$10

Standard Silver – No

CSR

70% AV

$2,000

$5,500

$1,500 / admission

$30


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The Penalty for Failure to Obtain Coverage

• Penalties are low in 2014 for failure to have coverage

• Taxpayer is responsible for penalty for every uninsured person on her tax return

• If the penalty isn’t paid, it can be collected out of a future refund– However, taxpayer is not subject to criminal

prosecution, liens or levies on property.


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The Penalty for Failure to Obtain Coverage

*Penalties will be calculated by the number of months uninsured. Divide each amount by 1/12 for monthly figure.

Annual Penalty* is the GREATER of:

Flat dollar amount Percentage of income

2014 ADULT: $95 1% of “applicable income” (Applicable income = income above the filing threshold)

CHILD: ½ of $95

CAP: $285 cap

2015 ADULT: $325 2% of applicable incomeCHILD: ½ of $325

CAP: $975

2016 & beyond

ADULT: $695 2.5% of applicable incomeCHILD: ½ of $695

CAP: $2,085 cap


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Exemptions from the Penalty

• Religious conscience• Hardship

– Difficulty paying bills– State failure to

expand Medicaid– Unaffordability of

insurance

Exemptions Granted through Tax Filing

• Income below filing threshold

• Insurance is unaffordable

• Undocumented resident

• Short coverage gap (<3 months)Exemptions Granted

by Either

• Indian tribe membership

• Incarceration • Health care sharing

ministry

Exemptions Granted by the Marketplace


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For more information:

www.healthreformbeyondthebasics.orgwww.centeronbudget.org

•Tara Straw, [email protected]

financial assistance & the affordable care act

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