Eligibility for Premium Tax Credits under the Affordable Care Act (ACA)

Eligibility for Premium Tax Credits under the Affordable Care Act

New federal tax credits, authorized under the Patient Protection and Affordable Care Act (ACA), first became available in 2014 to help certain individuals pay for health insurance.   The tax credits apply toward premiums for private health plans offered through “exchanges” (also referred to as health insurance marketplaces).   Exchanges have been established in every state, either by the state itself or by the Secretary of Health and Human Services (HHS), as required under ACA.  The new premium credits established under ACA are advanceable and refundable, meaning taxfilers 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. Exchanges are structured to assist individuals and small businesses.  There is one type of exchange to serve families & individuals, and another type of exchange serves small businesses (“SHOP exchanges”).  Certain enrollees in the INDIVIDUAL exchanges are eligible for premium assistance in the form of federal tax credits.  ACA also establishes subsides to reduce cost-sharing expenses.

ACA specifies that premium credits will be available to “applicable taxpayers” in a “coverage month” beginning in 2014.  An APPLICABLE TAXPAYER is an individual who:

·         Is part of a tax-filing unit;

·         Is enrolled in a plan through an individual exchange; and

·         Has household income at or above 100% of the federal poverty level (FPL), but not more than 400% FPL.

A COVERAGE MONTH refers to a month in which the applicable taxpayer paid for coverage offered through an exchange, not including any month in which the taxpayer was eligible for “minimum essential coverage” with exceptions.

Given that the premium assistance is provided in the form of tax credits, they are administered through the tax system although advanced payments go directly to insurers.  The credits can only be obtained by qualifying individuals who file federal tax returns.  Married couples are required to file joint tax returns to claim the credit.

Premium credits are available only to individuals and families enrolled in a plan offered through an individual exchange.  Premium credits are not available through the small business (SHOP) exchanges.  Individuals may enroll in a plan through their state’s exchange if they are:

·         Residing in a state in which an exchange was established;

·         Not incarcerated, except individuals in custody pending the disposition of charges;

·         “Lawfully present” residents.

Only lawful residents are allowed to obtain exchange coverage.  Undocumented individuals are prohibited from purchasing coverage through an exchange, even if they could pay the entire premium without a subsidy.

To be eligible for premium credits, individuals must have “household income” within statutorily defined guidelines based on federal poverty level (FPL).  For purposes of premium credit eligibility, household income is measured according to the definition for “modified adjusted gross income” (MAGI).  Under IRS, MAGI is defined as Adjusted Gross Income (AGI) plus certain foreign earned income and tax-exempt interest.  However, for premium credit eligibility purposes, MAGI will also include nontaxable Social Security benefits. An individual whose MAGI is at or above 100% FPL up to and including 400% FPL may be eligible to receive premium credits.

To receive a premium credit, an individual may not be eligible for “minimum essential coverage,” with exceptions.  ACA broadly defines minimum essential coverage to include:

·         Medicare Part A;

·         Medicare Advantage;

·         Medicaid (with exceptions);

·         CHIP (State Children’s Health Insurance Program);

·         Tricare/Tricare for Life ( a program administered by Dep’t of Veterans Affairs);

·         Any plan offered in the individual health insurance market;

·         Any employer-sponsored plan;

·         Any grandfathered health plan.

However, ACA provides certain exceptions regarding eligibility for minimum essential coverage and receipt of premium credits:

o   An individual who is only eligible to obtain coverage through the individual (nongroup) health insurance market may be eligible to receive a premium credit.

o   An individual eligible for an employer-sponsored plan may still be eligible for premium credits if the employer’s coverage is either

o   Not affordable ( employee’s premium contribution toward employer’s self-only plan exceeds 9.5% of household income;  OR

o   Does not provide minimum value;

o   An individual who is eligible for limited benefits under Medicaid may still be eligible for premium credits.

Under ACA, states have an option to expand Medicaid eligibility to include all non-elderly, non-pregnant individuals with income up to 133% FPL.  States that choose to implement ACA Medicaid expansion will receive substantial federal subsidies.  If a person who applied for premium credits in an exchange is determined to be eligible for Medicaid, the exchange must have them enrolled in Medicaid.  Thus, any state that expands Medicaid eligibility to include persons with income at or above 100% FPL would make such individuals ineligible for premium credits.  Premium credit eligibility in such a state begins at the income level where Medicaid eligibility ends.  In general, a person may be eligible for only one subsidized health coverage program at a time.