To help lower-income people meet the requirement to have insurance, a premium subsidy will be available to a person who:
- Purchases coverage through a public marketplace/exchange; and
- Has a household modified adjusted gross income between 100 or 133 percent (depending on their state) and 400 percent of Federal Poverty Level (FPL); and
- Is not eligible for minimum essential medical coverage through a government program such as Medicare, Medicaid or CHIP or for employer-provided coverage that both is minimum value (is expected to cover at least 60 percent of claims) and affordable (the cost of single coverage is not more than 9.5 percent of household income).
The amount of available premium subsidy depends on the person’s household income. The percentage of income a person will be expected to pay for coverage ranges from two percent for someone whose income is 100 to 133 percent of FPL to 9.5 percent for someone whose income is 300 to 400 percent of FPL. Basically, the marketplace/exchange will look at how much a specific silver (70 percent value) plan costs in the marketplace/exchange and determine how much of that cost the person should pay based on their income. The person will directly pay his or her share to the insurer and the government will pay the rest directly to the insurer.
The government payment of the premium subsidies is considered an advance tax credit, so when the person files his or her federal income tax return after the end of the year there will be a true-up, and the employee will pay extra tax (to a maximum) or get money back if the monthly subsidies/credits were too large or too small.
Individuals with incomes below 250 percent of FPL also will be eligible for help with deductibles, coinsurance and co-pays.
A person who applies for a premium subsidy will be required to provide information about coverage available through other sources than the marketplace/exchange as part of the application process. If the person says that coverage is available through his employer (or his or her spouse’s employer), the marketplace/exchange will contact the employer to verify that the employee’s information is accurate. Employers will be encouraged, but not required, to respond to these verification requests. With the delay in the employer reporting requirements, it is unclear how the marketplace/exchange will verify if the person has access to affordable, minimum value through an employer during 2014 if the employer does not respond to the request. At this time, it appears the IRS will primarily rely on the taxpayer’s reluctance to misrepresent his status on both the application and federal income tax return. The IRS does have the right to audit both the employer and individual. The marketplace/exchanges must provide detailed information about people obtaining coverage and premium subsidies to the IRS, which may be a method of determining candidates for audits.
Coming up: Who is exempt from the Individual Mandate?
