Individual Subsidies

Tied to Exchange

Eligibility

• Eligible Individuals. Makes credits available to those with household incomes up to 400% of the Federal Poverty Level (FPL) for the family size.
  • Married couples must file joint tax return in order to be eligible for premium subsidies.
  • Special rule for those aliens lawfully present in U.S. with household income below 100% FPL but not Medicaid eligible. These individuals are treated as eligible for Exchange-based subsidies with household income of 100% FPL for the family size involved.
• Ineligible Individuals
  • Prohibits illegal immigrants from receiving subsidies. To receive a premium tax credit, individual must be a citizen or national of the U.S. or an alien lawfully present in the U.S.
  • Generally prohibits those eligible for minimum essential coverage under employer-sponsored plans, Medicare, Medicaid, CHIP, TRICARE, VA and other coverage deemed acceptable by HHS, from receiving subsidies
• Employee Eligibility. Employees may apply for premium credits when offered employer coverage that is below 60% actuarial value or if employee premiums exceed 9.5% of household income. (PPACA §§ 1401, 10105; IRC § 36B)

Credit Amount

• Premium credit is the lesser of the following amounts:
  • Total monthly premium for qualifying health plan(s) to cover taxpayer, spouse and any dependents; or
  • The excess of the “adjusted monthly premium” for the applicable second-lowest-cost Silver plan, over a defined percentage of household income.
• Defined percentage of household income is a sliding scale determined by the Federal Poverty Level (FPL) of the family involved:
  • Up to 133% FPL: 2.0% of income
  • 133-150% FPL: 3.0% – 4.0% of income
  • 150-200% FPL: 4.0% – 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: Capped to 9.5% of income (PPACA §§ 1401, 10105; HCERA § 1001; IRC § 36B)
• “Adjusted monthly premium” is for the second-lowest-cost Silver plan for the rating area where the taxpayer resides. The premium is adjusted for age as allowed under PPACA. If a state is participating in a wellness discount pilot project, the premium, for purposes of determining the tax credit, is determined without regard to any of the discounts for this pilot program. (See “Qualified Health Plans” above for more details on the Silver plan.)
• Indexing
  • Starting in 2015, percentage of income caps are adjusted to reflect the excess rate of premium growth over the rate of income growth for the preceding year. Net effect is that the income caps are expected to increase if premiums grow faster than the rate of income growth. (PPACA § 1401; IRC § 36B)
  • Starting in 2019, a “failsafe mechanism” is applied if the aggregate amount of premium tax credits and cost-sharing reductions exceeds 0.504% of GDP for the preceding year. Mechanism, if applied, further adjusts income caps to reflect excess rate of premium growth over growth in CPI for the preceding year. (HCERA § 1001)
• Benefits offered, in addition to the required “essential health benefits,” are excluded from the portion of the premium used to determine the tax credit amount. Any state mandated benefits, beyond the “essential health benefits” package, are also excluded from the portion of the premium used to determine the tax credit amount. (See “Qualified Health Plans” above for more details on “essential health benefits.”)
  • Special rule for pediatric dental coverage. In the case of individuals enrolling in both a qualified health plan and a standalone plan providing for pediatric dental coverage (as part of the “essential health benefits” package), amounts allocable to pediatric dental coverage will be included in the premium for calculating the premium tax credit, under regulations prescribed by HHS. (PPACA § 1401; IRC § 36B)

Use of Premium Credits

Cost-Sharing Subsidy

• Eligible individuals must be enrolled in a Silver plan.
• Maximum Out-of-Pocket (OOP) Limits. As a first order, cost-sharing subsides reduce OOP limits set at IRC levels for HSA-eligible plans ($5,950 for individuals; $11,900 for families in 2010):
  • Between 100%-200% of the Federal Poverty Level (FPL): OOP limits reduced by 2/3
  • Between 200%-300% FPL: OOP limits reduced by 1/2
  • Between 300%-400% FPL: OOP limits reduced by 1/3
• Coordination with Actuarial Value Limits. HHS will adjust OOP limits, if necessary, to ensure reduced OOP limits do not result in actuarial values (AV) that exceed the following AV limits:
  • 94% AV for between 100%-150% FPL
  • 87% AV for between 150%-200% FPL
  • 73% AV for between 200%-250% FPL
  • 70% AV for between 250%-400% FPL
• Additional Cost-Sharing Reduction for Lower Income Enrollees. HHS will establish procedures for insurers to further reduce cost-sharing to meet the following AVs:
  • 94% AV for between 100-150% FPL
  • 87% AV for between 150-200% FPL
  • 73% AV for between 200-250% FPL
• Treatment of Indians. No cost-sharing for Indians under 300% FPL enrolled in individual market coverage through an Exchange.
• Additional Benefits. Benefits offered, in addition to the required “essential health benefits,” are excluded from any cost-sharing reductions. Any state mandated benefits, beyond the “essential health benefits” package, are also excluded from any cost-sharing reductions. (See “Qualified Health Plans” above for more details on “essential health benefits.”)
  • Special rule for pediatric dental coverage. In the case of individuals enrolled in both a qualified health plan and a stand-alone dental plan, cost-sharing reductions do not apply to the portion of premiums that, under regulations prescribed by HHS, are properly allocable to pediatric dental benefits. (PPACA § 1402; HCERA § 1001)

Advance Payment of Premium Tax Credit and Cost- Sharing Subsidies 

• Advance Determination
  • HHS shall establish a program for determining eligibility and amount for premium tax credits and cost-sharing subsidies. In most cases, advance determination is based on latest tax return (2012 for 2014). Taxpayer advance payments are later reconciled on applicable year’s tax return. (PPACA § 1411)
  • In case of excess advance payments, the taxpayer’s tax liability increases by the amount of any excess payment made by the federal government.
    • Limitation on tax increase for lower-income families whose household income is less than 400% FPL. Increase in tax liability cannot exceed $400 for families or $250 for individuals. Indexed by cost-of-living adjustment after 2014. (PPACA §§ 1411-1413)
• Premium Tax Credit Payment
  • Premium tax credit is paid directly and in advance to the insurer by Treasury to cover a portion of monthly insurance premiums.
  • Insurers must reflect payment on member bill and notify the Exchange and HHS of such reduction. (PPACA §§ 1401, 1412)
• Cost-Sharing Subsidy Payment
  • HHS shall notify insurers if enrollee in a qualified health plan is eligible for cost-sharing subsidies.
  • Insurers shall then notify HHS of any cost-sharing reductions and HHS will make periodic and timely payments to plans. HHS may establish a capitated payment system to take into account the cost-sharing subsidies with appropriate risk adjustments. (PPACA §§ 1402, 1412)

Study on Affordability

Grace Period for Non-Payment

Small Employer Tax Credit

Eligibility

• Small employers: less than 25 full-time equivalent (FTE) employees, with less than $50K in average annual wages.
• Employer must make a nonelective contribution on behalf of each employee enrolled in a qualified health plan in an amount equal to a uniform percentage. Amount must be at least 50% of the premium.
• Tax credit is part of the “general business credit” (a nonrefundable credit) as provided for in IRC § 38(b). (PPACA §§ 1421, 10105; IRC § 45R)

Credit Amount

• Credit amount is up to 35% of employer costs (25% if tax exempt) with sliding scale for firm size and wages.
• Employer costs are lesser of:
  • Nonelective employer contributions to health insurance coverage, or
  • Aggregate amount of nonelective contributions an employer would have made if employees enrolled in a health plan that had a premium equal to the average small group premium (as determined by HHS) for the small group market in a given state.
• Tax-exempt employer credits are the lesser of:
  • Credit allowed as defined by general rules above, or
  • Total amount of income and Medicare (i.e., Hospital Insurance) tax the employer is required to withhold from employees’ wages for the year and the employer share of Medicare tax on employees’ wages.

• Credit amount is up to 50% of employer costs (35% if tax-exempt) with sliding scale for firm size and wages
  • Only qualified health plans offered through the Exchange are eligible for the tax credit
  • Tax credit is limited to first 2 consecutive years of coverage (not taking into account years before 2014)
• Employer costs are lesser of:
  • Employer contributions to selected qualified health plan, or
  • Aggregate amount of contributions an employer would have made if employees enrolled in a qualified health plan that had a premium equal to the average small group premium (as determined by HHS) for the small group market in the rating area in which the employee enrolls for coverage.
• Tax-exempt employer credits are the lesser of:
  • Credit allowed as defined by general rules above, or
  • Amount of payroll taxes during the calendar year in which the taxable year begins

Phase Out Schedule

• Eligibility for Full Small Employer Tax Credit
  • 10 or less full-time equivalent (FTE) employees; and
  • $25K or less in average annual wages.
  • Indexing. After 2013, $25K limit is indexed by the cost of living adjustment.
• Phase Out in the Amount of Credit. (Credit (before any reduction) is multiplied by following to get reduction amount)
  • In the case of more than 10 FTEs, the number of FTEs in excess of 10 divided by 15; plus
  • In the case of average annual wages in excess of $25K, such excess divided by $25K. (PPACA §§ 1421,10105; IRC § 45R)
  • (Note, if employer has both more than 10 FTEs and average annual wages over $25,000, reduction is sum of amount of 2 reductions.)

Qualified Coverage

Calculating Wages and Full -Time Equivalent (FTE) Employees

• Full-time equivalent (FTE) employees are determined by dividing total number of hours of service for which wages are paid by the employer for the taxable year by 2,080. Number is rounded down to next lowest whole number.
  • If an employee works in excess of 2,080 hours, then any such excess is not taken into account for calculating FTEs.
  • Leased employees are included in FTE and wage calculations
• Average annual wages are determined by dividing the aggregate amount of wages paid by the employer during the taxable year by number of FTEs. Number is rounded to the next lowest multiple of $1,000.
• Ineligible employees for FTE and wage calculations:
  • Seasonal employees working for 120 days or less
  • Self-employed individuals
  • Any 2% shareholders of an S corporation
  • Any 5% owner of an eligible small business
  • Family members with certain relationships to above bullets (e.g., dependent, sister, brother). (PPACA §§ 1421, 10105; IRC § 45R)