Subsidies

The ACA provides premium subsidies to encourage low-income individuals to enroll in the health insurance exchanges. The subsidies are refundable, advanceable premium tax credits for individuals and families with income between 100 and 400 percent of the federal poverty level (FPL). This stan- dard means that the subsidy is handled through the tax code. If one is eligible for a subsidy of say, $1,000, then one gets a credit of $1,000 toward one’s income tax liability. The credit is refundable, meaning that even if you did not owe $1,000 in taxes, you would still get the $1,000 credit.

The obvious problem with this is that you need to buy coverage in the open enrollment period, but would not get the credit until you filed taxes for that year. That is why the credit is advanceable, meaning that the insurance exchange will use data provided by you to estimate the credit and then use that estimate to reduce the premium by the appropriate amount. When you file income taxes you would report actual income and the precise amount of the subsidy would be calculated. You may get a bigger credit (i.e., a refund) or you may have been given too big a credit, so you would owe the government money for the excess amount. In any event, the ACA allows eligible people to receive their subsidy at the point they are buying coverage in the exchange.

The ACA defines the maximum amount one must pay for health insur- ance as a percentage of one’s income. The difference between the price of the second-cheapest silver plan and the maximum one is obligated to pay is the size of the subsidy. This statement sounds more complicated than it is.

The maximum one must pay for health insurance depends on one’s income.

• 100–138 percent of the FPL: Maximum payment of 2.0 percent of income

• 138–150 percent of the FPL: Maximum payment of 3.0–4.0 percent of income

• 150–300 percent of the FPL: Maximum payment of 4.0–9.5 percent of income

• 300–400 percent of the FPL: Maximum payment of 9.5 percent of income

There is no subsidy for people with incomes below 100 percent of the FPL. This was because the Congress intended that people with incomes below this level would be covered by the Medicaid expansion. As we will see later in the chapter, when the Supreme Court made the Medicaid expansion optional for the states, this created a group of people who were not eligible