The Patient Protection and Affordable Care Act (PPACA) contains’ provisions to lower individual health insurance premiums for those with household incomes below 400% of the federal poverty line (FPL). Starting in 2014 there will be significant health insurance subsidies provided under PPACA for people purchasing individual health insurance coverage through the new public health insurance exchanges.
New rules give states the option of extending coverage in Medicaid to most people with incomes under 133% of the FPL. For households with higher incomes (up to 400% of the FPL), PPACA will provide tax subsidies, reducing premium costs. These tax subsidies will begin in 2014.
Households with income between 100% and 400% of the FPL who purchase coverage through a state health insurance exchange are eligible for a tax subsidy to reduce the cost of their coverage. In states without expanded Medicaid coverage, people with incomes less than 100% of poverty will not be eligible for exchange subsidies, while those with incomes at or above the FPL will be.
Households offered coverage through an employer are also not eligible for premium tax subsidies unless the employer plan does not offer “qualified” coverage or unless a household’s share of the premium for their employer’s group health insurance plan exceeds 9.5% of their income.
The amount of the premium subsidy that a household will receive is based on the premium for the second lowest cost “silver plan” in the individual state health insurance exchange. The silver plan provides the essential benefits as defined by the PPACA. The amount of the subsidy varies with income where the premium a household would have to pay for the second lowest cost silver plan is capped as a percentage of their income as follows:
Income Level Premium as a Percent of Income
Min Income Max Income Min Premium Cap Max Premium
(% of FPL) (% of FPL) (% of Income) (% of Income)
0% 133% 0% 2%
133% 150% 3% 4%
150% 200% 4% 6.3%
200% 250% 6.3% 8.05%
250% 300% 8.05% 9.5%
300% 400% 9.5% 9.5%
The Federal Poverty Level (FPL) was $11,170 for an individual and $23,050 for a family of four through early 2012.
For a single person, here’s actual income levels and premiums based on the 2012 FPL:
Min Income Max Incom Min Premium Cap Max Premium Cap
(Annual) (Annual) (Monthly) (Monthly)
$11,170.00 $14,856.10 $0.00 $24.76
$14,856.10 $16,755.00 $37.14 $55.85
$16,755.00 $22,340.00 $55.85 $117.29
$22,340.00 $27,925.00 $117.29 $187.33
$27,925.00 $33,510.00 $187.33 $265.29
$33,510.00 $44,680.00 $265.29 $353.72
For a family of 4, here’s the actual income levels and premiums based on the 2012 FPL:
Min Income Max Income Min Premium Cap Max Premium Cap
(Annual) (Annual) (Monthly) (Monthly)
$23,050.00 $30,656.50 $0.00 $51.09
$30,656.50 $34,575.00 $76.64 $115.25
$34,575.00 $46,100.00 $115.25 $242.03
$46,100.00 $57,625.00 $242.03 $386.57
$57,625.00 $69,150.00 $386.57 $547.44
$69,150.00 $92,200.00 $547.44 $729.92
A person or household that wants to purchase a plan more expensive (than the second lowest cost silver plan) would have to pay the full difference between the cost of the second lowest cost silver plan and the plan that they wish to purchase.
Example – Steve, a 45-Year-Old Single: He has as an annual income that is 250% of the FPL ($27,925 in 2012). Let’s assume the cost of the second lowest cost silver plan in Steve’s state individual health insurance exchange is $5,733 per year (or $477.75 per month). Since Steve is purchasing coverage in the individual health insurance exchange, Steve would not be required to pay more than 8.05% of income, or $2,248 per year (that’s $187.33 per month), to enroll in the second lowest cost silver plan. The tax subsidy available to Steve would be $3,485 ($5,733 premium minus the $2,248 cap on what Steve is required to pay).
Premium tax subsidies are both refundable and advanceable. A refundable tax subsidy is one that is available to a person even if he or she has no tax liability. An advanceable tax subsidy allows a person to receive assistance at the time that they purchase insurance (i.e. in advance) rather than waiting to be reimbursed after they file their annual income tax return.