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Affordable Care Act - Premium Tax Credits

By: Deanna Scott

September 13, 2013

In this article, we will cover some of the components of the ACA that will help more people acquire health insurance and provide financial assistance for enrollment in the Health Insurance Marketplace.

Q:  What is the Health Insurance Marketplace? Is it the same as the "Exchange"?

AThe ACA sets up insurance exchanges in each state known as American Health Benefits (AHB) Exchanges. "Health Insurance Marketplace" and "state exchange" are terms that are being used to refer to AHB Exchanges. The Health Insurance Marketplace website in each state provides information on all the different plans available for you to choose from, including private insurers (such as Anthem and Southern Health), and federal programs (such as Medicare and Medicaid). The Marketplace site will allow you to learn about the best plan for you, based on your income and the kind of coverage you need.

At your state’s Marketplace, you will complete a basic form, and when you submit it, you will be provided a list of available health plans. The benefits and costs of each plan will be explained. If you have questions, you will directed to call a customer service center, where a trained “navigator” will walk you through the process – including whether or not you are eligible for a tax credit towards your premium costs.

Q:  So the government is going to provide tax credits to some individuals and families for health insurance coverage? Tell me more about how that will work.

A:  Tax credits will be available to those who are eligible to purchase insurance through the Marketplace. The amount of credit you are eligible for will be shown to you right after you submit your application on the website. This is not like most tax credits, where you have to wait until you file your taxes to receive the payment. The new premium tax credit reduces your health insurance costs immediately. If you qualify, you can take the tax credit in the form of advance payments (made directly to the health insurance company) to lower your monthly premiums starting in January 2014.

Q:  What is the amount of these premium tax credits?

A:  The amount of premium tax credit you’re eligible for depends on how much income you or your family expects to earn. When enrollment starts on October 1, 2013 it’s important to ensure that your estimated 2014 income is correct. If the amount isn't accurate, you may not receive the correct amount of tax credit, and it could mean you have to pay back money at the end of the year.

Q:  Can you give me just a rough idea or example of who is eligible for a tax credit and what the cost-savings might be?

A:  Here’s a basic example, taken from the state of Vermont’s Exchange website. A couple with no children and an income of $32,000 enrolled in a state insurance policy, shopping in the Marketplace would, through federal and state premium assistance, see their monthly paid premium decrease from $248 to $134. A single person earning $40,000 a year currently enrolled in a private plan would see a premium decrease from $600 per month to $317 on a state plan, while a family of four with an income of $32,000 on a state plan would pay only $45 per month out of pocket. Remember, these are examples only; your savings may be different.

Q:  What kinds of health care plans will be available in the Marketplace?

A:  Plans will be offered by different insurance companies at four standardized "metal levels": Bronze, Silver, Gold and Platinum. The coverage for all plans at a given level will be the same, but costs and providers may differ. Bronze plans have the lowest premiums and cover 60 percent of health care costs; Platinum plans have the highest premiums and cover 90 percent of health care costs. Silver and Gold fall in between.

The federal government will require all plans to cover "essential benefits," which will include hospital, emergency, maternity, pediatric, prescription drug and lab services, among others. Out-of-pocket expenses will be capped. Insurers will have to sell their plans to anyone who qualifies and are not allowed to deny coverage or charge more based on gender or pre-existing conditions.

It's expected that most of the same players competing in the commercial insurance market will also compete in the Marketplaces: for-profit insurers like United Healthcare and Humana, along with non-profit BlueCross BlueShield (who now holds more than half the market in many states).

Q:  What can you tell me about the CO-OPs? Will all states have them? Are they a more economical choice in general?

A:  CO-OPs will be the new player in the Marketplace. According to the ACA, each state can have (though not all states will) a non-profit Consumer Operated and Oriented Plan, commonly called a CO-OP. The CO-OPs differ from traditional cooperatives in that they're not member-owned but are "community assets.” They differ from insurance companies in that they're not accountable to investors and are governed by a board of directors made up of consumers who are elected to the position by customers. They're similar to health cooperatives like Health Partners in Minneapolis and Group Health in Seattle and will operate in much the same way, following standards laid out in the ACA. They must answer to customers, keep premiums low, and reinvest their profits in quality care or lowering premiums.

Like traditional insurers, the CO-OP will have to manage risk, making sure the premiums it takes in are enough to cover the services it pays for.  Since the federal government will be giving states a loan to help them with the administrative costs of setting up the CO-OP, they will be a partner, sharing in some of the risk.

For more detailed information about Premium Tax Credits and Health Care Marketplaces, check the following websites:

If you have a particular question on anything in this article, call the ACA specialist at PRO-TAX: (434) 220-4705 ext. 4469.