Premium assistance

Tuesday is the big day, the opening of the American Health Benefit Exchanges, more commonly referred to simply as the state insurance exchanges.

You can expect a lot of chatter about the health insurance policies sold on the exchanges, discussions about the benefits offered in different plans and the cost of the premiums. Most of these discussions will be a great forum to spread confusion and misinformation.

And consider this. According to the U.S. Department of Education’s National Institute of Literacy, there are 32 million adults who can’t read and 48 million adults can’t read above a fifth grade level. I have a college education and 33 years of experience as a CPA reading the Internal Revenue Code and I have to read this stuff slowly and more than once to grasp it.

Consider the confusion this segment of Americans will suffer, and I would speculate that this is the population with the greatest percentage of uninsured people that would derive the greatest benefit of the exchanges.

The basic promise of the Patient Protection and Affordable Care Act is that all United States citizens will have access to affordable health care beginning in 2014. President Obama tells us that buying health care on the exchanges will be a simple as buying an airplane ticket. Add to this published statements like, “Depending on a sliding scale based on income, a consumer eligible for tax credits could pay as little as about 10 percent of the listed premium or as much as about 80 percent of the listed premium. To be eligible for these tax credits, an individual or family must make less than 400% of the Federal Poverty Level.” It sounds simple. It sounds easy.

My opinion? It’s not simple or easy. I expect to see and hear a lot of frustration and anger.

Affordable, as defined by the Affordable Care Act, means a household with income less than 400% of the Federal Poverty Level will not have to pay more than 9.5% of their household income to purchase insurance coverage for the lowest-cost silver plan if the insurance plan is purchased through the state insurance exchange. To fulfill this promise of affordable health care, Congress devised the premium assistance credit to help pay the insurance premiums.

The premium assistance credit is a refundable income tax credit. A tax credit that is refundable means that the amount of money you will receive from the U.S. Treasury is not dependent on whether you have a current year income tax liability. This means if you filed your income tax return and you had no income tax liability but you qualified for a $1,500 premium assistance credit, you would receive a $1,500 income tax refund, free money.

The primary qualifications to qualify for the premium assistance credit are:
• An individual must purchase a qualified health plan (The only place to purchase a qualified health plan is through your state’s insurance exchange.);

• Household income must be between 100% and 400% of the Federal Poverty Level;

• You will qualify only if you are not able to get affordable coverage through an eligible employer plan;

• You are not claimed as a dependent on another taxpayer’s tax return; and

• You must file a joint income tax return if you are married.

Let’s look at an illustration. Hardworking Joe is married with two children. Joe and his wife are both 50 years old. The children are teenagers. Neither smoke; the parents I mean. He is a self-employed plumber, and his household income is $60,000, and they reside in Fort Smith, Ark. His wife is a stay-at-home mom without income. What will his premium assistance credit total?

If for illustration we use the insurance rates published by the Arkansas Insurance Commission, find the premiums for the Silver 2500 plan for non-smokers, the insurance premiums for the family would be $12,459 a year. (No guarantee this is the correct amount. I used the rate table for 2 adults at 50 years old and 2 kids under 20 years old. I don’t really know if that’s how they will calculate the cost of family coverage. We can find out for sure Tuesday. For now, consider this amount for illustration purposes only.)

Let’s assume this is the benchmark plan.

In calculating the amount of the credit, the first step is to see if Joe’s household income is more than 100% and less than 400% of the Federal Poverty Line. It is. Specifically, Joe’s household income is at 255% of the Federal Poverty Line. Joe would be expected to contribute 8.2% of his household income, or $4,920, toward the cost of the household’s health insurance premiums. Because the cost of the insurance for a year is $12,459, Joe’s family qualify for a premium assistance credit of $7,539, the difference between the insurance premiums and his family’s expected contribution amount.

Joe may also claim this tax credit in advance. Most individuals and families would benefit from claiming the premium assistance credit in advance to help pay the health insurance premiums monthly. This credit is claimed in advance through the insurance companies. Since there is no way to know what his current year premium assistance credit will be until his household income is final at the end the year, the insurance company will estimate the credit based on the previous year’s household income. The insured will reconcile the advanced credit to the actual credit when they file their income tax return.

Now, who is going to explain something as “simple” as the premium assistance credit to a population where 21% of the adult population read at or below a fifth grade education?

Let the angst and confusion begin.