The Affordable Care Act’s
Credits, Subsidies,
Penalties and Fees
This presentation is a high-level summary and for general informational purposes only. The information in this presentation is not
comprehensive and does not constitute legal, tax, compliance or other advice or guidance.
A Division of Health Care Service Corporation, a Mutual Legal Reserve Company,
an Independent Licensee of the Blue Cross and Blue Shield Association
Credits, Subsidies, Penalties and Fees
Individuals
• Premium
Tax Credits
• Cost-Sharing
Subsidies
• Tax Penalties
Small
Businesses
• Tax Credits
Employers
• Employer Shared
Responsibility
Payment
Other Fees
• PCORI Fee
• Risk Adjustment
Payments
• Reinsurance
Fee
• Health Insurer
Fee
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Individuals
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Individuals: Premium Tax Credits
The Premium Tax Credit Is:
• Available for eligible individuals who purchase
individual coverage on the exchanges, also
known as health insurance marketplaces, with
household incomes between 100-400% of the
federal poverty level
• On a sliding scale
• Applied to the health insurance PREMIUM
payments of a plan at any metallic level, and
will most likely be applied monthly
• Advanced to the consumer upon enrollment in
an exchange plan
• Based on the consumer’s income the
previous year
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Individuals: Premium Tax Credits
Premium Tax Credit Eligibility
To be eligible for a premium tax credit, an individual must:
1. be a U.S. citizen or legal resident
2. have household income between 100-400% of FPL
3. be enrolled in an exchange plan
4. be included in tax filings to the IRS as an individual, or as a member of
a married couple or family with dependents
5. not be eligible for other affordable coverage, such as Medicaid or
Medicare or other types of “minimum essential coverage” (other than
through the individual health insurance exchange)
6. not have access to an affordable employer plan that meets minimum
value requirements
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Individuals: Premium Tax Credits
Income Tax Filing
• The amount received for a premium credit is based on the prior year’s
income tax returns.
• These amounts are reconciled in the next year when individuals file a
tax return for the actual year in which they received a premium credit.
• If a person who is filing taxes has a change in income, and the filer
should have received a higher tax credit, the additional credit would be
included in the tax refund for the year.
• Conversely, any excess amount that was overpaid in premium credits
would have to be repaid to the federal government as a tax payment.
• For households with incomes from 100-400% of the FPL, the amount of
repayment cannot exceed $400 for joint filers and $250 for single filers.
This amount will be indexed by inflation in future years.
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Individuals: Cost-Sharing Subsidies
Enhanced Actuarial Value Cost-Sharing Subsidy
Designed to help those at lower incomes with costs at the point of
service by enrolling them in health plans with higher actuarial
values.
This Cost-Sharing Subsidy Is:
• A federal payment to the insurer that reduces the eligible
member’s costs (deductible, coinsurance or copayment)
• Based on the consumer’s income the previous year
• For those enrolled in an exchange plan with household incomes
100-250% of FPL
• Applied when members select a Silver level plan
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Individuals: Cost-Sharing Subsidies
Enhanced Actuarial Value Cost-Sharing Subsidy
Silver Plans & Cost-Sharing Variations
Plan Original
Cost-Share
Member
Original
Cost-Share
Plan NEW
Cost-Share
Member NEW
Cost-Share
250-400% of FPL
70%
30%
70% (same)
30% (same)
200-250% of FPL
70%
30%
73%
27%
150-200% of FPL
70%
30%
87%
13%
100-150% of FPL
70%
30%
94%
6%
Household
Income
SOURCE:
Actuarial Value and Cost-Sharing Reductions Bulletin published by The Center for Consumer
Information & Insurance Oversight on February 24, 2012 at
http://cciio.cms.gov/resources/files/Files2/02242012/Av-csr-bulletin.pdf.
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Individuals: Cost-Sharing Subsidies
Out-of-Pocket Maximum
• An out-of-pocket maximum cost-sharing subsidy is available to
those that select a silver plan and have a household income of
100-400% of the FPL. This subsidy limits the maximum out-ofpocket expenses for individuals.
• Without any federal subsidies, ACA limits out-of-pocket
maximums to those established for Health Savings Accounts.
Those limits, which include deductibles and copayments, are
$6,250 for individuals and $12,500 for families for 2013. Out-ofpocket limits will be indexed.
• In 2014, this subsidy considerably reduces the out-of-pocket
maximum.
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Individuals: Cost-Sharing Subsidies
Out-of-Pocket Maximum Subsidy Amounts
Income Level
2013 OOP Maximum
Without Subsidy
(Individual)
Reduction in
OOP Liability
2013 OOP Maximum
With Subsidy
(Individual)
100-200% FPL
$6,250
2/3 of the maximum
$2,083
200-300% FPL
$6,250
1/2 of the maximum
$3,125
300-400% FPL
$6,250
1/3 of the maximum
$4,166
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Individuals: Penalty for No Coverage
• Beginning in 2014, most U.S. citizens and legal residents must
have a minimum level of health coverage or pay a federal tax
penalty.
• The tax penalty is assessed according to a percentage of income
or flat fee, whichever is greater.
Minimum Essential Coverage Defined
 A government-sponsored program, including coverage under Medicare Part A, Medicaid,
the Children's Health Insurance Program and TRICARE®
 An eligible employer-sponsored plan (meets affordability and minimum value
requirements)
 A health plan offered in the individual market
 A grandfathered health plan
 Other health benefit coverage (such as a state health benefit risk pool) that is recognized
by the U.S. Department of Health and Human Services
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Individuals: Penalty for No Coverage
Penalty Amounts
Year
Percent of Income or
Flat Fee
2014
1.0% of taxable income or
$95
2015
2.0% of taxable income or
$325
2016
2.5% of taxable income or
$695
after 2016
the tax will increase annually by
cost-of-living adjustment
the tax will increase annually by
cost-of-living adjustment
Examples of Penalty (% or flat fee, whichever is higher)
Year
Annual income of
$15,000
Annual income of
$20,000
Annual income of
$25,000
Annual income of
$30,000
2014 1% = $150
$95 1% = $200
$95 1% = $250
$95 1% = $300
$95
2015 2% = $300
$325 2% = $400
$325 2% = $500
$325 2% = $600
$325
2016 2.5% = $375
$695 2.5% = $500
$695 2.5% = $625
$695 2.5% = $750
$695
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Small Businesses
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Small Businesses: Tax Credit
Tax Credit Requirements
• Must have less than 25 full-time equivalent employees
• Must pay an average annual wage of $50,000 or less per employee
• Must provide health care insurance and cover 50% or more of cost
Tax Credit Amount Available
Year
Tax Credit Available:
For-profit Small Businesses
Tax Credit Available:
Non-profit Small Organizations
Current
up to 35% of the employer’s
contribution
up to 25% of the employer’s
contribution
2014
up to 50% of the employer’s
contribution
up to 35% of the employer’s
contribution
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Small Businesses: Penalty
Are there any penalties for small businesses?
• ACA does not require businesses with less than 50 full-time
equivalent employees to offer health insurance.
Employer Shared Responsibility Payment
• Businesses with 50+ full-time equivalent employees must offer
their employees and dependents health insurance that provides
“minimum value” and is “affordable.”
SOURCE:
Statistics of U.S. Businesses, 2008, All industries Texas; from The U.S. Census Bureau at
http://www.census.gov/epcd/susb/latest/tx/TX--.HTM.
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Employers
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Employer Shared Responsibility Payment
• Beginning in 2014, ACA requires employers with more than 50
full-time equivalent employees to offer minimum essential health
coverage to their employees and their dependents or be subject
to a tax penalty.
• If a business employs less than 50 full-time equivalent
employees, with full-time defined as averaging 30 or more hours
a week in a given month, then the business is exempt from the
employer shared responsibility payment.
• An employer cannot offer just any health care plan. The plan has
to be one that meets “minimum essential coverage”
requirements.
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Employer Shared Responsibility Payment
Minimum Essential Coverage Requirements
Affordable
• The employer’s coverage is deemed affordable if the employee’s
share of the premium costs for self-only coverage does not
exceed 9.5% of the employee’s household income.
Minimum Value
• An employer’s plan’s share of total allowed costs must be at least
60%. Minimum value must be determined using a method that is
consistent with the actuarial value rules.
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Employer Shared Responsibility Payment
Penalty 1: Failure to Meet the Affordable Requirement
• If a company offers health insurance, but requires some
employees to contribute more than 9.5% of their income,
• AND those employees obtain health insurance through a public
exchange,
• AND they receive a subsidy,
• THEN the employer would pay a penalty of $3,000 per employee
receiving the subsidy.
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Employer Shared Responsibility Payment
Penalty 2: Failure to Offer Minimum Value Requirement
• A company with 50 or more FTEs that does not provide health
insurance will be subject to a penalty of $2,000 per year
multiplied by the number of FTEs, minus the first 30.
• For example, a company with 100 FTEs would be subject to a
penalty of $140,000. ([100 – 30] x $2,000 = $140,000)
• The penalty is $2,000 for each full-time employee in excess of 30
full-time employees. Note that the penalty is for each full-time
employee, not “full-time equivalent” employee.
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Other Fees
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Other Fees: PCORI
Patient-Centered Outcomes Research Institute Fees
As part of the Affordable Care Act (ACA), health insurance issuers and sponsors of
self-insured group health plans will be assessed an annual fee – based on the average
number of covered lives – to fund patient-centered outcomes research. (Also known
as The Comparative Effectiveness Research Fee.)
Generally, the fee will apply to policy years ending on or
after Oct. 1, 2012, and before Oct. 1, 2019.
• Fee amount is $1 times the average number of covered lives for plan/policy years
ending before 10/1/13.
• Fee amount is $2 times the average number of covered lives for plan/policy years
ending on or after 10/1/13, subject to adjustments that include the projected
increases in National Health Expenditures.
• Fee terminates for plan/policy years ending after 9/30/19.
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Other Fees: PCORI
The IRS released the final rule on December 6, 2012
1. Coverage under a group health plan through two separate insurance policies –
individuals will be “double counted”.
2. Sponsor of a group health plan that provides both insured & self-funded coverage
can exclude individuals with the insured coverage when reporting the number of
covered lives subject to the PCORI fee.
3. Fee does not apply to employee assistance, disease management or wellness
programs as long as they do not provide significant medical care or treatment.
4. Fee is applicable to retiree coverage, COBRA coverage and similar state or federal
continuation coverage.
5. Special rules for number of lives calculation in the first and last years the fee is in
effect.
6. Fee does not permit third-party reporting or payment.
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Other Fees: Risk Adjustment
Risk Adjustment is a permanent program that applies to the
individual and small group insured markets.
All health insurance issuers will
calculate the risk of their membership
using a model provided by the
government. States that run their own
exchange can choose to also run risk
adjustment; otherwise the federal
government will operate it.
The risk adjustment calculation will
result in payments between issuers:
insurers with lower than average risk
will pay insurers with higher than
average risk. Risk adjustment applies
to the individual and small group
markets, on and off the exchange, for
non-grandfathered plans.
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Other Fees: Reinsurance
Reinsurance is a temporary program that will be in effect
during the first three years of ACA's insurance market
reforms (2014-2016).
Purpose
Helps fund temporary reinsurance
programs (established under
ACA) that would operate in each
state from 2014 through 2016.
Impact
The Reinsurance Fee is assessed
on health insurers and plan
sponsors for self-funded plans.
This included grandfathered and
non-grandfathered plans.
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Other Fees: Reinsurance
By statute, the aggregate national contributions for
reinsurance payments are:
Year
Contributions to the
Reinsurance Pool
Contributions to the U.S.
Treasury
2014
$10 billion
$2 billion
2015
$6 billion
$2 billion
2016
$4 billion
$1 billion
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Other Fees: Reinsurance
• A proposed rule from the Department of Health and Human
Services sets the Reinsurance Fee amount at $5.25 per month
per enrolled, covered life in 2014.
• States may have the ability to require additional reinsurance
fees.
Proposed
2014 Monthly
Reinsurance
Contribution
$5.25
$?
2014 State
Requirements
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Other Fees: Health Insurer Fee
• Beginning in 2014, health insurers will be assessed an annual
fee based on the value of health insurance premiums paid in the
previous year.
• Exemptions exist for Medicare supplement plans, self-funded
groups, long term care and others.
YEAR
FEE
2014
$8 billion
2015
$11.3 billion
2016
$11.3 billion
2017
$13.9 billion
2018*
$14.3 billion
Total through 2020
$87 billion
*Aggregate insurer fees will increase by an indexed amount each year after 2018.
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Other Fees: Health Insurer Fee Impact
Possible Impact on Insurance Premiums
“Insured market premiums could increase
on average by 1.9% to 2.3% in 2014.”
Oliver Wyman, a national research firm,
published a study for AHIP on “Estimated
Premium Impacts of Annual Fees Assessed on
Health Insurance Plans,” Oct. 31, 2011.*
“In 2014, fees might mean
additional costs equal to 1.5% of
plan costs for self-funded plans.”
“Premium tax to raise
premiums between 2.4% in
2014 to over 3% in 2015.”
Douglas Holtz-Eakin, “Higher
Costs and the Affordable Care
Act: The Case of the Premium
Tax.” American Action Forum.
March 9, 2011.***
Towers Watson, “Healthcare Reform
Fees Add Up,” July 17, 2012.**
* http://www.ahipcoverage.com/wp-content/uploads/2011/11/Insurer-Fees-report-final.pdf
**http://americanactionforum.org/sites/default/files/Case%20of%20the%20Premium%20Tax.pdf
***http://www.treasuryandrisk.com/2012/07/17/healthcare-reform-fees-add-up
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Questions?
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