The Treasury Department proposed regulations Friday for a Premium Tax Credit for buying health insurance as part of the effort to implement the health care reform law.
The tax credit would give millions of middle-class Americans tax benefits that would help them purchase health insurance through the Affordable Insurance Exchanges that states will set up around the country.
The level of financial support would be tailored to the individual’s needs. According to the Congressional Budget Office, when the Affordable Care Act is fully phased in, individuals receiving Premium Tax Credits would get an average subsidy of more than $5,000 a year, ultimately helping 20 million Americans pay for health insurance in qualified health plans.
The Premium Tax Credits are intended to supplement, but not supersede, existing employer-sponsored and government-sponsored health insurance programs, allowing people to keep the coverage they already have.
The tax credit would be generally available to families with incomes between 100 percent and 400 percent of the federal poverty level. That would be between $22,350 and $89,400 for a family of four in 2011. Older Americans who face higher premiums from health insurers would be able to receive larger tax credits.
The tax credits are structured in such a way to control health care costs by incentivizing families to select more cost-effective forms of health insurance coverage. The amount of the tax credit is generally based on a benchmark plan that may be age adjusted. Families who choose to buy health coverage that is less costly than the benchmark plan would pay less money for that coverage.
The Premium Tax Credit is fully refundable, allowing moderate-income families with little federal income tax liability to receive the full benefit of the credit. The credit can also be paid in advance to families with limited cash flow. Since many moderate-income families may not have sufficient cash on hand to pay the full health insurance premium upfront, an advance payment of the premium tax credit would be made available by the Treasury Department directly to the insurance company. The advance payment would help families buy the health insurance they need. Later, the advance payment would be reconciled against the amount of the family’s actual premium tax credit, as calculated on the family’s federal income tax return.
Any repayment due from the taxpayer is subject to a cap for taxpayers with incomes under 400 percent of the federal poverty level. The caps range from $600 for married taxpayers ($300 for single taxpayers) with household income under 200 percent of FPL to $2,500 for married taxpayers ($1,250 for single taxpayers) with household income above 300 percent but less than 400 percent of FPL.
The proposed regulation provides that a taxpayer is not required to repay any portion of the advance payment if a family ends the year with household income below 100 percent of FPL after having received advance payments based on an initial determination by the exchange of ineligibility for Medicaid.
Under the proposed regulations, covered individuals must be legally present in the United States and not incarcerated. They also must not be eligible for other qualifying coverage, such as Medicare, Medicaid, or affordable employer-sponsored coverage.
The credit amount would generally be equal to the difference between the premium for the “benchmark plan” and the taxpayer’s “expected contribution.” The expected contribution would be a specified percentage of the taxpayer’s household income. The percentage increases as income increases, from 2 percent of income for families at 100 percent of the federal poverty level to 9.5 percent of income for families at 400 percent of the federal poverty level. But the actual amount a family pays for coverage would be less than the expected contribution if the family chooses a plan that is less expensive than the benchmark plan.
The benchmark plan is the second-lowest-cost plan that would cover the family at the “silver” level of coverage. The credit would be capped at the premium for the plan the family chooses so no one could receive a credit that is larger than the amount they actually paid for their plan.
Tax credits are available to qualified individuals offered, but not enrolled in, employer-sponsored insurance if (a) it is “unaffordable” (meaning that the self-only premium exceeds 9.5 percent of household income); or (b) it does not provide a minimum value (meaning it fails to cover 60 percent of total allowed costs).
The Treasury Department anticipates that future regulations will define minimum value in a way that preserves the existing system of employer-sponsored coverage, but that does not permit employers to avoid the statutory responsibility standards.
The Treasury also is contemplating whether to provide transition relief with respect to the minimum value requirement for employers currently offering health care coverage. Future guidance from the Treasury will define the minimum value in a way that preserves the existing system of employer-sponsored arrangements, which does not require employers to provide a specific package of health benefits, but that does not permit the employers to avoid responsibility standards. The Treasury said it is contemplating whether to provide appropriate transition relief with respect to the minimum value requirement for employers currently offering health care coverage.
For purposes of applying the employer responsibility provisions, the Treasury anticipates that future guidance will provide a safe harbor permitting employers to base the affordability calculation on the wages they pay their employees instead of employees’ household income.
Register or login for access to this item and much more
All Bank Investment Consultant content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access