Affordable Care Act - how do the tax credits work?

[Blackdog Lin]

Just spent a couple hours helping my sister try to figure out if she wants to apply or continue to go without and pay the penalty next year. With her very-low income, she qualifies for full tax-credits/subsidies/whatever, in that the website says her choice of plans in the bronze category would cost her $0.

But I am unable to figure out from the website exactly how this works. It says "Advance payments of the tax credit can be used right away to lower your monthly premium costs."

Does she get an annual advance tax refund check to put back for paying premiums? Or a monthly check toward premiums? Does the govt./IRS pay the insurance company directly? Does it make a difference that she sign up for coverage before she files her tax return for last year? We know she needs to get it done by (March 31?) to avoid the penalty next year.

Has anyone else qualified for ACA tax credits and knows how this works? Thanks!

[Teacher Terry]

I helped a friend do this and it is my understanding that the government pays the $ directly to the insurance co and the person only pays their share. The thing is you have to guess what you will make in 2014 and if you make more $ then you thought you may end up owing $ to the IRS because you really did not qualify for such a low premium.

[Blackdog Lin]

Thanks Terry. I'm still hoping for some more responses, some more clarity from someone who has actually gone through the process.....

[Teacher Terry]

I did the process for my friend-I have been thru it. You enter your financial info and they tell you what you will pay each month after the subsidies. I actually have spent about 50 hours researching this before helping my friend so I know that you have to guesstimate what your 2014 income will be and that is what your subsidy will be based on. Should that end up being different then you may owe $ at the end of 2014. I guess I was not clear in my previous post-sorry.

[tetrimbath]

I've been through the process too. Here are the notes from my experiences in Washington State. (ACA And HAMP And Me (http://trimbathcreative.wordpress.com/2014/01/15/aca-and-hamp-and-me/) , Rube Goldberg Manages Healthcare (http://trimbathcreative.wordpress.com/2014/01/22/rube-goldberg-manages-healthcare/)) .

At least in WA, the rebates can be applied directly which reduces the monthly bill (so the bill I see should be lower), or taken at the end of the year while paying full rate in the meantime. I think I'll end up experiencing both - accidentally. I paid full rate in 2013, and it took three weeks into 2014 to get the monthly rebate applied (and that rebate changed by the time I actually could take advantage of it.)

[Spartana]

I haven't done it myself but my understanding is that you have 2 choices.

1) Apply for a plan on your state or the federal ACA website. Then pay for your premiums directly to your insurance company in full each month yourself thru out the year. Then apply for the tax credit when you do your 2014 income taxes to reduce any amount of income tax you owe by the amount you are allowed in premium subsidies. I imagine the 2014 income tax forms will have a place on them for this.

or

2) Apply for a plan on your state or the federal ACA website. At that time you can estimate your 2014 income level and then opt to have the Feds pay your subsidy directly to your insurance company and your insurance company will bill you the difference. At the end of the year when you do your 2014 income taxes, if your estimated income level is different than your actual income (higher or lower) than you make those adjustments on the tax forms at that time - either paying more in taxes if your income was greater, or less in taxes if your income was lower. Again, I assume there will be a place to do all that on the 2014 tax forms.

So a person can go either way. The only thing I think you need to watch out for is having estimated your income as much too low (and then having lower subsidies and having to pay a lot more towards your insurance than you anticipated) or too high and maybe ending up having your income be below the subsidy cut off. If your taxable income after certain tax deferred deductions (like a 401K or traditional IRA) is below $16K, you will not qualify for subsidies and, if you took them upfront rather than at the end of the year, you might have to repay them in full to the Feds.

[Blackdog Lin]

Ok, thanks guys. Spartana, you've basically answered what she was wanting to know. She says she will NOT pay monthly premiums, even if knowing she will get it back at the end of the year (don't ask - I'm just trying to help her do the research - she has her own quirky financial methodology). So she would be going with your answer 2), having the Feds pay her subsidy directly to the insurance company. That's what she was wanting to know.

But her taxable income for 2014 will indeed be below $16K - she is on fixed income and we can predict it very accurately. Can you help me with where on the website does it discuss this cutoff? I need to research it. All I've done at this point is put her income into the calculator and it came up that she qualified for $0/cost premiums.

She hasn't had health insurance in several years, and one option for her is to continue to do without until she reaches 65 (2 1/2 more years), and just pay the penalties.

[Spartana]

But her taxable income for 2014 will indeed be below $16K - she is on fixed income and we can predict it very accurately. Can you help me with where on the website does it discuss this cutoff? I need to research it. All I've done at this point is put her income into the calculator and it came up that she qualified for $0/cost premiums.


I don't believe she will qualify for any subsidy at an income level of much below $16K/year (the actual cut off is somewhere around $15,800 or so) but if she is in a state that has expanded Medicaid then she should be able to get that and it has no cost to her at all.

If she signs up on the ACA federal site or her state exchange (if her state has one) it should not allow her to sign up for a plan AND get subsidies for it. She should automatically be denied or, if she is in a state that has expanded Medicaid, then she will be directed to towards that. If she signs up for a plan outside the exchanges (like thru an insurance company or website) expecting to receive subsidies then she is being mislead and will be required to pay back the full amount she received in subsidies to the Feds - either now or at the end of the 2014 taxable year. So she really needs to check into it because she will most likely get dinged for the full cost of her premiums if she signs up.

For example, I am in Calif and I tried to sign up for a plan on our exchange website using my real taxable income which is under $15K/year. The website denied me access to any plans and told me I was not qualified for subsidies due to my low taxable income and it sent me to their Medicaid sign up page instead (which I didn't want and didn't sign up) since Calif has expanded Medicaid. The I put in a fake taxable income of $16K/year and the website showed me a bunch of plans I qualified for, their costs and how much in subsidies I could get for each one and how much I would have to pay towards my monthly premiums in addition after the subsidies were applied - which was about $1/month for even a Platinum level plan. So basicly if I wagted to get any subsidies at all I would have to increase my taxable income level to at least $16K/year - then I would get almost 100% premium subsidy. But at the end of the tax year when I did my taxes, I'd have to prove that my income was that high (can't just fudge the numbers) or I would have to re-pay the Feds the full amount of any subsidies I received - which could be thousands of dollars. She also needs to look at her total income level as the ACA subsidies are only for taxable income (MAGI - Modified Adjusted Gross Income) and some forms of income (like disability benefits) are not taxable and thus can't be used to calculate taxable income to receive subsidies

So my advice is to have her check it out with someone who really knows about this stuff - like an official ACA employee that she can call directly to see if she qualifes for subsidies. Otherwise she have to re-pay all the money that was given to her (to her insurance company) by the Feds.

ETA: this is one of the big pitfalls of Obamacare - it leaves out many lower income people, those who don't earn enough to qualify for subsidies and who are in states that don't have expanded Medicaid, from being able to obtain affordable health insurance.

[Lainey]

The pitfall is the mostly Republican governors who declined to expand Medicaid. People in those states should direct their ire to the U.S. Supreme Court on that one.

[Spartana]

The pitfall is the mostly Republican governors who declined to expand Medicaid. People in those states should direct their ire to the U.S. Supreme Court on that one.

True, but what I meant was that the drafters of the ACA should have for seen this as a possibility (even half-witted blonde me did :-)!) and drafted the ACA to allow subsidies to ALL low income people in the nation regardless of what state they are in. Basically the same as they have been able to do with higher earning people - on a sliding scale based on income levels. Why even go the Medicaid route or make a low income cut-off point to begin with.

[Alan]

Why even go the Medicaid route or make a low income cut-off point to begin with.
To eventually transfer the entire expense to the individual states. The Feds promise to fully fund the program for a short time while gradually diminishing the payout, thereby allowing current state governments to reap a benefit while leaving future versions of the same governments holding the bag.

[Blackdog Lin]

Thanks again y'all. Further research on the website leads me to believe she will qualify for the full subsidy. There's a chart showing our state that did NOT expand Medicaid (Kansas), that income below $11,490 would disqualify one for the subsidies. Her income is above that.

I'm thinking at this point she's just gonna have to go ahead and put all her info into the website - apply for the coverage - and see how it ends up. I was hoping to keep her info "out of the system" until we were certain that getting coverage was the way to go for her.

[Spartana]

Thanks again y'all. Further research on the website leads me to believe she will qualify for the full subsidy. There's a chart showing our state that did NOT expand Medicaid (Kansas), that income below $11,490 would disqualify one for the subsidies. Her income is above that.

I'm thinking at this point she's just gonna have to go ahead and put all her info into the website - apply for the coverage - and see how it ends up. I was hoping to keep her info "out of the system" until we were certain that getting coverage was the way to go for her.That would be great for her if I was wrong about the $16K cut off point but I tried numerous calculators at different web sites - both the Fed, my state, and some of the medical insurance companies like Kaiser's - and they all came out the same. Which was basicly if your taxable income was below $16K you couldn't get any subsidies at all, only Medicaid in the expanded states or had to buy it on your own. I know several other posters here (Frugal One I believe and Rob) also were in the same situation. Frugal One, who lives in Florida - a state without expanded Medicaid - could not get subsidies at all, and Rob who lives in Arizona - a state with expanded Medicaid - could only get Medicaid and not the subsides. But maybe Kansas has it's own program for lower income people so she can get subsidies. That would be awesome for her!

[Spartana]

To eventually transfer the entire expense to the individual states. The Feds promise to fully fund the program for a short time while gradually diminishing the payout, thereby allowing current state governments to reap a benefit while leaving future versions of the same governments holding the bag. I guess to make Obamacare work it needs a fairly large pool of higher income (and healthier) people who are paying more in premiums rather than Medicaid recipients. So letting the states deal with those people, and the added cost to the state's taxpayers to fund expanded Medicaid programs once the feds quit funding it 100% (in 3 years I think), it would take a lot of the financial burden off the federal ACA program. It all seems unfair to me that the drafters of the ACA didn't allow for some way that they could fund health insurance for those very low income people in non-expanded Medicaid states. Oh well....

[peggy]

I guess to make Obamacare work it needs a fairly large pool of higher income (and healthier) people who are paying more in premiums rather than Medicaid recipients. So letting the states deal with those people, and the added cost to the state's taxpayers to fund expanded Medicaid programs once the feds quit funding it 100% (in 3 years I think), it would take a lot of the financial burden off the federal ACA program. It all seems unfair to me that the drafters of the ACA didn't allow for some way that they could fund health insurance for those very low income people in non-expanded Medicaid states. Oh well....

OH, I thought we covered that. Maybe we didn't. The ACA DID account for that. That everyone would be covered WAS in the ACA. Unfortunately the right-leaning supreme court tossed out that part of the act, where each state needed to expand medicaid. So, republican led states refused to expand it for no other reason than partisan politics. That's it. NOt that some future 'horrible thing might happen', although they do love their conspiracy loaded slippery slopes. The feds would pay 100% for three years, then 90% there after.
The fear mongering about 'some future' state accountability is bogus simply because what they don't tell you is that THE STATES ARE PAYING FOR IT ALREADY! Yep, somebody has to pay for the emergency health care of the uninsured now, and guess who does that. Yep, right again. It's those self same states who cry wolf ("oh we might have to pay some day somehow...oh dear us!") Don't buy it!

The real question is, why do people keep voting for state legislatures who tell them that their health care isn't even worth 10% of the cost? These people won't last. They may make it one more round, but it's just a matter of time. Even the most ignorant rube will eventually figure out they aren't getting what folks in other states are, and why.

The ACA is working, and being successful. People are getting insured while those already insured are finding that the sky really isn't falling. And actually, most people aren't even affected since they already had insurance through work and that hasn't changed.
Meanwhile, republicans just ask for more rope....

[Spartana]

I think I said this upthread: I do understand there was a plan in the ACA to have the states expand each of their own Medicaid plans too include low income people and that the states and supreme court did not allow that to happen. But what I was saying was why didn't the drafters of the ACA just include everyone in the same subsidy mix (based on a sliding scale of income) and not even bother trying to make the states expand Medicaid? Or at least why don't they have a back up plan so that those people in non-expanded Medicaid states can reap the same benefits as higher earning people?

[Spartana]

Lin - I saw this little blurb on the Kaiser calculator website so maybe Kansas is one of the states that still allow lower income people to go on Medicaid even if they haven't expanded it:

In states that opt out of expanding Medicaid, some people making below this amount ($33,000 for a family of four and $15,857 for a single person) will still be eligible for Medicaid, some will be eligible for subsidized coverage through Marketplaces, and others will not be eligible for subsidies

[Spartana]

BD Lin - OK I just looked at plans in the Kansas exchange, put in your friend at age 62 with a $12,000 income and it looks like your friend is right and she may be able to get a bronze level policy there for $$zero premiums. There is still an out of pocket max of $6350 though if she uses her insurance but no premiums is great. Maybe that is the case with some other states too so worth checking out for people who fall in the no subsidy, no expanded Medicaid cracks. Here is the calculator I used. She can put in her real numbers and county for a more accurate result. Silver plans for her seemed to be around $15/month and had lower deductibles and out of pocket max.

http://www.valuepenguin.com/ppaca/exchanges/ks

[peggy]

I think I said this upthread: I do understand there was a plan in the ACA to have the states expand each of their own Medicaid plans too include low income people and that the states and supreme court did not allow that to happen. But what I was saying was why didn't the drafters of the ACA just include everyone in the same subsidy mix (based on a sliding scale of income) and not even bother trying to make the states expand Medicaid? Or at least why don't they have a back up plan so that those people in non-expanded Medicaid states can reap the same benefits as higher earning people?

Well I don't know for positive, but my guess would be 1) states are always hollering about states rights and state control, yada yada yada...and 2) people at that income level don't usually pay fed taxes but DO pay state income tax, road tax, sales tax, etc...all maner of state taxes. There IS NO free lunch, and it is appropriate for the taxing body to pony up to the bill, so to speak. Still, knowing how the states would need time and space to come to it, the feds said we will support this fully for three years then 90% thereafter. But you (states) need to do SOMETHING...set it up and administer it. Again, these republicans looked at their working poor, then at Obama and said "Nope, we're good.."
And we're right back to it. Totally petulant partisan foot-stomping. Just keep this in mind when you go to vote. The choices really could not be clearer. Who is playing partisan games with your state and neighbors, and who isn't.

[Blackdog Lin]

Spartana: thank you! First thing tomorrow gonna check out your link and see where it shows her.

Out-of-pocket max and high deductibles don't concern her - she's had no health insurance for, I don't know, 6-8 years. She goes to the doctor once a year to have a checkup and get her new script for blood-pressure meds. And pays for it all out of pocket.

It's the rest of us, her siblings, who are trying to get her to get coverage, IF SHE CAN GET IT FOR BASICALLY FREE. Which would at least protect her from medical bankruptcy, if she had a serious illness. She's been lucky so far. We're trying to figure out how for her to get.....a major medical thing.....coverage she can afford (well, free is really all she can afford) should her luck run out.

(and a little thank you - no, some great big gratitude to the universe - that I stuck it out with a big quasi-governmental agency and shouldn't have to worry about health insurance for the rest of my life. It's weird, and unfair, how health insurance works out nowadays, with or without the ACA.)

[softweave]

I recently enrolled through healthcare.gov for coverage in PA (which did not expand Medicaid) after doing extensive research online. The healthcare.gov site has a lot of information and these Health Insurance Subsidies (http://kaiserfamilyfoundation.files.wordpress.com/2013/01/7962-02.pdf) and Reconciliation of Advance Payments for Health Insurance Subsidies (http://kaiserfamilyfoundation.files.wordpress.com/2013/01/8154.pdf) links were also very helpful.

Because my estimated taxable income for 2014 is $12000, I could have paid $0 per month for the silver plan I chose. However, I chose to pay $18 per month and get back the excess $100/mon tax credit in my 2014 federal tax refund. Also, my income level makes me eligible for lower out of pocket fees and reduces my maximum out of pocket costs by a third.

If my actual 2014 income is greater than projected, I will have to pay back some portion of the subsidized premiums at tax time. However, the payback will be based on my actual 2014 income. Single filers whose actual income is less than 200% of the federal poverty level (fpl) will need to pay back at most $300. If you wind up making over 400% fpl you must repay your complete subsidy. If it turns out I'm that lucky, I won't mind repaying my complete subsidy.

[Blackdog Lin]

softweave: thank you for the links. I'm still researching for her, and appreciate any research links anyone can provide.