• The most confusing source of premium tax credit eligibility made simple, in one chart

    Many people want to know if they are eligible for premium tax credits for marketplace (exchange) plans. I’ve been asked this question numerous times and seen and heard it asked of others. The typical answer is that if you have coverage from an employer or public program, you are not eligible for tax credits.

    That typical answer leaves one big thing out. Some people with employer-based coverage are eligible for tax credits. If that coverage is deemed unaffordable, tax credit eligibility is conferred. What’s unaffordable? That’s where it gets a bit complicated, especially when considering family coverage. And, the answer is a bit nonsensical in the case of family coverage due to what’s known as the “family glitch.”

    Let me explain … No, wait, let me not explain and instead turn it over to Josh Fangmeier, a health policy analyst based in Ann Arbor. He sent me the flow chart below that conveys exactly when an employed individual and his/her dependent family members are eligible for premium tax credits for exchange-based coverage.

    No, the chart is not wrong in saying that a family member is not eligible for tax credits if employee-only (not employer-based family coverage) is affordable. Yes, you will be denied tax credits if employer-based family coverage is unaffordable by any measure, so long as employee-only coverage is affordable, as defined in the chart. This is the family glitch. It’s in the law. And it would take an act of Congress to fix.

    The chart should cover the vast majority of cases and questions, but there are a few details it leaves out. One, for example, is that “household income” is modified adjusted gross income. (Look it up.) As evidence that this is indeed tricky, it took Josh and me a day of back-and-forth emails to fine tune the chart for clarity and focus. We did cut some specifics to make it maximally accessible and clear. So, please pose other, nuanced questions you have that the chart doesn’t address in the comments.

    tax credit flow chart

    The chart is also available in this PDF. And here is the employer coverage tool (form) that lists the employer-sponsored coverage related information you will need to provide to apply for exchange plan tax credits.

    @afrakt

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    • One additional complication – just because someone is eligible for subsidies (income under 400% of poverty), doesn’t mean they will qualify for them. Here’s a paper I co-authored on this: http://www.nationalcenter.org/NPA653.html

      Basically, because of the way subsidies are calculated (a relatively simple interplay between income and the price of the 2nd-lowest Silver plan), many young people with incomes between about 250 – 300 percent of federal poverty won’t be able to get any subsidies. And the subsidies for those as they approach that threshold are pretty meager.

      And as I think everyone understands, getting young people into the exchanges is a very, very important part of getting them to work (and by work I mean not collapse as a result of a death spiral in premiums).

    • What does “actuarial value” comprise? The value for the individual, perhaps a young, healthy non-smoker? Or the actuarial value for the risk pool?

      Because frankly, unless I misunderstand, 60% of actuarial value is pretty pathetic. That’s saying 40% of health care spending can go to Insurance company paperwork and profits. Just imagine how much more affordable health care would be if costs were 60% of what they are today.

      • Actuarial value is actually the share of medical expenses that an insurer must cover in a given health plan, with members covering the remaining share. For example, a plan with an actuarial value rating of 60% (bronze level) should cover 60% of the members’ medical costs. The members are liable for the other 40% in the form of deductibles, co-pays, and co-insurance.

        Medical Loss Ratio provisions of the ACA limit the share of collected premiums insurers can allocate to overhead and profits. 80-85% of premiums must be spent on medical costs.

    • Could someone clarify whether “family members” includes children who are legally adults? I’m wondering whether 21-year-olds whose parents have group coverage will be turned down for subsidies. Thank you!

      • If a 21-year old has parents with group coverage that covers dependents and the parents claim that child as a dependent (which they can do until the child turns 26), he wouldn’t qualify for subsidies. If the parents don’t claim him as a dependent, he could receive subsidies (assuming his income qualified him).

        On a related note, if a child is claimed as a dependent on the tax return—whether or not he’s claimed as a dependent on the insurance plan—the income used to determine subsidy eligibility is the parents’ income.

        Hope that helps!

        • I’m surprised that the parents can claim a non-disabled child as a dependent on their taxes until he/she turns 26!

          • I’m far, far less familiar with tax policy—it’s entirely possible parents can’t claim children for that long.

            I know that my parents claimed me until I was 22 (through college), and I believe they could have when I was 23, though they didn’t (we debated because I was working full-time but living at home). I’m not sure how many years beyond that a child can be claimed as a dependent for tax purposes.

    • Does COBRA count as “employer coverage offer” in the very first question?

      • I don’t think so. This FAQ from the Kaiser Family Foundation is really helpful, and it suggests that you can drop your COBRA and qualify for subsidies as long as it’s during the open enrollment period. This year, that’s from October through March; in the future it’ll be October through December.

        The FAQ has more details, just search for “COBRA” to find the relevant questions.

    • My husband can buy coverage through his retirement plan. Does that qualify as an “employer?” The state retirement system said that it is not considered an employer, since he is a retiree, collectiong benefits, not an employee. The marketplace help line was not sure, either. What is your opinion?

      • My belief would be that he is not an employee, and is eligible for tax credits on the exchange if your combined income is lower than 400% of the federal poverty level.

      • Based on the “Early Retirees” section of the Kaiser Family Foundation FAQ (I’ll paste the full response to the relevant question below) it sounds like it might depend on the type of coverage he has through his employer.

        I’m 63 and enrolled in a retiree health plan from my former employer. Can I look for better coverage and subsidies in the Marketplace?

        Yes, as long as you do so during the Open Enrollment period.

        People with employer-provided retiree health benefits should know that most early retiree health plans are considered qualified health plans, and thus meet an individual’s requirement for coverage.

        If you are enrolled in such coverage, you can also look at coverage options through the Marketplace, and if your income is between 100% and 400% of the Federal Poverty Level, you may qualify for premium tax credits. However, there’s one exception. Some employers may provide retired employees with access to an account, called a health reimbursement arrangement or HRA, that the retiree may use to reimburse medical expenses, including an individual policy through a Marketplace or in the non-group market. A retiree that signs up for an HRA offered by a former employer is considered to have minimum essential coverage from an employer and would therefore would not be eligible to claim a premium tax credit if he or she enrolled in a Marketplace plan.

        Remember that outside of Open Enrollment, you cannot voluntarily drop your retiree coverage and replace it with other coverage.

    • Wonderful chart. Really helpful.