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

cbpp.org Major Components of the Affordable Care Act Become Effective January 1, 2014 Insurance reforms that 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. 1

Center on Budget and Policy Priorities cbpp.org 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 2

Center on Budget and Policy Priorities cbpp.org 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 3

Center on Budget and Policy Priorities cbpp.org 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

Center on Budget and Policy Priorities cbpp.org Jumping the “Firewall” Between Employer Coverage and Premium Tax Credits Premium Tax Credits Offer of Employer Coverage If unaffordable or inadequate

Center on Budget and Policy Priorities cbpp.org 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 6

Center on Budget and Policy Priorities cbpp.org 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 9.5% Bottom Line: No one is eligible for premium tax credits because family coverage is considered affordable. Premium Cost to Employee for Family Plan: $509/mo ($6,110/yr) 13% of income

Center on Budget and Policy Priorities cbpp.org Coverage Choices for Young Adults 8 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% John could accept this offer. BUT because the plan has MV under 60%, the offer doesn’t preclude premium tax credit eligibility. Marketplace ~150% FPL Cost: $57/month after premium tax credit AV: 94% after cost-sharing reduction John can apply for premium tax credits & cost- sharing reductions Dad’s Plan Cost: $0 to John (Dad pays for family coverage) 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.

Center on Budget and Policy Priorities cbpp.org 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

Center on Budget and Policy Priorities cbpp.org 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

Center on Budget and Policy Priorities cbpp.org Expected Contributions at Certain Income Levels Annual Household IncomeExpected Premium Contribution % of FPLIncome Amount 1 % of IncomeDollar Amount 2 < 133% 3 < $15,2822%< $ %$15,282 - $17,2353% - 4%$459 - $ %$17,235 - $22,9804% - 6.3%$689 - $1, %$22,980 - $28,7256.3% %$1,448 - $2, %$28,725 - $34, % - 9.5%$2,312 - $3, %$34,470 - $40,2159.5%$3,275 - $3, %$40,215 - $45,9609.5%$3,820 - $4,366 > 400%> $45,960n/a 1 for a household of one (i.e. an individual) 2 based 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

Center on Budget and Policy Priorities cbpp.org John: Example 1: 200% FPL Income: $22,980 Expected Contribution: Share of income: 6.3% Amount: $1,448 Premium Credit: $1,570 Example 2: 150% FPL Income: $17,235 Expected Contribution: Share of income: 4% Amount: $689 Premium Credit: $2,329 Age: 24 Plan Cost: $3,018

Center on Budget and Policy Priorities cbpp.org “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

Center on Budget and Policy Priorities cbpp.org John: Age 24 Premium: $3,018 Premium Credit: $1,570 Income: 22,980 (200% FPL) Expected Contribution: 6.3% or $1,448 Age 64 Premium: $9,054 Premium Credit: $7,606

Center on Budget and Policy Priorities cbpp.org Benchmark Rates for APTC Calculations Sample Family Baltimore Metro Eastern MD DC Metro Western MD Individual (age 21)$ 180$ 177$ 168$ 166 Individual (age 64)$ 541$ 530$ 503$ 498 Couple (ages 40 and 38)$ 455$ 446$ 423$ 419 Family of four (ages 60, 55, 24, and 19) $1,185$1,162$1,104$1,091 Family of five (ages 40, 38, 16, 14, and 8) $ 797$ 782$ 744$ 734 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

Center on Budget and Policy Priorities cbpp.org 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

Center on Budget and Policy Priorities cbpp.org 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

Center on Budget and Policy Priorities cbpp.org What Happens When Estimated Income for the Year is Different from Actual Income? Final amount of credit based on actual income 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

Center on Budget and Policy Priorities cbpp.org Cap on Amount of Advance Credits that Must Be Paid Back Income as percentage of poverty line Annual income for an individual (2013 $) Single taxpayers Annual income for a family of four (2013 $) Married taxpayers filing jointly Under 200% Under $22,980$300Under $47,100$600 At least 200% but less than 300% $22,980 - $34,470 $750 $47,100 - $70,650 $1,500 At least 300% but less than 400% $34,470 - $45,960 $1,250 $70,650 - $94,200 $2, % and above $45,960 and higher Full reconciliation $94,200 and higher Full reconciliation

Center on Budget and Policy Priorities cbpp.org 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

Center on Budget and Policy Priorities cbpp.org Sample Cost-Sharing Reduction Plans Actuarial Value Deductible (Indiv) Maximum OOP limit (Indiv) Inpatient hospital Office visit CSR Plan for % FPL ($17,236- $22,980) 87% AV $250 $2,000 $250 / admission $15 CSR Plan for % FPL ($22,981- $28,725) 73% AV $1,750 $4,000 $1,500 / admission $30 CSR Plan for up to 150% FPL (up to $17,235) 94% AV $0 $1,000 $100 / admission $10 Standard Silver – No CSR 70% AV $2,000 $5,500 $1,500 / admission $30

Center on Budget and Policy Priorities cbpp.org 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.

Center on Budget and Policy Priorities cbpp.org 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. Annual Penalty* is the GREATER of: Flat dollar amountPercentage of income 2014 ADULT: $95 1% of “applicable income” (Applicable income = income above the filing threshold) CHILD: ½ of $95 CAP: $285 cap 2015 ADULT: $325 2% of applicable income CHILD: ½ of $325 CAP: $ & beyond ADULT: $ % of applicable income CHILD: ½ of $695 CAP: $2,085 cap

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

Center on Budget and Policy Priorities cbpp.org For more information: Tara Straw,