Premium Tax Credits under the ACA

Cynthia Cox, MPHKaiser Family Foundationcynthiac@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

• 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

Health Insurance Exchanges or Marketplaces

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

Estimated Health Insurance Coverage in 2017

Without Health Reform(56 Million Uninsured)

With Health Reform(29 Million Uninsured)

58% 56%

10% 8%

13%16%

19%10%

9%

Total Nonelderly Population = 279 million

Uninsured

Medicaid/CHIP

Private Non-Group/

Other

Employer-sponsored Insurance

Uninsured

Medicaid/CHIP

Private Non-Group / Other

Employer-sponsored Insurance

Exchange

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% FPLSOURCE: Kaiser Family Foundation

How People Get Covered… With and Without the Medicaid Expansion

Health Insurance Marketplace will Facilitate Enrollment Into Coverage for those without Employer Offered Coverage

Eligibility for Multiple Programs Determined in

Real Time

Information Provided

on Available Plans for Comparison

Enrollment Into Selected Plan

Plan A

Plan B

Plan C

John Doe123 Main Street

12345

Medicaid

Unsubsidized Exchange Coverage

Premium Tax Credits

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

Risk Pool with Adverse Selection

Average cost = $8,417

Average Risk Pool

Average cost = $4,636

Adve

rse

Sele

ction

Adverse Selection: Subsidies Matter

Exchanges: With tax credit, 25 year-old pays $1,700

Unsubsidized, age-rated: 25 year-old pays $2,400

Community rating: Everyone pays $4,800

Example: 25 year-old making $25,000 per year buying an insurance policy costing an average of $4,800 per year

12

Subsidized

Medicaid

Unsubsidized

How Many are Affected Per Year by the Individual Mandate?

Projected Non-Elderly in 2016 = 275 million

Source: Kaiser Family Foundation analysis; Congressional Budget Office; Jonathan Gruber

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

How are tax credit calculated?

14

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-of-Pocket 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

18

Subsidy Calculator

Subsidy Calculator

• Single 25 year old making $20,000Unsubsidized silver premium = $2,772Individual contribution = $1,021Tax credit = $1,751

• 40 year old parents with two kids making $50,000Unsubsidized silver premium = $10,563Family contribution = $3,365Tax credit = $7,198

• 60 year old couple making $50,000Unsubsidized silver premium = $14,986Family contribution = $4,750Tax credit = $10,236

Premium Subsidy Examples (California Average)

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.

• 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

Income Verification

• 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.