With the roll-out of Health Insurance Marketplaces/Exchanges later this year (for plans effective in 2014) there is considerable uncertainty around the various tax credits and subsidies on premiums, deductibles, co-payments, and coinsurance. The value of these credits and subsidies are dependent on your income and family size and can significantly impact and alleviate your insurance costs in the year ahead. Two of the main assistance and subsidy programs are discussed below.
Premium Assistance Subsidies
The subsidy to lower monthly premium obligations is available for households whose income is 400 percent below the federal poverty level. The subsidy was created to ensure households do not spend more than a certain percent of their income on their mandatory health insurance coverage obligation. Based on 2013 levels (which are revised annually) for individuals the maximum (400%) income level to qualify for the premium assistance subsidy is $45,960 for individuals, $62,040 for a family of two and up to $94,200 for a family of four. The subsidy amount is based on a sliding scale (the lower your income, the more you get) and you’ll the see the actual amount/savings you are eligible for when you purchase your health plan via the marketplace
The premium assistance subsidies will be paid in the form of tax credits that can be deducted from what is owed in federal taxes, depending on how much is spent on health insurance. A monthly option to claim this subsidy is also in the works.
Out-of-Pocket Costs Assistance
Out-of-pocket costs are expenses for medical care that aren’t reimbursed by insurance and include deductibles, coinsurance, and co-payments. The government provided cost-sharing assistance program will limit out-of-pocket-costs based on income and family size. Health insurance companies offering coverage through the Marketplace must lower the amount you pay out of pocket for essential health benefits if your household income is below the following amounts:
- Up to $28,725 for individuals
- Up to $38,775 for a family of 2
- Up to $58,875 for a family of 4
When you apply for coverage in the Marketplace, you’ll learn if you’re eligible for these savings on out-of-pocket costs.
According to the official affordable care site, plans in the Marketplace are separated into 4 different categories: Bronze, Silver, Gold, and Platinum. These categories are based on how much of your medical costs you pay and how much the plan pays when you get medical care. They are not based on plan quality. If you qualify for out-of-pocket savings, you must choose a Silver plan to get the savings. In some cases, having a Silver plan will be like getting the cost-saving benefits of a Gold or Platinum plan for a Silver price. You can choose any category of plan, but you’ll get the out-of-pocket savings only if you enroll in a Silver plan.
Because the subsidies and cost sharing assistance programs are based on income it is important to double check you expected income. If the amount of your expected 2014 income you report isn’t accurate, you may not get the right amount of savings. If you wind up making more money than you predicted on your application, you could have to pay back some or all of the savings you’ve received. You would do this on your next tax return.