By now you’ve probably noticed that the Affordable Care Act (ACA) is in full swing. What you may not realize is that as part of this legislation, the ACA has created health insurance subsidies, beginning in 2014, in order to reduce out-of-pocket premium costs for taxpayers.
These subsidies, in the form of tax credits and cost-sharing reductions, are available as part of the Affordable Health Insurance Exchanges – state-based marketplaces where individuals and small businesses can go to compare prices and services and purchase private health insurance.
If you beat the deadline and enrolled in health coverage through the Exchange for 2014, you have already begun to see how these subsidies can work for you. Let’s take a closer look at how these exchange health insurance subsidies will work if you plan to enroll in health coverage for 2015.
The federal subsidies available through the exchange come in two forms: premium tax credits and cost-sharing reductions. These subsidies vary in amount based on household income.
- Premium Tax Credits. If your income is up to 400% of the federal poverty level (FPL), this subsidy reduces your out-of-pocket premium costs in the form of tax credits.
- Reduced Cost-Sharing. If your income is up to 250% of the federal poverty level (FPL), this subsidy makes it possible to enroll in plans that pay a greater share of covered benefits by reducing the costs for out-of-pocket services like deductibles and copayments.
How Is It Calculated?
Because your eligibility for these subsidies is determined by your federal income tax return for that year, the Exchanges will typically ask you to project your income for that year. This means that if you’re enrolling in an exchange plan for next year, you will have determine what you expect to earn in 2015. If you are unable to do this, the exchange will look at your federal income tax return for the previous year, or 2014.
At the end of the year, your subsidy amount will be recalculated based on the income reported on your tax return for 2015 and you will pay the difference. If you earned more than you expected, you may have to repay a portion of your subsidy as an adjustment to your owed or refunded taxes.
Amount of Premium Tax Credits
For those with household incomes of up to 400% of FPL that are eligible for premium tax credits, the contributions are determined as follows:
|Income Level||Expected Contribution|
|Up to 133% FPL||2% of income|
|133 – 150% FPL||3 – 4% of income|
|150 – 200% FPL||4 – 6.3% of income|
|200 – 250% FPL||6.3 – 8.05% of income|
|250 – 300% FPL||8.05 – 9.5% of income|
|300 – 400% FPL||9.5% of income|
If your state participates in extending Medicaid coverage to individuals with incomes below 138% of FPL, the contribution is determined as follows:
|Income Level||Type Of Coverage||Expected Contribution|
|Up to 138% FPL||Medicaid||No premiums|
|139 – 150% FPL||Exchange||3 – 4% of income|
|150 – 200% FPL||Exchange||4 – 6.3% of income|
|200 – 250% FPL||Exchange||6.3 – 8.05% of income|
|250 – 300% FPL||Exchange||8.05 – 9.5% of income|
|300 – 400% FPL||Exchange||9.5% of income|
Amount of Cost-Sharing Reductions
For individuals with household incomes up to 250% of FPL that are eligible for reduced cost-sharing, the reductions are determined as follows for 2015:
|Income Level||Reduced Maximum Annual Limitation on Cost-Sharing for Self-Only Coverage for 2015||Reduced Maximum Annual Limitation on Cost-Sharing for Family Coverage for 2015|
|100 – 150% FPL||$2,250||$4,500|
|150 – 200% FPL||$2,250||$4,500|
|200 – 250% FPL||$5,200||$10,400|
This is just the tip of the iceberg. For further information regarding health insurance subsidies, call ERM Insurance Brokers in Irvine, California! (949) 222-0444.