Financial Assistance & the Affordable Care Act

1. Financial Assistance & the Affordable Care Act October 29, 2013 Tara Straw Center on Budget and Policy Priorities

2. Major Components of the Affordable Care Act Become Effective January 1, 2014 • Insurance reformsthat allow everyone to purchase coverage • Individual mandate to have coverage • Creation of Health Insurance Marketplaces(Exchanges)to make buying insurance easier • Help paying for insurance • Medicaid expansion • Premium tax credits for low- to moderate-income individuals and families.

3. Insurance Reforms Will Make Coverage More Accessible • Requirement to sell to everyone • Prohibition from charging more or excluding people based on health status or pre-existing conditions • Premium costs can vary only based on: • Age • Number of people covered in a policy • Geographic area • Tobacco use • Enrollment limited to defined “open enrollment” and “special enrollment” periods

4. Individual Mandate to Make Insurance Reforms Work • Individuals must have health insurance coverage or pay a penalty • Most existing coverage will satisfy the mandate (e.g., employer-sponsored insurance, Medicare, Medicaid) • Exemptions provided to certain groups, including people who can’t afford coverage • People must apply for exemptions and submit documentation supporting their eligibility • Penalty assessed as a tax

5. Eligibility for Premium Tax Credits • Income between 100% to 400% FPL • US citizenship or lawful present in the US • Must not be eligible for: • Medicare, Medicaid, or most other public coverage • Employer coverage that meets certain requirements • Lawfully residing immigrants with incomes below 100% FPL who are not eligible for Medicaid because of their immigration status • Must file a return for the year in which credit is used • If married, must not file separately

6. Jumping the “Firewall” Between Employer Coverage and Premium Tax Credits Premium Tax Credits If unaffordable or inadequate Offer of Employer Coverage

7. When is Employer Coverage Affordable and Adequate? • Coverage is considered affordable if employee contribution for self-only coverage is less than 9.5% of household income • Employee contribution for self-only coverage is used to determine affordability for both employee and dependents • Coverage is adequate if it has a minimum value (MV) of 60% • MV measures how much plan pays for coverage of certain benefits for a “typical” population

8. Affordability of Family Coverage (Reyes Family) Mom works at Acme. She earns $35,000. Dad is an entrepreneur and earns about $12,000. Family Income: $47,000 Premium Cost to Employee for Employee-Only Plan: $196/mo ($2,350/yr) 5% of income Premium Cost to Employee for Family Plan: $509/mo ($6,110/yr) 13% of income Bottom Line: No one is eligible for premium tax credits because family coverage is considered affordable. 9.5%

9. Coverage Choices for Young Adults John is 24 years old. He holds two part-time jobs. One of the jobs offers coverage. Income: $17,000 Part-Time Job Cost: $85/month 6% of income MV: 40% Marketplace ~150% FPL Cost: $57/month after premium tax credit AV: 94% after cost-sharing reduction Dad’s Plan Cost: $0 to John (Dad pays for family coverage) John could accept this offer. BUT because the plan has MV under 60%, the offer doesn’t preclude premium tax credit eligibility. John can join his Dad’s family plan because he is under age 26. Offer does not make him ineligible for a premium tax credit. John can apply for premium tax credits & cost-sharing reductions

10. How Are Income and Household Size Measured for Premium Credits? • Income: Modified Adjusted Gross Income (MAGI) Adjusted Gross Income (1040, line 37) + Foreign income + Tax exempt interest + Non-taxable Social Security benefits MAGI • Household size: Household unit equals tax unit

11. How Is the Amount of the Tax Credit Determined? Credit amount affected by: • Individual or family’s expected contribution based on their income • Premium cost for benchmark plan Credit amount = Cost of benchmark plan – Expected premium contribution

12. Expected Contributions at Certain Income Levels 1 for a household of one (i.e. an individual) 2based on second-lowest priced SILVER health plan in the Exchange 3 residents <133% FPL that would be eligible for Medicaid are ineligible for tax credits

13. John: • Example 2: 150% FPL • Income: $17,235 • Expected Contribution: • Share of income: 4% • Amount: $689 • Premium Credit: $2,329 • Example 1: 200% FPL • Income: $22,980 • Expected Contribution: • Share of income: 6.3% • Amount: $1,448 • Premium Credit: $1,570 Age: 24 Plan Cost: $3,018

14. “Rating Factors” Affect the Cost of the Benchmark Plan • Age • Limited to no more than 3 to 1 variation • Each family member rated separately • Family size • Total premium for family = Sum of premiums for each family member • Exception: In families with > 3 members under 21, count only 3 oldest children • Geographic area

15. John: Age 24 Premium: $3,018 Premium Credit: $1,570 Age 64 Premium: $9,054 Premium Credit: $7,606 Income: 22,980 (200% FPL) Expected Contribution: 6.3% or $1,448

16. Benchmark Rates for APTC Calculations • Baltimore Metro Area: Baltimore City and Baltimore, Harford, Howard, and Anne Arundel Counties • Eastern Maryland: St. Mary’s, Charles, Calvert, Cecil, Kent, Queen Anne’s, Talbot, Caroline, Dorchester: Wicomico, Somerset, and Worcester Counties • DC Metro Area: Prince George’s and Montgomery Counties • Western Maryland: Garrett, Allegany, Washington, Carroll, and Frederick Counties

17. What Factors Affect What People Will Actually Pay for Coverage? • Tobacco use • Limit to no more than 1.5 to 1 variation • Difference due to tobacco use not accounted for in premium credit calculation • Plan chosen by consumer • Amount of credit pegged to second lowest cost silver plan • But consumer can purchase any metal plan

18. How Do People Get Premium Credits? • Submit application to the Marketplace for advance payment of credits • Marketplace estimates amount of advance payment based on projected income • Credit is sent directly to insurer, individual pays insurer balance of premium • Can also wait until tax filing and claim on return • Only available for months enrolled in a Marketplace health plan

19. What Happens When Estimated Income for the Year is Different from Actual Income? • Final amount of credit based on actualincome • At tax filing time, advance payments received are reconciled with actual credit amount • If income increases, may have to repay • If income decreases, may get more credit at tax time • To avoid repayment, can reduce the amount of advance payment received during the year

20. Cap on Amount of Advance Credits that Must Be Paid Back

21. Cost-Sharing Reductions • People with income up to 250% FPL qualify for cost-sharing reductions that lower the out-of-pocket charges they must pay for medical care covered by the plan • 3 levels of cost-sharing reductions based on income

22. Sample Cost-Sharing Reduction Plans

23. The Penalty for Failure to Obtain Coverage • Penalties are low in 2014 for failure to have coverage • Taxpayer is responsible for penalty for every uninsured person on her tax return • If the penalty isn’t paid, it can be collected out of a future refund • However, taxpayer is not subject to criminal prosecution, liens or levies on property.

24. The Penalty for Failure to Obtain Coverage *Penalties will be calculated by the number of months uninsured. Divide each amount by 1/12 for monthly figure.

25. Exemptions from the Penalty Exemptions Granted by the Marketplace Exemptions Granted through Tax Filing Income below filing threshold Insurance is unaffordable Undocumented resident Short coverage gap (<3 months) • Religious conscience • Hardship • Difficulty paying bills • State failure to expand Medicaid • Unaffordability of insurance Exemptions Granted by Either • Indian tribe membership • Incarceration • Health care sharing ministry

26. For more information: www.healthreformbeyondthebasics.org www.centeronbudget.org • Tara Straw, tstraw@cbpp.org