T means Tax Subsidies for Obamacare Up in the Air

T means Tax Subsidies for Obamacare Up in the Air
Personal Finance from A to Z
Eileen St. Pierre, The Everyday Financial Planner

One of the key selling points of the health insurance exchanges was the availability of tax subsidies to immediately offset monthly premiums. For the St. Pierre household, this meant my husband and I could get a Silver plan with a manageable deductible for just $129.50 per month. Indeed, 85% of all the people enrolled in the health insurance exchanges get tax subsidies.

  • Capital-Letter-T-Yellow-PinThe average monthly premium across all plan types is $82.
  • 69% of participants have monthly premiums ≤ $100.
  • 49% of participants pay less than $50 a month.
  • 70% are enrolled on federal health insurance exchanges – that’s 4.7 million people.

Now the future of these tax subsidies is up in the air for those who purchased health insurance on federal exchanges.

On July 22, two appeals courts handed down conflicting rulings. The DC Appeals Court ruled that the Affordable Care Act (ACA) only gives the federal government the authority to grant tax subsidies for those purchasing insurance on state-run exchanges (a more literal interpretation). However, just two hours later, the Fourth Circuit Court of Appeals upheld the subsidies. It interpreted the ACA more broadly, saying that Congress meant for tax subsidies to be available to all who purchase individual health insurance in the Marketplace.

This map published by the Wall Street Journal shows that participants in Florida and Texas have the most to lose if their tax subsidies are no longer allowed:

It appears this issue will most likely be decided by the U.S. Supreme Court, whose next session does not start until October. A decision would not come until late May 2015. In the meantime, tax subsidies will still be issued. With mid-term elections slated for this November, don’t expect any relief from the nasty political ads from both sides of the aisle.