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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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Bobby Powellhttp://www.fraulini.com/images/readmes.htmlhttp://www.fraulini.com/images/readmes.htmlChadTom Recent comment authors
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Bobby Powell
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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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Chad
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Tom
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After reading through most of the comments here I realized very quickly that many of you are feeling the pain of high prescription costs and poor prescription drug benefits. While recently helping a family friend navigate through the Prescription Assistance programs offered by the major pharmaceutical companies we developed an easy to use service for other to be able to take advantage of the free medication programs that are offered. In most cases, you can receive your meds for FREE from the pharmaceutical companies. Over 4200 medications are covered under the PAP programs.I strongly encourage you to visit http://www.redemedllc.com so… Read more »

sisterfla
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sisterfla

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.

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Maggie Mahar
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Barry– I totally agree that we’ll have to see how the ACA plays out– and then make adjustments. 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… Read more »

Barry Carol
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Barry Carol

“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… Read more »

Maggie Mahar
Guest

Bob– 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… Read more »

arthur
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arthur

” 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… Read more »

Barry Carol
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Barry Carol

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
Guest
Barry Carol

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… Read more »

Bob Hertz
Guest

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… Read more »

Peter1
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Peter1

“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!!

DeterminedMD
Guest
DeterminedMD

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

Barry Carol
Guest
Barry Carol

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… Read more »