Tue, Jul 23 2013
Tax credits to help low- and moderate-income Americans buy health insurance will become available in January under the health law, when for the first time, most people will be required to have coverage or pay a fine.
The process could be complicated for some consumers, but information about how the system will work may help.
Cathy Livingston, a partner with Jones Day in Washington, D.C., who specializes in tax issues involving the federal health law, spoke recently with KHN about how to find out if you’re eligible for a premium subsidy and how the process will work. Before joining the law firm, Livingston worked in the IRS' Office of Chief Counsel.
The credits are available to people who don't get what is considered affordable, comprehensive coverage through their jobs, and whose household income is less than 400 percent of the federal poverty level, which this year is about $46,000 for an individual, or about $78,000 for a family of three.
Most of the 7 million people projected to shop for coverage in new online health insurance marketplaces, also called exchanges, will be eligible for the subsidies, expected to average $5,290 per enrollee.
People who don’t have insurance coverage could face fines, which are $95 per adult and $47.50 per child the first year, or 1 percent of family income, whichever is greater. The fines will rise in later years. Here is an excerpt, edited for length and clarity, of Livingston’s conversation with KHN staff writer Julie Appleby.
Q: The law bases eligibility on household income. What does that include?
A: It is income, not assets. The value of a house, stocks or bank accounts is not taken into consideration. Household income starts with adjusted gross income -- a number people can find on their tax returns. Q: Who determines eligibility?
A: The exchange. It will have information from an applicant's last filed tax return. So, for example, if a person filed taxes on time in 2012, the exchange this fall would have income information from that year. There will also be other sources of information, such as state wage databases to which employers already report every quarter. The application also asks people to project their income for 2014.
Q: What happens once a person is deemed eligible for a subsidy?
A: The exchange will tell applicants the maximum credit they are eligible for. Consumers can decide whether they want to take the maximum or some lesser amount. Those who think their income might increase beyond what they projected, might consider taking less so they won’t have to pay the government back when the year ends. Once an eligible applicant determines how much he or she wants, the exchange will arrange for the amount to be paid every month directly to the insurance company offering the plan the applicant selects. For example, if the monthly premium is $600 and the individual is eligible for $400 [in a subsidy] and opts for that credit, every month the federal government will send $400 to the insurer. The consumer would be responsible for sending the remaining $200.