Under the ACA, many of you who purchase a plan though the marketplace (healthcare.gov) are eligible for a tax credit, called an Advanced Premium Tax Credit. These credits are advanced (or paid) directly to your chosen insurance company each month to lower your premiums. Some of you are also eligible for another type of financial assistance called Cost Sharing Reductions. This assistance is paid directly to your chosen insurance company and reduces your out-of-pocket expenses for copays, deductibles, and co-insurance.
Advanced Premium Tax Credits (APTCs)
Under current law, APTCs are available to those of you with a household income between 100% and 400% of federal poverty guidelines. The specific amount of the tax credit available to you depends on what percentage of your income you are expected to contribute to the cost of your health insurance. This percentage depends on your income, with lower-income families being expected to contribute less (around 2%) than higher income families (around 10%). Your tax credit is then calculated by finding the difference between what you are expected to pay and what it would cost you to purchase a specific plan, called the benchmark plan, in your area. This benchmark plan is the next to the cheapest silver plan that is available in your area.
For example, let’s say your family of four has an income of around $36,000 a year, or 150% of federal poverty. According to the government, you would be expected to contribute around 4% of your income, or $1,440, to the cost of your health insurance. In your county, let’s say that the second cheapest silver plan has a premium of $797.52 per month, or $9,570 over the entire year. Your tax credit would be the difference between the cost of the plan ($9,570) and the amount you are expected to contribute ($1,440). So you would be entitled to an annual tax credit of $8,130 or $678 per month.
Another example, let's say you are an older couple (both 63 years old) at the same percentage of federal poverty, or $24,360 per year. According to the government, you would be expected to contribute around 4% of your income, or $975, to the cost of your health insurance. In your county, let’s say that the second cheapest silver plan has a premium of $1,926 per month, or $23,124 over the entire year. Your tax credit would be the difference between the cost of the plan ($23,124) and the amount you are expected to contribute ($975). So you would be entitled to an annual tax credit of $22,149 or $1,846 per month.
Under the proposed legislation, individuals are entitled to a flat tax credit amount (shown below) based on the age range they fall into at the beginning of the year.
- $2,000 per individual up to age 29
- $2,500 per individual age 30-39
- $3,000 per individual age 40-49
- $3,500 per individual age 50-59
- $4,000 per individual age 60 and older
This amount is then reduced by 10% of the amount the individual’s income is over $75,000 (or $150,000 if filing taxes jointly).
A family’s total tax credit cannot exceed $14,000 per year and is calculated using the oldest five members of the household.
So let’s look at the example family from above. Let’s assume that the family of four is made up of two parents that are 35 years old and two children. Under the AHCA, the family would be entitled to a $9,000 per year tax credit. (Because the family’s annual income is less than $75,000, the amount is not reduced.)
So let’s look at the example couple from above. Under the AHCA, the couple would be entitled to a $8,000 per year tax credit. (Because the family’s annual income is less than $75,000, the amount is not reduced.)
Cost Sharing Reductions
Under the ACA, Cost Sharing Reductions are available for those earning between 100% and 250% of federal poverty guidelines.
While the AHCA does away with Cost Sharing Reductions, it does establish a $100 billion dollar fund to be used by states to lower the out-of-pocket costs of the state’s residents.