Will You Receive a Tax Credit to Help You Buy Insurance in...

Will You Receive a Tax Credit to Help You Buy Insurance in 2014? How Much?


Beginning in 2014, millions of Americans will discover that they qualify for subsidies designed to help them purchase their own health insurance. The aid will come in the form of tax credits, and many will be surprised by how generous they are.

Not only low-income, but moderate-income families earning up to 400 percent of the federal poverty level (FPL) – currently $44,680 for a single person and $92,200 for a family of four – will make the cut. Within that group, households bringing in less than 250 percent of the FPL ($27,925 for a single person, $57,625 for a family of four) also will be eligible for help with out-of-pocket costs.

If your boss offers benefits, you won’t qualify, unless …

If your employer offers health insurance you won’t be eligible for a tax credit – though there are two exceptions to this rule:

  • If your share of the premium for your employer’s coverage would exceed 9.5 percent of your income, or
  • If your boss offers a skimpy policy that pays for less than 60 percent of an average worker’s covered benefits, you will qualify for help.

If I qualify, how much will I receive?

The size of the tax credit depends on your income, your age, how many people are in your family, and where you live.

The Kaiser Family Foundation (KFF) estimates that a single 30-year-old earning $23,000 a year, and living in a place where medical costs are close to the national average, will qualify for a subsidy of about $1,990 to offset the cost of a policy that the Congressional Budget Office (CBO) projects will cost $3,440 in 2014. He will wind up paying just $1,448 for a year of “comprehensive” insurance.

Keep in mind that, in the ACA’s health insurance exchanges, insurers won’t be able to peddle bare-bones policies. The insurance they offer will have to cover all “essential benefits.”

How, then, could a policy cost just $3,440? The price is lower than you might expect both because the customer is young, and because in the exchange, he becomes part of a “large group” – and eligible for “large group” rates. The CBO estimates that in the exchanges, premiums for a given level of coverage should be 7 to 10 percent lower than they are in the individual market today.

Finally, based on his income, this 30-year-old’s out-of-pocket expenses (above and beyond the premium) would be capped at $2,083.

If he were older, or had a larger family, his premiums would be steeper, but his subsidy would be larger. According to KFF, a 50-year old who lives in the same town, has a family of four, and earns $70,000 would receive a credit of $10,232 to help cover the cost of a family plan that CBO puts at $16,858 – leaving him to pay $6,626.

His co-pays and the amount he has to pay toward his deductible will be capped at $6,250. Even if his entire family were in a car accident, that is the maximum his insurer could ask him to pay.

If the same 50-year-old moved to region where health care is pricey, the annual premium for a family plan could run over $20,200 – but he would qualify for a subsidy of roughly $13,600, and wind up with a bill that was still about $6,600.

In other words, in places where medical care is extraordinarily expensive, the subsidy rises with the premium.

How the government calculates your subsidy

While the dollar amount of your subsidy turns on where you live, the percentage of income that you are expected to kick in as your share of the premium is based on how much you earn.

As the table below shows, individuals and families bringing home 133 percent of the FPL will be expected to contribute just 2 percent of their income toward the premium; their tax credit will cover the rest.

Subsidies assume you buy a Silver plan

The ACA offers four tiers of insurance: Platinum, Gold, Silver and Bronze. Insurers who offer Platinum plans can charge higher premiums, but must pay for 90 percent of the cost of benefits covered by the plan. (The patient will pay 10 percent – until he reaches the limit on his out-of-pocket expenses.)

Moving down the ladder, a Gold plan reimburses for 80 percent of covered benefits, a Silver plan takes care of 70 percent, and a Bronze plan pays for 60 percent.

The second cheapest Silver plan available in a particular region will serve as the benchmark for tax credits. The price of that plan will determine the size of your subsidy, but this doesn’t mean you must pick the Silver plan. If you wish, you can choose Platinum, and apply the subsidy to the higher premium.

But what if you don’t have enough cash on hand to pay for a Platinum plan at the beginning of 2014? After all, you won’t receive the tax credit until you file your 2014 taxes in 2015.

Legislators thought about that. The premium tax credits will be “advanceable,” meaning they will be available when an individual purchases coverage. The IRS will send the check to your insurer. If, during the year, your situation changes, and you’re no longer eligible for the same subsidy, the IRS will settle up with you when you file your 2014 taxes.

Will all states offer subsidies?

Yes – though some on the extreme right have tried to stir up doubts by claiming that when legislators drafted the ACA, they bungled the wording. The law refers to “state run” exchanges. Many states won’t have exchanges set up by 2014; the federal government will have to do it for them. The nit-pickers contend that the government will not be able to provide subsidies in these “federal exchanges.”

But the Republican leadership has never gotten behind this argument – and with good reason. Extremists might find a friendly judge, but a higher court would overturn his decision. At this point, the ACA is settled law: passed by Congress, declared legal by the Supreme Court, and ratified by voters who re-elected President Obama. Game. Set. Match.

Maggie Mahar is an author and financial journalist who has written extensively about the American health care system. Her book, Money-Driven Medicine: The Real Reason Health Care Costs So Much, was the inspiration for the documentary, Money Driven Medicine. She is a prolific blogger, and recently relaunched her HealthBeat Blog. This post originally appeared at www.healthinsurance.org.


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83 Comments on "Will You Receive a Tax Credit to Help You Buy Insurance in 2014? How Much?"

Sep 22, 2014

Very unfair system as I see it. I have my own insurance but am using my savings to pay it, yet I will not recieve a credit because my income is too low.
So the gov wants to force people to depend on them, in order to get a health insurance credit. They would have me get on medicaid and take away from the young folks of today’s future. Does that make sense to anyone?


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Jul 17, 2013

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Jan 16, 2013

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Jan 14, 2013

This is disgusting. how could such a horrible health care system be forced on the american people? the hatred they have for the american people is palpable. who are they? read your history and you will know.

Dec 22, 2012

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Dec 21, 2012


I totally agree that we’ll have to see how the ACA plays out– and then make
As I’ve said in the past, I think we’ll have to make many adjustments over a period of years (just as we have with Medicare– and now we’ll be making many more adjustments to Medicare)
This is a huge project, and many things that depend on how doctors and patients respond can’t be predicted ahead of time.
Also, as you say, things will work differently in different regions. Some things that work well out West won’t work in Manhattan–or at least not without
a great deal of effort.
Everyone I know that is or was involved with the legislation totally understands that it will be a work in progress for years.
But, ten years from now, if it’s working fairly smoothly, we’ve reined in health care inflation (so that health care costs are growing no faster than GDP– and I think we can actually do better than that) and virtually all Americans have
access to good health care, it will have been worth it.
Finally your points on the difference between Mass and the rest of the country are all true.,
But I would have thought that better educated, wealthier people would be more likely to “game” the system by signing up for insurance, getting their hip replacement, and then drop the insurance. Because they’re better educated, they’re more confident about their ability to make savvy decisions.
And, they’re not going to get the subsidies that lower-middle-class people in Florida will get. . .
But we’ll have to see.
You’re right that health care is very expensive i some parts of the South.–though there are things we can do about that. We’ve already put a stop to the construction of more physician-owned surgical centers (too much self-referral and over treatment at high prices) . Texas and Louisiana have more than any other place in the nation. CMS also will be putting more money into tackling fraud. And with more transparency in the Exchanges we’ll be able to get a better idea of what’s going on ., . . Since cost-of-living is lower in many places in the South, health care should not be as expensive as it is. . Red states are reluctant to regulate; but under the ACA we’ll have more oversight.

Barry Carol
Dec 21, 2012

“Let me suggest that, rather than worrying about phantom free-loaders, you wait and see how things work out. We’ll soon see how many people buy insurance in the Exchanges”

I’m perfectly willing to do that not that we have a choice in the matter in any case. As a taxpayer, though, if the subsidies turn out to cost significantly more than expected, I hope the issue is revisited rather than just tolerate higher deficits or reflexively call for still higher taxes mainly on high income people.

As for Massachusetts, putting aside its liberal politics for the moment, the population has more education than average and the state’s major industries are education, medical and high technology along with state and local government all of which have many jobs with good wages and benefits including health insurance. By contrast, in Florida, the largest industries are tourism, agriculture and real estate. Wages and benefits are low in the tourism industry while both agriculture and real estate are highly cyclical

Throughout the South, wages are generally lower than in the North on average. This is due to a combination of weak private sector unions and, more importantly, a much lower cost of living especially for housing and state and local taxes. Healthcare, especially hospital based care, is not significantly cheaper in the South though so the cost and affordability of health insurance with or without subsidies is a bigger deal to the average family there than in the North.

I don’t think the health insurance experience in MA can be extrapolated to other states any more than the acceptance of HMO’s in Northern CA can be. There are a lot of regional differences in values and attitudes toward a lot of things. We’ll see how the ACA plays out and, hopefully, make appropriate adjustments as needed.

Dec 21, 2012


Your suggestion makes one thing clear: you don’t have small children. (Actually, I figured that out when you suggested that after giving birth a woman would actually drop her insurance!)

Imagine you are a median income family ($62,000) with three children ages 6 months to 10 years. They need a great deal of medical care–none of it catastrophic. They have ear aches and need prescription pain killers; they develop strep throat and need antibiotics; they fall off bicycles and out of trees and break bones, they need a tetanus shot, the six-month old needs well baby visits, the other children need eye exams and visits to the dentist (eye care and dental care is covered for all children the ACA), one is hit by a car and suffers a concussion . . .Another one has chicken pox. I could go on. All of these things happened to me as a child. (Once I fell at the ice-skating rink and another kid skated over my leg. That’s when I needed the tetanus shot.)
All of these expenses add up to more than a median-income family has left over after housing, food, utilities, transportation, etc etc. And I didn’t mention the costs of child birth and pre-natal care. If a woman develops an infection after giving birth, she might wind up in the hospital for 7 days (this happened to my daughter) The bill was enormous. Since she had insurance, it cost her nothing.
This is why people need more than “catastrophoic insurance.” Your average family needs both preventive care and medical care for all of the smaller medical expenses that are a regular part of life.

Bob–every other developed country in the world provides comprehensive insurance for all of its citizens. If simply raising taxes 2% to 3% and giving
everyone catastrophic insurance was a practical solution, don’t you think someone else would have figured it out?

Barry– You worry about people waiting until they get sick before buying insurance. But that is not what happened in Mass. (And the penalties for not buying insurance are lower than they are in the ACA.)

Why do you think that is? What makes you think that there would be tens of thousands of free-loaders in other states?

In fact, most people are sensible enough to want insurance–particularly women and people who have children.

Let me suggest that, rather than worrying about phantom free-loaders, you wait and see how things work out. We’ll soon see how many people buy insurance in the Exchanges. I think things will work out much the way they did in Mass–with one exception– care will be less expensive (as it already is outside of Mass) because the ACA contains many provisions for cost control, including moving away from fee-for–service– something that Mass is just beginning to do. (See my post “Breakfast with Atul Gawande”)

Finally, regarding people not declaring all of their income and getting subsidies.
This already happens in the case of income tax fraud. But when the IRS catches up with someone– and eventually they do– life becomes very unpleasant. (At one time my husband owned a restaurant. He declared his income, and paid his taxes. But he knew other restaurant owners who didn’t–and who boasted about being in a “cash business.” Either the state sales tax people or the IRS caught up with them. Restaurants closed and people were wiped out. (This was just). But it’s not as easy to get away with as you might think.

Finally, there is no reason to deny millions of people medical care because you worry about the minority who will cheat.

Dec 21, 2012

” They’re scared and frightened and we’re supposed to come to their rescue and let them buy insurance at standard rates on a guaranteed issue basis?

Yes. And Barry, if you were the person who decided these cases, and met the frightened family, I sincerely believe that you would want to help them -and would rule in favor of letting them have health insurance.

Some folks forget that pelosi changed her tune 180 degrees from pushing obamacare to help the struggling uninsured victims with pre existing conditions to these selfish and deliberately uninsured people are freeloaders within a week of the legislation being past. Perhaps not everyone got the memo that the help the poor uninsured line had an expiration date on it that coincided with passage. I guess sometimes you have to pass it to find out what’s NOT in it.

Pelosi suggests uninsured are freeloaders
Nancy “SD” Pelosi says many of those without health insurance are “free riders.” Joel Pollak at Breitbart points out the irony of hearing this from Obama’s partner in crime when, prior to passage of “Obamacare” “Those who pointed to research that over 40 percent of the uninsured were ‘voluntary’ were dismissed as heartless corporate shills or racists.”

We know that intellectual honesty and consistency are not character traits among committed leftists and progressives. The ends (more central government control and power to government/elites) justify the means.

Suddenly Democrats like Pelosi and Obama care about people not sharing in the burden of living in this society. Funny since they fight to shift the tax burden to fewer and fewer people and they make ebt cards fall like rain.

Barry Carol
Dec 21, 2012

Peter1 —

Massachusetts also have the highest per capita spending on healthcare in the U.S. and has had for some time. Washington D.C. is in 2nd place.

Barry Carol
Dec 21, 2012

Bob –

I don’t think your approach is practical for a variety of reasons. Medicare is going broke. Where do you draw the line on income? How do you define income? Lots of people earn a significant portion of their income from tips and don’t report some or all of that income. Small businesses that are more likely than large firms to accommodate off the books work arrangements account for a larger share of total employment than they did a generation ago. It would be extremely difficult to administer. You get the picture.

I do think that our subsidy dollars would stretch a lot further if we just helped the uninsured and underinsured buy a catastrophic health insurance plan instead of the comprehensive plan under the ACA. Primary care could be supplied to low income people through the expansion of free or very low cost (to the patient) community clinics and health centers.

Maggie’s willingness to sell insurance to people who failed to buy it when it was first offered and then got sick would eventually convey the message to all the responsible people who did buy insurance that they’re chumps. Why not pay the modest penalty, put those health insurance premium dollars in the bank or spend it on other things and then, if you or a family member gets sick come back and buy insurance on a guaranteed issue basis? Of course, then the pool would consist overwhelmingly or completely of sick people and nobody but the very wealthy could afford to buy coverage. When the insurance industry talks about an adverse selection death spiral, that’s the extreme example of what it would look like.

Dec 21, 2012

Barry and Maggie, you are both getting twisted like pretzels trying to solve a problem that occurs when health insurance is voluntary.

There is a much simpler solution. Everyone without insurance pays an extra 2-3% in income taxes every single year for a catastrophic version of Medicare.
The deductible could be based on assets at the time of claim.

Even if you make as little as $30,000 a year, a tax hit of 2% is $600 or $50 a month. This is still painful, but far cheaper than insurance and about the same as the penalties under the ACA, I think. And unlike the ACA penalties, you get something for your payment.

This does nothing for prevention. It will not even stop all bankruptcies, since you can go bankrupt with a $5,000 deductible if you have many other debts and no jobs.

But it would be a very decent partial solution, and could be implemented tomorrow. Some persons who work for cash are going to skate by, but that is true under almost any system unless we have a national sales tax.

Dec 21, 2012

“Everyone without insurance pays an extra 2-3% in income taxes every single year for a catastrophic version of Medicare.
The deductible could be based on assets at the time of claim.
Even if you make as little as $30,000 a year, a tax hit of 2% is $600 or $50 a month.”

I’m in Bob, where do I sign up!!

Dec 21, 2012

Zieg Heil, seems to sound the same to me at the end of the day!

Barry Carol
Dec 20, 2012

Maggie –

I can see it now. Someone has insurance but then loses his job, or moves from full time work to part time or gets divorced and claims he can no longer afford insurance. Maybe most or all of his income is off the books and his income is impossible to verify or maybe he doesn’t even file a tax return. Then he or a family member gets sick and lo and behold, he comes up with the money to buy health insurance. While your compassion is admirable, it just sends the wrong message that you can be irresponsible and society will always be there to bail you out of your bad choices. By contrast, open enrollment periods are explicit and easy to enforce. I consider myself as compassionate as the next person, but I think your approach is likely to have an unintended and potentially significant adverse impact on the cost of health insurance.

If you really can’t afford insurance even with subsidies both when you were healthy and after you got sick, that’s a different matter. There should be enough flexibility in the system to accommodate some uncompensated care. There is also a role for private charity to play in these situations especially for providing care to children. However, people who can afford insurance either with subsidies or without should buy it and the penalty for not buying it should be much closer to the cost of the lowest cost policy than under current law.