How Does it Affect You?
Employee / Participant Eligibility for Exchanges
In general, employees who are offered insurance through work are not eligible for subsidized exchange coverage, so long as their insurance meets specified requirements. You would only be eligible for subsidized exchange coverage if your income is between 1 and 4 times the federal poverty level and you would have to pay more than 9.5% of your household income for your own coverage through the insurance offered by your employer.Eligibility for Exchanges
Eligibility for Premium Tax Credits
ACA requires Exchanges to provide information to prospective enrollees about their eligibility for premium tax credits. To be eligible for the premium tax credit, a taxpayer:
- Must have household income for the year between 100 percent and 400 percent of the federal poverty line (FPL) for the taxpayer’s family size;
- May not be claimed as a tax dependent of another taxpayer; and
- Must file a joint return, if married.
In addition, to receive the premium assistance, a taxpayer must enroll in one or more qualified health plans (QHPs) through an Exchange. The taxpayer cannot be eligible for minimum essential coverage (such as coverage under a government-sponsored program or an eligible employer-sponsored plan).
Employees who may enroll in an employer-sponsored plan, and individuals who may enroll in the plan because of a relationship with an employee, are generally considered eligible for minimum essential coverage if the plan is affordable and provides minimum value.
Employees who are eligible for minimum essential coverage (that is affordable and provides minimum value) through an employer-sponsored plan are not eligible for the premium tax credit. This is significant because ACA’s shared responsibility penalty for large employers is triggered when a full-time employee receives a premium tax credit for coverage under an Exchange. An employee who is not eligible for a tax credit may still be eligible to enroll in a QHP through an Exchange. However, this would not result in a shared responsibility penalty for the employer.
Affordability Determination
To determine an individual’s eligibility for a tax credit, ACA provides that employer-sponsored coverage is not considered affordable if the employee’s cost for self-only coverage exceeds 9.5 percent of the employee’s household income for the tax year.
On January 30, 2013, the IRS released final regulations to confirm that an employer-sponsored plan is affordable for family members if the portion of the annual premium the employee must pay for self-only coverage does not exceed 9.5 percent of the taxpayer’s household income. Thus, the affordability determination for families is based on the cost of self-only coverage, not family coverage.
Minimum Value Determination
ACA provides that a plan fails to provide minimum value if the plan’s share of total allowed costs of benefits provided under the plan is less than 60 percent of those costs. On February 25, 2013, HHS issued a final rule that outlines the following three approaches for determining whether an employer’s health coverage provides minimum value:
- Approach One: Calculator – HHS has released an MV Calculator that permits an employer to enter information about its health plan’s benefits, coverage of services and cost-sharing terms to determine whether the plan provides minimum value.
- Approach Two: Checklists – HHS and the IRS have indicated that they will provide an array of design-based safe harbors in the form of checklists that employers can use to compare to their plan’s coverage. If a plan’s terms are consistent with or more generous than any one of the safe harbor checklists, the plan would be treated as providing minimum value. HHS and the IRS have not yet issued these checklists.
- Approach Three: Actuarial Certification – An employer-sponsored plan may seek certification by an actuary to determine the plan’s minimum value if the plan contains nonstandard features that preclude the use of the MV Calculator and safe harbor checklists.
Amount of the Premium Tax Credits
The amount of the premium tax credit that an individual can receive generally is the difference between the cost of the premium for the “benchmark plan” and the amount the individual should be able to pay for premiums (expected contribution).
The “benchmark plan” is the second lowest cost silver plan in the Exchange and area where the individual is eligible to purchase coverage. A silver plan is a plan that provides the essential benefits and has an actuarial value of 70 percent (that is, the plan, on average, pays 70 percent of the cost of covered benefits).
The “expected contribution” is calculated as a specified percentage of the taxpayer’s household income for the year, based on the taxpayer’s FPL. The percentage increases as income increases, as follows:
INCOME LEVEL
EXPECTED CONTRIBUTION
Up to 133% FPL
2% of income
133 – 150% FPL
3 – 4% of income
150 – 200% FPL
4 – 6.3% of income
200 – 250% FPL
6.3 – 8.05% of income
250 – 300% FPL
8.05 – 9.5% of income
300 – 400% FPL
9.5% of income
If an individual enrolls in a QHP that is cheaper than the benchmark plan, the actual amount the individual will pay for coverage will be less than the expected contribution. However, an individual that wants to purchase a QHP that is more expensive would have to pay the full difference between the cost of the benchmark plan and the plan they wish to purchase. The credit is capped at the premium for the plan the individual chooses (so that no one receives a credit that is larger than the amount they actually pay for their plan).
Premium Tax Credit Payments
The premium tax credits are both refundable and advanceable. 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 they purchase insurance, rather than paying their premium out of pocket and waiting to be reimbursed when filing their annual income tax return.
Advance payments would be made directly to the insurance company on the family's behalf. At the end of the year, the advance payments are reconciled against the amount of the family's actual premium tax credit, as calculated on the family's federal income tax return. Any repayment due from the taxpayer is subject to a cap for taxpayers with incomes under 400 percent of FPL.
Cost-Sharing Reductions
In addition, individuals with household incomes of up to 250 percent of FPL may also be eligible for reduced cost-sharing (that is, coverage with lower deductibles and copayments). These cost-sharing reductions are intended to protect lower income individuals from high out-of-pocket costs by ensuring that the plan, on average, pays a greater share of covered benefits. In order to receive the reductions, an individual must enroll through an Exchange in a QHP in the silver level of coverage.
