TONY WILSON: Tax credits, subsidies help offset cost of mandatory health coverage

Despite your repeated pleas of “no mas,” we will continue our discussion of Health Care Reform this week, specifically focusing on the tax credits and subsidies associated with the individual coverage mandate.

Under the Patient Protection and Affordable Care Act, the majority of American citizens or legal residents must obtain health insurance coverage beginning Jan. 1, 2014, or they will face a penalty.

As I pointed out last week, those that don’t obtain coverage will be penalized, but help in the form of tax credits and subsidies will be available to many in an effort to help them obtain coverage.

Depending on a person’s income, premium tax credits may be available to help with the costs of coverage. The credits are available to those between 100 percent and 400 percent of the Federal Poverty Level who purchase coverage through a health exchange. The 2013 poverty guideline for a one-person household is $11,490 and $23,550 for a four-person household.

(Shameless plug: I will cover the Exchange and how it works in greater detail in the coming weeks. You do not want to miss those works of literary art.)

The amount of the tax credit a person can receive is based on the premium for the second lowest cost silver plan offered in the Exchange. (Again, I’ll detail what a silver plan is in my outline of the Exchanges.) Depending on the income level, the premium as a percent of income will vary between 2 percent to 9.5 percent of income, as outlined in the chart shown.

Wondering if you are eligible for a premium tax credit? Check out the Kaiser Family Foundation’s subsidy calculator at healthreform.kff.org/subsidycalculator.aspx. By entering some basic info you will be able to determine if you will qualify or not.

I will point out that if you are covered by an employer’s plan that meets the PPACA coverage requirements you will not be eligible for a premium tax credit unless your cost share of that plan exceeds 9.5 percent of your income.

Also, families with incomes at or below 250 percent of poverty can enroll in plans with higher actuarial values, meaning the plan will cover more of the costs thus reducing the out-of-pocket costs to the families.

All these percentages can be confusing, so let’s look at an example offered by the Kaiser Family Foundation to help put this in perspective.

Pat (just for fun I would have gone with “Elvis”) is 45 and has an income in 2014 that is 250 percent of poverty or in real dollars around $29,000. The cost of the second lowest silver plan in the Exchange in Pat’s area is estimated to be $5,700 annually. Under PPACA, Pat would be required to pay no more than 8.05 percent (per our chart above) of income on the premium, about $2,300, for the insurance. Pat’s tax credit is about $3,400 ($5,700 - $2,300 = $,3,400).

So, other than Pat, who else would be eligible for a premium tax credit?

A single individual with a 2014 income of about $46,000 or less would be eligible while a family of four with an income less than approximately $95,000 would be eligible. The specific amount of the credit will depend on actual income.

Individuals eligible for a premium tax credit can receive a refundable tax credit, where the person pays the premium and is refunded the credit. Another option is for the person to receive the premium tax credit in advance, where the person receives the credit at the time they purchase the coverage.

This ends our discussion of the individual mandate. Elvis has left the building.

Questions or comments? Feel free to email me at twilson@nfp.com.

Tony L. Wilson is a principal with NUVISION Financial Corporation based in Conyers. NUVISION is a subsidiary of National Financial Partners Corp. (NFP), which provides benefits solutions for companies.