Richmond, Va. (PRWEB) August 30, 2014
In order to help eligible individuals and families purchase health insurance through the Exchange, the Affordable Care Act (ACA) created health insurance subsidies in the form of premium tax credits and cost-sharing reductions.
But what exactly are subsidies?
Experient Health, the health insurance arm of the Virginia Farm Bureau, explained it this month in its blog series on health care reform, health insurance and health care issues. The blog was launched last year to keep the community informed of issues and trends that impact their lives.
The ACA created health insurance subsidies, designed to make coverage through an Exchange more affordable by reducing the taxpayer’s out-of-pocket premium costs.
Subsidies became available beginning in 2014, at the same time the Exhanges became operational. The Exchange open enrollment period for the 2014 plan year ended on March 31, 2014. The 2015 annual open enrollment period will be on Nov. 15, 2014.
If an enrollee is eligible for a premium tax credit, advance payments of the credit will be made directly to the insurance company on the family’s behalf. At the end of the year, the advance payments must be reconciled against the amount of the family’s actual premium tax credit, as calculated on the family’s federal income tax return.
"There are two federal health insurance subsidies available with respect to coverage through an Exchange: premium tax credits and cost-sharing reductions," Experient Health wrote. "Both of these subsidies vary in amount based on the taxpayer’s household income and reduce the out-of-pocket costs of health insurance for the insured."
Premium tax credits are available for people with somewhat higher incomes (up to 400 percent of the federal poverty level (FPL)), and they reduce out-of-pocket premium costs for the taxpayer.
Reduced cost-sharing is available for people with lower incomes (up to 250 percent of the FPL).
"Through cost-sharing reductions, these individuals will be eligible to enroll in plans with higher actuarial values and have the plan, on average, pay a greater share of covered benefits," Experient Health wrote. "This means that coverage for these individuals will have lower out-of-pocket costs at the point of service (for example, lower deductibles and co payments)."
Subsidies are calculated on the taxpayer’s return using the taxpayer’s household income and family size for the taxable year. For purposes of determining eligibility for these subsidies, and the amount of any subsidy available, household income is determined using the taxpayer’s federal income tax return for that year.
"However, because these subsidies are provided when the individual purchases insurance, the Exchanges will generally have to determine household income well before the individual files his or her tax return for that year," according to Experient Health.
So what about Premium Tax Credit Payments?
A refundable tax credit is one that is available to an individual even if he or she has no tax liability. An advanceable tax credit allows an individual to receive assistance at the time that he or she purchases insurance, rather than having to pay the premium out of pocket and wait to be reimbursed when filing his or her annual income tax return.
Advance payments of the premium tax credit will be made directly to the insurance company on the family’s behalf.
"At the end of each year, a taxpayer’s subsidy amount will be recalculated using the taxpayer’s household income as reported on his or her tax return, and any difference in the amounts must be reconciled," Experient Health wrote. "If the taxpayer’s income has increased from the amount that he or she reported to the Exchange, and as a result the taxpayer received a larger subsidy than he or she was entitled to, that individual may have to repay part of his or her subsidy."
For more information, contact Experient Health at (855) 677-6580 or visit the Experient Health subsidy education blog post here.