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Tuesday, November 12, 2013

Health Insurance Premium Credits in the Patient Protection and Affordable Care Act (ACA)

Bernadette Fernandez
Specialist in Health Care Financing

Thomas Gabe
Specialist in Social Policy

New federal tax credits were authorized in the Patient Protection and Affordable Care Act (ACA, P.L. 111-148, as amended), to help certain individuals pay for health insurance coverage, beginning in 2014. The tax credits will go toward covering premiums for health insurance offered through exchanges—marketplaces offering private health plans. ACA also establishes subsidies to reduce cost-sharing expenses.

ACA requires exchanges to be established in every state by January 1, 2014, either by the state itself or by the Secretary of Health and Human Services (HHS). Exchanges will not be insurers, but will provide eligible individuals and small businesses with access to private health insurance plans. Generally, the plans offered through the exchanges will provide comprehensive coverage and meet all ACA market reforms, as applicable.

The new premium credits established under ACA will be advanceable and refundable, meaning taxpayers need not wait until the end of the tax year in order to benefit from the credit, and may claim the full credit amount even if they have little or no federal income tax liability. Although the premium credits will not be available until 2014, the examples provided in this report estimate premium credit amounts by income levels and age, if the credits were available in 2013. Under ACA, the amount received in premium credits is based on income tax returns. These amounts are reconciled in the next year and can result in overpayment of premium credits if income increases, which must be repaid to the federal government. ACA limited the amount of required repayments. Since the enactment of ACA, these limits have been amended twice, under P.L. 111-309 and P.L. 112-9.

In addition to premium credits, ACA authorized new cost-sharing subsidies. Certain premium credit recipients will also be eligible for reductions in their annual cost-sharing limits. Moreover, certain low-income individuals will receive additional subsidies in the form of reduced cost sharing requirements (e.g., lower copayments).

Date of Report: October 30, 2013
Number of Pages: 18
Order Number: R41137
Price: $29.95

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