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What health reform means for the people of Illinois

A blog by IllinoisHealthMatters.org

Friday, September 13, 2013

The federal government pays what? Tax credits and cost-sharing subsidies under the ACA.

Approaching the new changes associated with the Affordable Care Act (ACA) as a consumer can be a daunting task. Understanding what you may qualify for is tough, and where to look for information that makes sense is not easy either. Two concepts designed to make health insurance affordable under the ACA, Advanced Premium Tax Credits (APTCs) and Cost Sharing Reductions (CSRs), will be explained below.

Both are only available to individuals enrolled in a Qualified Health Plan (QHP). Qualified Health Plans are private (not Medicaid or Medicare) health insurance policies purchased through the new health marketplace (where you can compare and purchase health insurance policies) that provide “essential” health benefits. APTCs and CSRs are not available to those who have or are eligible for employer based coverage that is affordable (annual premium is less than 9.5% of employees income).


      Advanced Premium Tax Credits

So what is an APTC?
To understand what an Advanced Premium Tax Credit is, it helps to be broken down into its parts. A tax credit is money that tax payers (that are purchasing Qualified Health Plans through the marketplace) can get back, much like a tax return. However, the credit is for your premium. Your premium is the money paid each month for a health insurance policy. 

The word “advanced” refers to when someone can get this tax credit. The federal government pays money directly to the insurance company (in advance) in order to reduce a person’s premium every month. As an alternative option, a person can pay the full premium and get the tax credit back at tax time. If a consumer is overpaid or underpaid for his/her APTC, it will be addressed when the consumer files taxes. This is known as reconciliation. If a consumer gets a pay raise, then s/he will be responsible for paying the federal government back for the initial overpayment of the APTC should they fail to report a change in income. When the consumer reports the income change, the APTC will be adjusted accordingly. This tax credit is intended to pay for premiums only.

In short, an APTC is money that a health insurance marketplace consumer (or the consumer’s insurance company) receives from the government to help pay the monthly cost (premiums) of having health insurance.

Who qualifies for an APTC?
People buying QHPs through the Illinois Health Insurance Marketplace who have income between 100-400% of the federal poverty level qualify for APTCs, as long as they plan to file a tax return and are not eligible to be claimed as a dependent ($45,960 is 400% of the federal poverty level for a single adult). So, if you are making less and purchase a QHP, you should qualify for an Advanced Premium Tax Credit. To find out how much and if you qualify, check out the Kaiser Family Foundation Subsidy Calculator.

     
      Cost Sharing Reductions

What is a Cost Sharing Reduction (CSR)?
A Cost Sharing Reduction is a subsidy (money paid by the government) to reduce cost sharing. Cost sharing can be understood as the costs a consumer pays out of pocket on services covered by health insurance. Money is paid by the federal government to the consumer’s insurance company to ensure deductibles, copayments, and coinsurance cost less. 

In summary, a CSR makes out of pocket costs lower because the government pays a portion of those costs by giving money to your insurance company.

Who qualifies for a Cost Sharing Reduction (CSR)?
Consumers must have an income below 250% of the federal poverty level, or $28,725. The consumer also must choose a Silver Plan (insurance company pays 70% of essential health benefits), and qualify for an APTC (see above). See here for information on Health Plan Categories & Essential Health Benefits.


So, what is the big difference between APTC and CSR?

Besides the differences in eligibility for these two forms of financial help on the Marketplace, there is one other main difference: a consumer will not have to pay back a CSR even if his/her income increases. An APTC, however, will be decreased if a consumer’s income goes up. So, if a consumer does not report the income change to the Marketplace, then s/he will be required to pay back the amount that was overpaid (as part of an APTC) during tax time.

Emily Gelber, MSW, LSW
Health & Disability Advocates


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