The New Health Insurance Exchanges: Tax Credits and Cost-Sharing Reductions
Eileen St. Pierre, The Everyday Financial Planner
It’s been a constant message from the advocates of the new health insurance exchanges – there will be help for many of us to help pay for mandated individual health insurance coverage starting in 2014. But what kind of help will be available? It will come in two forms: advanced premium tax credits and cost-sharing reductions.
Advanced Premium Tax Credits
With most tax credits, you have to wait until you file your taxes to get the credit. But the new Advanced Premium Tax Credit available through the Marketplace lets you reduce your monthly insurance premiums right away. The monthly estimated amount of your tax credit will be sent directly to your insurance company. So you just have to pay the net premium amount each month.
- You do have the option to wait to receive the credit when you file your income taxes but why would anyone want to do that?
- This tax credit will be available to individuals and families with incomes between 100% and 400% of the Federal Poverty Level (FPL) – $23,550 to $94,200 for a family of four in 2013 – who do not have access to certain other types of minimum essential coverage.
Here’s where it gets a little confusing. This credit is just an estimate, based on your projected 2014 income that you put on your application. When you file your 2014 taxes in early 2015, you will compute the exact amount of your credit. The actual credit will depend on:
- Your actual household income in 2014, and
- The cost of the Silver plan, adjusted for your age.
You do not need to sign up for the Silver plan, though. You can choose whatever type plan you want. If you choose the cheaper Bronze plan, you could end up paying little to no monthly premium. Just remember that you are not eligible for the tax credit if you sign up for the Catastrophic plan. (Click here to read my column on the types of plans offered by the Marketplace.)
Depending on what happens throughout 2014, you may end up with a higher credit (and a refund) or a lower credit (and have to pay up) when you file your taxes. This is why it is very important to notify the Marketplace (online at www.Healthcare.gov or call the Toll-Free Call Center at 1-800-318-2596) of changes in income and family size.
It sounds like filing our 2014 tax returns is going to get a lot more complicated. Just a reminder for those of you who decide not to purchase health insurance, you will have to pay a penalty at tax time.
In addition to your monthly premiums, you will also have out-of-pocket expenses such as co-pays and deductibles. This is what the government refers to as cost-sharing. Your share of the costs will be about
- 40% for the Bronze plan,
- 30% for the Silver plan,
- 20% for the Gold plan, and
- 10% for the Platinum plan.
Cost‐sharing reductions are available to help reduce these out‐of‐pocket expenses. To be eligible, you must
- have a household income that is less than or equal to 250% of the FPL ($58,875 annually for a family of four in 2013),
- meet the requirements to enroll in a health plan through the Marketplace and receive the tax credit (described above),
- and enroll in a Silver plan.
You will be notified when you apply if you are eligible. Certain American Indians and Alaska Natives who purchase health insurance through the Marketplace do not have to pay co‐pays or other cost sharing if their income is under 300% of the FPL – $70,650 for a family of four in 2013 ($88,320 in Alaska).
My next column in this series will clear up any confusion between Medicare and the new health insurance exchanges.
Visit my Health Care Reform page for more information.