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?

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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?"


Guest
joe
Dec 15, 2012

Maggie- did you mention the ‘clawback’ provisions that people will have to pay on their taxes if their income should go up during the year?

Member
Dec 15, 2012
Guest
MD as HELL
Dec 15, 2012

More and more citizens sucked in to the vortex of needing the government: How quaint.

If only they knew they do not need all this “coverage” in a sane world.

When China has had enough of our debt, then who writes the check, Maggie?

Guest
DeterminedMD
Dec 15, 2012

Be careful MD as Hell, this is not a fair and balanced thread.

Guest
Dec 15, 2012

Joe–

The government is willing to advance the subsidy to you at the beginning of the year (say January ’14 ) based what it seems likely you will earn. But neither you or the govt. can know for sure. You get might get a new job in June, and a 8,000 raise. If you did you wouldn’t qualify for such a high subsidy and would pay back the extra money you received when you filed your taxes in April ’15

On the other hand, you might lose you job in June–and remain unemployed for the rest of the year. In that case, you would be due a higher subsidy, and again, the IRS would settle up with you when you filed your taxes in April 15–

Guest
tomd39
Dec 15, 2012

None of this lowers the cost of healthcare. In fact, it just feeds the parasitic relationship between service providers and insurance. Think about it. If a patient comes in with symptoms A, B and C. The doctor simply orders test X, Y and Z. No thought to cost … unless … the patient says they are not insured or has a high deductible. Now what? Ruin the patient and their family financially or go to plan B, which might be simpler and less costly. In other words, we need to cut the cost of healthcare in the U.S. before we start pouring tax dollars down the rat hole of the ACA healthcare system.

Guest
Peter1
Dec 15, 2012

tom39, I agree, but cutting the cost of health care would mean attacking too many constituents – providers, insurance, drug companies, health care suppliers, and lastly but less important patients.

Tell us how you would circumvent all those 1000s of lobbyists marching to DC and threatening no support for re-election and not hiring politicians relatives?

Guest
tomd39
Dec 15, 2012

Peter1, I am aware of the magnitude of the healthcare structure and I honestly don’t see a way to change it without pulling the plug on somebody. Those same lobbyists were part of the process in coming up with ACA in such a way that protected their interests. Pretty sad.

Guest
Dec 15, 2012

tom d 39–

Actually insurance becomes less expensive for individuals and small businesses that buy it in the Exchanges because there they become part of a large group, lowering administrative expenses significantly.

Secondly, under the Affordable Care Act more and more doctors and hospitals will no longer be paid fee-for-service—which rewards them for “doing more.”
If they want to earn more they will have to achieve better outcomes at a lower cost.

Both Medicare and private insurance will pay them based on outcomes and a lower total price, sharing the savings with the providers.

Moreover ever since we passed reform in 2010, both doctors and hospitals have become more aware of costs. I know of one doctor who wrote up a
report for his residents, showing how many tests their hospital was ordering per patient–and showing that the number was excessive.

At good teaching hospitals, residents will find that they are no longer praised for ordering a battery of tests.

Growth in Medicare spending has actually slowed considerably in the past 2 years because hospitals are preparing for 2014 when they know they will no
longer be rewarded for volume. They’ll be paid for value. (Better care for less.)

Guest
Peter1
Dec 16, 2012

“Actually insurance becomes less expensive for individuals and small businesses that buy it in the Exchanges because there they become part of a large group, lowering administrative expenses significantly.”

Maggie can you explain how unrelated and disassociated individuals working for different companies and living in different areas will be brought together to be included in a group for lower group rates?

Will a business with 2 employees be a group? Will unrelated businesses with small workforces be able to form into a large group?

Guest
Barry Carol
Dec 15, 2012

It’s interesting that the IRS will advance subsidies based on estimated 2014 income and attempt to settle any difference between actual and estimated income for that year in 2015 when the tax return is filed. When the Social Security Administration calculates its IRMAA surcharge that high income people must pay on top of the regular Part B premium, it uses actual income from two years earlier. So, IRMAA surcharge for 2013 will be based on income reported in 2011. There are exceptions for what the SSA calls life changing events such as retirement but documentation must be provided to receive an exemption.

Also, I read recently in a New York Times article that if the subsidies turn out to cost more than 0.51% of GDP or about $75 billion in 2014, the issue will be revisited. Either the income band to qualify for subsidies would be narrowed or the percentage of income individuals must pay themselves toward their health insurance premium will increase or both. I’ve written before that there is a lot of room for mischief here in terms of unreported and underreported income.

Finally, those with income right around 400% of the FPL will still qualify for a meaningful subsidy. People with income of 401% of the FPL or more receive nothing. This is called a cliff phase-out as opposed to a gradual phase-out such as losing $1.00 of subsidy for each $2 or $3 of income above a certain level. The cliff phase-out will not be well received by those just above the cutoff. Complex laws like the ACA usually come with plenty of unintended consequences. We’ll see how it plays out.

Guest
Barry Carol
Dec 15, 2012

Correction: Documentation must be filed with the SSA to receive an exception, not an exemption and use a different income year to calculate the IRMAA surcharge to be added to the standard Medicare Part B premium. There are four IRMAA surcharge tiers so a year other than the one two years earlier than the upcoming year may result in a lower surcharge. IRMAA stands for income related monthly adjustment amount.

Guest
Dec 15, 2012

Peter1 and tom d 39

The legislation was Not wirtten by and for the special interests.

If you read the legislation, you will find that there are many things in it that make insurance companies, hospitals, drug-makers, device-makers and some doctors very unhappy.

I realize that few people have the time to read the ACA–it’s very long., and all of the good stuff is in the details.
But I’ve read it more than once (that’s my job) and believe me, insurers are not happy.

Under the ACA they are heavily regulated. They can no longer charge you more if you suffer from a pre-existing condittion. They can no longer raise premiums and use the increase to boost salaries for excutives or profits for investors. They have to pay out a certain % of the premiums for medical care–if they don’t they have to give customrs rebates.

This part of law has already kicked in–and insuers have been giving out substantial rebates.

They can’t sell “Swiss Cheese” pollicies filled with holes that you don’t know about until you get sick and fall through all of them.

They will have to sell comprehensive insurance which covers a substantial list of essential benefits.

Some hosptials are unhappy that, under the laws, infection rates at hospitals will be published–so patients will know which hospitals to avoid.You’d be surprised to discover how high infection rates are at some of our most expensive academic medical centers.

Under reform, doctors and hospitals that want to earn more will have to
show that they are achieving better outcomes at a lower cost. Today, they are paid “fee-for-service” which means that they are paid more if they “do more”.
Under reform, both Medicare and insurers will be moving away from paying for ‘volume” Instead they’ll pay for value (‘better care for less.”)

Under reform, the Secretary of HHS has the power to cut the fees that Medicare pays for specific services if she feels that they are overvalued.
And she doesn’t have to go through Congress–so lobbyists can’t get in her way.

Medicare has already cut the fees it pays to doctors who buy or lease testing equipment and do tests in their offices. Resarch shows that in these cases, they do many more tests. this is how they pay for the equipment.

Medicare has sliced those fees and these doctors are doing fewer tests. Both the doctors and the folks who make the testing equipement are unhappy about this, but there was nothing they could do about it.

It’s becoming clear that Medicare will be asking drugmakes to give Medicare the same discounts it gives Medicaid.

People who know the legislation well are impressed because it is actually all about protecting patients and making care affordable.

Of course, it could be and should be improved. Over time, as we see what works and what doesn’t, improvements will be maide.

But you’re wrong to think it was written by the special interests.

Guest
Dec 15, 2012

EVERYONE–

You may notice that this post refers to a chart– but there is no chart.

when THCB staff cross-posted this post from healthinsurance.org where it originally appeared, they probably couldn’t make the chart work in THCB’s format. (This is perfectly understandable–every blog has its own style and format requirements.) .
Also in the original post there is a “subsidy calculator” that lets you figure out
what your subsidy would be based on your income, family size, age .

If you’re intrerested in the chart & calculator, go to the original–http://www.healthinsurance.org/blog/2012/12/13/obamacare-and-premium-subsidies/

Guest
Dec 15, 2012

Barry–

Good to hear from you.

I agree that the “cliff phase-out” was bad idea.
As you say, people who earn 400% of FPL can get a substantial subisidy People who earn 401% get nothing.

This will make people at the cut-off angry, and in this case, it is likely to lead to people under-reporting income if they (or an accountant) can figure out a way to paid their deducttions or whatever. If people feel that something is truly
unfair, they will feel justified in cheating.
:
This is just one example of many things in the ACA that will have to be tweaked.

Whenever Congress passes major legislation changes have to be made in the years that follow. We’re still making changes to Medicare.As I’ve said before
“health care reform is a process, not an event.”

Did you know that when we passed Social Secuirty legislation, it didn’t cover African-Americans? Blatantly unfair, and both FDR and Eleanor were unhappy about this, but FDR knew that this was the only way he could get the legislation through congress. Later, of course, this was fixed.

Barry, I tried to find the NYT article saying that if subsidies exceed a certain percentage of GDP, the subsidies issue will be “revistited.” I couldn’t find the article anywhere. Also, there’s nothing that I can find in the Affordable Care Act that talks about reconsidering subsidies if they cost more than a certain percentage of GDP.

The ACA the law of the land. Saying that something in it will be “revisted” sounds like someone’s opinion, rather than a fact–unless I missed something in the law , which is quite possible. (So many details- most of them entirely necessary to make the law fair and attempt to guard against unintended consequences–but I can’t carry all of them in my memory.)

Moroever, the Affordable Care Act pays for itself–which means it will cover CBO estimates of the subsides. In fact, the Affordable Care Act more than pays for itself. (Higher taxes for the wealthy and the fees that drug-makers, device-makers etc. will be paying fund the subsidies and reduce the deficit.
See this White Paper that I wrote for TCF
http://tcf.org/publications/2011/9/better-care-for-less-how-the-affordable-care-act-pays-for-itself-and-cuts-the-deficit

That said, since insurers can charge older Americans 3 times more than they charge younger people.I suspectwe may need to make more older Americans eligible for subsidies, raising the bar for that age group above 400% of FPL. (This is particuarly true because these days, more and more people in their late 50s and early 60s are losing their jobs, and in many cases, will never find full-time employment again. Many may work part-time, or become independent contractors, but they won’t have health benefits at work.)

If so, this will mean more tax increases. But even if we let the Bush tax cuts for the wealthy expire, tax rates for the wealthier Americans are still historically low.

There is room to make more adjustments (inheritance taxes, tax breaks for hedge fund managers will probably disappear, tax rates on short-term capital gains could /should be lifted to discourage speculation.) . . and my guess is that eventually we’ll lift marginal rates on everything that an individual earns above, say, $150,000, and what couples earn above, say $200,000. As you understand (but many people don’t) they won’t be payinig a higher rate on their entire income, just on the part of their income above $150,000 or $200,000. So this won’t create a serious hardship or change someone’s lilfestyle.

Guest
Peter1
Dec 16, 2012

“Under the ACA they are heavily regulated. They can no longer charge you more if you suffer from a pre-existing condittion. They can no longer raise premiums and use the increase to boost salaries for excutives or profits for investors. They have to pay out a certain % of the premiums for medical care–if they don’t they have to give customrs rebates.”

Maggie, I agree I have not read the entire legislation and there are some clear winners who will benefit, pre-existing, low income, those who will receive a subsidy. But there is nothing in the legislation (unless you can show me) that says premiums will cost less.

I think the insurance exchanges will be a cruel joke especially for those not part of a related group who will have to stay in the individual market. And me, who are part of the “cliff” group who will be held hostage and have to pay through the nose for insurance – especially for the pre-existing group which we’ll all pay for.

This legislation provides subsidies and protects some outliers but does not reduce prices. Insurance companies will get 1000s more clients through the mandate and here in NC, where BCBS is the dominate insurer and writes the insurance policy, we will not get any advantage from any exchange. The exchange WILL be BCBS.

Guest
Barry Carol
Dec 16, 2012

Peter1 –

The best estimate I’ve seen over the years is that there are between 4-5 million people in the U.S. who are either uninsurable due to pre-existing conditions or would be charged extremely high and unaffordable rates for coverage. In theory, they could be served with much less disruption to the rest of the market with more robust (and expensive) high risk pools. Their healthcare costs might average $20K per person so to provide insurance at standard rates currently available to healthy people would require $16-17K from taxpayers plus $3-4K from the insured, possibly including a subsidy to help lower income people afford the coverage. For simplicity sake, if the entire cost were covered by taxpayers, it would cost $80-100 billion per year but would ensure lower premiums for everyone else.

In practice very few politicians would be willing to vote to spend so much money on so few people many of whom are too sick to even vote. The other problem with high risk pools is that we would implicitly be telling insurers that they can insure all the healthy and mildly sick people while taxpayers will pick up the tab for the high cost folks. Even a fiscal conservative like me would find it hard to support that.

Since I’ve had my share of costly health issues over the years, I know I wouldn’t want to have to face them without health insurance. I don’t think anyone else should have to either. Our challenge should be finding ways to make the healthcare system more efficient and affordable. Democrats, for their part, need to understand that will sometimes mean telling patients no, they can’t have everything they want when they want it and expect someone else to pay for it. That’s especially the case when it comes to futile or low value high cost end of life care.

Guest
Peter1
Dec 16, 2012

Barry, I think you know me well enough that I do not think pre-exist and high risk should be left on their own. I am in favor of one big pool where risk can be spread over a larger area, but what I object to is business (land owners) getting their price/profit risk protected by government while the rest of us (sharecroppers) are increasingly tapped for rising costs and therefore held in a constant state of never being able to pay off the company store.

Guest
joe
Dec 16, 2012

Maggie- premiums are capped at 0.50% GDP in 2018 — they will decrease from there…

Fixing that is not ‘a tweak’…

The ‘pays for itself’ nonsense — only if CLASS Act implemented over first 10 years (it could not be made to work by many people paid to figure out the math)

Only pays for itself if Medicare doc fix is simply abandoned ($300+ billion)

ONly pays for itself if IPAB, 1099 filing, surtax on higher cost policies, etc… all go into effect…

AND, if the 2.3% tax on medical devices goes into effect — and, some of ACA biggest supporters now want THAT eliminated to help their WEALTHIEST 1% campaign contributors.

link to cuts after 2018:
http://blogs.investors.com/capitalhill/index.php/home/35-politicsinvesting/2615-cbo-confirms-subsidies-could-shrink-under-obamacare

Guest
Peter1
Dec 16, 2012

“The exchanges will only work to spread risk if the relatively young and healthy remain in the risk pool with the older and less healthy. But if premiums get too expensive — and far more costly than the individual mandate penalty capped at 2.5% of income — those low risk exchange members may bolt and raise costs for everyone else.”

I’m a bolter, even though in theory I favor a mandate. Some will be rescued by being allowed in the lifeboat while others will still need to tread water – all witnessed by those protected who can afford the security of the cruise ship.

Guest
joe
Dec 16, 2012

Maggie-

denying that the Insurance and Pharma industry wrote the ACA is absurd…

PNHP (single payer) advocates can show that 90%+ of the bill was on BCBS Assn and AHIP website (before being scrubbed during the debate) as the desired hcr strategy.

And, as Glenn Greenwald notes here:
http://www.salon.com/2010/07/15/fowler_4/

and

http://www.guardian.co.uk/commentisfree/2012/dec/05/obamacare-fowler-lobbyist-industry1

Guest
Peter1
Dec 16, 2012

Agreed. The notion that political leaders would bite the hand that feeds them for the public good is indeed “absurd”.

The same absurdity was the aftermath of the financial meltdown when Obama and Democrats let bank/financial executives (who engineered the crisis) off the prosecutorial hook and preserved their bonuses. The financial fiasco was an inside job – to think the ACA was not also influenced by connected insiders is naive at best.

Look at how the Bush presidency solved the drug price debate when seniors had to take buses to Canada to buy drugs – Medicare Part D, the gift to Pharma that preserved their financial hold on legislators.

Guest
DeterminedMD
Dec 16, 2012

Nice work, joe. But, it will be ignored. There is no place for truth here.