Premium Tax Credits under the ACA
Cynthia Cox, MPH
Kaiser Family Foundation
cynthiac@kff.org
Affordable Care Act Overview
Key Elements of the Health Reform Law
• Health insurance market reforms
• Health insurance exchange
• Subsidies for premiums
• Expansion of public programs
• Individual mandate
• Employer requirements and incentives
• Provisions for small employers
• Delivery system reforms
• “Shared responsibility” for financing
Health Insurance Exchanges or Marketplaces
• Individuals without other coverage and small employers will
be able to purchase coverage through exchanges in 2014
• An estimated 27 million will enroll in coverage through these
new exchanges by 2017
• Premium and cost-sharing subsidies available
– Premium tax credits for eligible individuals and families with incomes
100-400% of poverty ($11,490 - $45,960 for an individual in 2013) who
purchase coverage in exchanges
– Cost sharing subsidies for those with incomes 100-250% FPL ($11,490
- $28,725 in 2013) to reduce out-of-pocket costs
Estimated Health Insurance Coverage in 2017
Total Nonelderly Population = 279 million
10%
Uninsured
16%
Medicaid/CHIP
9%
8%
Exchange
Private Non-Group /
Other
58%
56%
Employersponsored
Insurance
Without Health Reform
(56 Million Uninsured)
With Health Reform
(29 Million Uninsured)
Uninsured
Medicaid/CHIP
Private
NonGroup/Other
Employersponsored
Insurance
19%
13%
10%
NOTE: This assumes that all states choose to expand Medicaid eligibility up to 138% FPL January 2014.
SOURCE: Congressional Budget Office, February 2013. Total may not equal 100% due to rounding
How People Get Covered…
With and Without the Medicaid Expansion
With Medicaid Expansion
Without Medicaid Expansion
Up to 100% of poverty
Medicaid
Unsubsidized
100-138% of poverty*
Medicaid
Exchange
138-400% of poverty
Exchange
Exchange
>400% of poverty
Unsubsidized (Can still
purchase exchange coverage)
Unsubsidized (Can still
purchase exchange coverage)
NOTES: Poverty Level is $11,170 for a single person and $23,050 for a family of four
*Medicaid eligibility cut off is 133% FPL, however 5% of income is disregarded, making the threshold
138% FPL
Health Insurance Marketplace will Facilitate Enrollment Into
Coverage for those without Employer Offered Coverage
Medicaid
Premium Tax
Credits
Plan
A
Plan
B










Plan C
John Doe
123 Main Street
12345
Unsubsidized
Exchange Coverage
Eligibility for Multiple
Programs Determined in
Real Time
Information Provided
on Available Plans
for Comparison
Enrollment Into
Selected Plan
Tax Credits and the Individual Mandate
How the Individual Mandate Works
• Most people required to have coverage through an employer,
Medicaid or CHIP, Medicare, purchased individually, or other
means or pay a penalty
• Exemptions include:
– Undocumented immigrants
– Income below IRS filing threshold ($9,500 single, $19,000
married)
– Health insurance (after employer contributions and tax
credits) costs more than 8% of income
• Penalty phases in 2014-2016 to greater of:
– $695 per adult and $347.50 per child (up to $2,085 per
family); or
– 2.5% of family income
Risk Pooling: An Illustrative Example
= Healthy guys who use $100 in services
= Sick guys who use $50,000 in services
Average Risk Pool
Average cost = $4,636
Risk Pool with Adverse Selection
Average cost = $8,417
Adverse Selection: Subsidies Matter
Adverse Selection
Example: 25 year-old making $25,000 per year buying an
insurance policy costing an average of $4,800 per year
Community rating: Everyone pays $4,800
Unsubsidized, age-rated: 25 year-old pays $2,400
Exchanges: With tax credit, 25 year-old pays $1,700
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How Many are Affected Per Year by the
Individual Mandate?
32 million previously uninsured affected by the mandate
24 million qualify for exemptions from the mandate
219 million insured by employer coverage, Medicaid,
Medicare’s disability coverage, or individual insurance
and not affected by the mandate
Projected Non-Elderly in 2016
= 275 million
Source: Kaiser Family Foundation analysis; Congressional Budget Office; Jonathan Gruber
How are tax credit calculated?
13
Source: UC Berkeley Labor Center, July 2013
Tax Credits set Caps on the Percent of Income Spent on
Premiums, and Reduce Out of Pocket Costs for Some
Income
(Percent of Poverty)
Premium Cap
(Percent of Income)
Cost Sharing Subsidies?
(OOP Limit Individ/Fam)
0% - 100% FPL*
No Cap (Unsubsidized)
No ($6,350 / $12,700)
100% - 133% FPL*
2.0%
Yes ($2,250 / $4,500)
133% - 150%
3.0%, phases out to 4.0%
Yes ($2,250 / $4,500)
150% - 200% FPL
4.0%, phases out to 6.3%
Yes ($2,250 / $4,500)
200% - 250% FPL
6.3%, phases out to 8.05%
Yes ($5,200 / $10,400)
250% - 300% FPL
8.05%, phases out to 9.5%
No
300% - 400% FPL
9.5%
No
Over 400% FPL
No Cap (Unsubsidized)
No
* In states that expand Medicaid, everyone with incomes below 138% of the poverty level will
qualify for Medicaid. In states that do not expand Medicaid, subsidies will be an option on for
those with incomes above the poverty level.
Tax Credits are Based on Silver Plans but can be Applied
Toward Other Levels of Coverage
Plan Type
“Actuarial
Value”
Typical Deductible
Coinsurance
Maximum Out-ofPocket Cost
Bronze
60%
$5,000
30%
$6,350
Silver
70%
$2,000
20%
$6,350
Gold
80%
$0
20%
$6,350
Platinum
90%
$0
10%
$6,350
Catastrophic
(up to age 30)
NA
$6,350
0%
$6,350
All figures are for single coverage. Amounts for families would be double.
All plans have to cover a wide range of benefits.
Subsidy Calculator
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Subsidy Calculator
Subsidy Calculator
Premium Subsidy Examples (California Average)
• Single 25 year old making $20,000
Unsubsidized silver premium = $2,772
Individual contribution = $1,021
Tax credit = $1,751
• 40 year old parents with two kids making $50,000
Unsubsidized silver premium = $10,563
Family contribution = $3,365
Tax credit = $7,198
• 60 year old couple making $50,000
Unsubsidized silver premium = $14,986
Family contribution = $4,750
Tax credit = $10,236
How will people get the tax credit?
Outreach and Consumer Assistance Efforts in California
• $43 million in outreach and education grants from Covered California.
– Navigators will provide community-based outreach.
– In-person assisters will help people apply for assistance, getting paid
$58 per successful application.
• $86 million in advertising from Covered California.
• $225 million commitment from the California Endowment to support
implementation of the ACA in California, with a particular focus on
outreach.
Income Verification
• If Applicants estimate an
increase in income:
– Up to 10% higher
• No additional verification
– More than 10% higher
• Additional verification, e.g. pay
stub
• Or self-attestation
• If Applicants estimate an
decrease in income:
– Additional verification required
– Rely on electronic data
Maximum Repayment of Tax Credit
Income
(Percent of Poverty)
Individual
Family
Up to 100% FPL
No Repayment
No Repayment
100% - 199% FPL
$300
$600
200% - 299% FPL
$750
$1,500
300% - 399% FPL
$1,250
$2,500
400% FPL and up
Entire amount of overpayment
Entire amount of overpayment
Opportunities and Challenges Looking Ahead
• Historic opportunity to: expand coverage to tens of millions of uninsured
Americans and make it more accessible.
• Enrollment may be low at first. Effective outreach, especially to the young
and healthy, is key to the ACA’s success.
• Are people getting the help they need to understand new coverage
options and enroll?
• There will inevitably be technical glitches. It will matter how they are
perceived, and whether they get fixed quickly.
• What happens to the safety-net for those left out of expanded insurance?
• Some people will be worse off as a result of reform, and will likely blame it
on the ACA. Many people will be better off, and may or may not credit the
ACA.
• 2014 is not the end. Reform will keep getting reformed.