Sunday, July 1, 2012

The Affordable Care Act - premium assistance

This is the first in what is expected to be a series of short pieces describing selected details of the Patient Protection and Affordable Care Act. Today, we will talk about how the "individual mandate" will affect working families who are not covered by health insurance provided by their employers and who are not eligible for Medicaid.

By now, everyone knows that the individual mandate will compel individuals and families to purchase health insurance. The states will be developing plans for statewide insurance exchanges to make coverage available from sources other than the currently-available commercial insurers, HMOs, and Blue Cross Blue Shield. If the uninsured individual fails to buy insurance, a penalty (which the Supreme Court has determined is a "tax") must be paid. This flow chart published by the Henry J. Kaiser Family Foundation helps to show how and where this penalty applies. For a family of four with a total annual income of $50,000, the penalty assessed would be:

2014 - $500
2015 - $1,000
2016 - $1,500

In addition, section 1401 of the Act provides for financial assistance for those for whom  buying insurance coverage is difficult. That section provides for a refundable and advanceable tax credit, called the "premium assistance credit", to assist with the cost of buying health insurance. A tax credit is a dollar for dollar reduction in tax liability. A refundable credit is one which generates a refund to the taxpayer who does not have any income tax liability because he does not make enough to require that he pay income tax. An "advanceable" refundable tax credit is a new creature in the law. It allows the taxpayer who will be eligible for it to receive the money during the tax year, rather than having to wait until his tax return is filed early the next year. How this will work out in practice has yet to be determined. (Section 1415 does say that the advances will be paid directly to health carriers, not to  individual taxpayers.)

A key question is: How much will the credit be? The language of the statute is horribly impenetrable. The operative language is:
(A) Applicable percentage.
(i) In general. Except as provided in clause (ii), the applicable percentage with respect to any taxpayer for any taxable year is equal to 2.8 percent, increased by the number of percentage points (not greater than 7) which bears the same ratio to 7 percentage points as--
    (I) the taxpayer's household income for the taxable year in excess of 100 percent of the poverty line for a family of the size involved, bears to
    (II) an amount equal to 200 percent of the poverty line for a family of the size involved.
Most sites which try to explain this provision simply make reference to "150% of the federal poverty level," etc., without explaining what the actual dollar amounts are.

The Federal Poverty Level is redefined each year.  This year's FPL for a family of four is $23,870, and four times that amount is $95,480

The statute uses a sliding scale depending on income, up to 400% of the FPL. This means that every person or family with a total income over the 133% figure and less than the 400% figure will be eligible for this assistance. (Those who make less than 133% of the FPL, which comes to $31,747 for a family of four in 2012, and who are not covered by employer-provided insurance, will be eligible for Medicaid coverage under the ACA.) 

The following is a rough and oversimplified calculation (using the 2012 FPL figures) demonstrating how the premium assistance credit will work. For a family of four, the following amounts represent the amount that the family would have to pay for health insurance premiums, with the aid of the credit, if this plan were currently in effect:

This is the same calculation (again, rough and oversimplified) for a married couple with no children: 

This program will be effective in 2014, assuming no change before then. These calculations will need to be updated depending on the FPL figures in effect then. 

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