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Health Care Reform:

Health Insurance & Affordable Care Act

Deciphering The Health Law’s Subsidies For Premiums

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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.

Q. How is the maximum premium subsidy amount determined?

A: There is a complex formula that includes household income, as well as the cost of a benchmark insurance plan, which the law has identified as the second lowest priced silver plan – one of four levels of plans -- offered on that exchange.

The law requires consumers to contribute a specific percentage of income to the premium. It’s a sliding scale based on the federal poverty level. For example, if your household income is at 150 percent of the FPL, you are required to contribute 4 percent of income toward the premium. If your income is at 300 percent of poverty, then you’re required to contribute 9.5 percent. The subsidy then makes up the difference between that amount and the cost of the benchmark plan.

Q. Do people have to buy the silver plan?

A: No, an individual can choose any plan they like. They might choose a bronze plan with a lower premium or a higher cost gold or platinum plan. The credit is computed against the silver plan. If they choose a bronze plan with a lower premium, it’s possible the advance payment will cover the entire premium. But the credit cannot exceed the actual premium.

Tue, Jul 23 2013

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