The Affordable Care Act and Subsidies

We’ve talked a lot about the impending Affordable Care Act (ACA) and what that means for you. Although HealthPlus won’t be included in the federal exchange in 2014, we want to make sure you’re prepared if you are one of the many that, when October 1, 2013 hits, you’re able to understand the options when looking for health insurance coverage for you and your family for 2014.

Photo of a couple smiling

Like we’ve mentioned in the past, employers have the opportunity to continue coverage under the Affordable Care Act. However, in some cases, plans must be adjusted in order to meet the standards of the ACA’s essential health benefits.

There is, however, an offshoot to that. While employers with over 50 employees are required to offer health insurance to their employees unless they want to incur federal penalties, employers with less than 50 employees have the option of whether or not to do so. They can either continue to provide coverage or allow their employees to seek coverage in the federal exchange. Employers of this size will not face the penalty that larger employers would have to contend with.

So, what happens to these employees who are left to navigate the exchange without financial assistance from their employers? Under the ACA, those that are making up to 400% of the federal poverty level are eligible for federal exchange subsidies. That is, depending on family income level, a person is offered a federal tax credit that will go towards covering the premium on health insurance based on a percentage of overall income. The subsidies are as follows:

Income LevelMaximum Premium as a Percentage of Income
Up to 133% FPL2% of income
133%-150% FPL3%-4% of income
150%-200% FPL4%-6.3% of income
200%-250% FPL6.3%-8.05% of income
250%-300% FPL8.05%-9.5% of income
300%-400% FPL9.5% of income

These subsidies are based on the premium for the second-lowest cost silver plan in the area where a person is eligible to purchase coverage. (For more information on the metal tier levels of the ACA, click here.) If you look at the table above, the left column details the percentage the family makes as a percentage of the federal poverty level, and the right column states that, for this income level, your federal tax credit for purchasing a premium for the second-lowest cost silver plan must not exceed X% of your income.

Breaking it down a step further, here are the actual dollar values of the federal poverty level by number of people in a family:

People in Family HouseholdPoverty Guideline
1$11,490
2$15,510
3$19,530
4$23,550
5$27,570
6$31,590
7$35,610
8$39,630
For families/households with more than 8 people......add $4,020 for each additional person

That’s a lot of numbers, so let’s break it down into an example. Fred has a family of four (2 adults and 2 children) and will have an income level in 2014 that is 300% of the federal poverty level. According to the chart above, that puts him at an annual income of $70,650. The premium cost of the second-lowest level silver plan in Fred’s area is projected to be $10,000 for a family of four. If you look at the first chart, Fred cannot pay more than 9.5% of his income for his family’s health insurance premiums. 9.5% of $70,650 is $6,711.75. If this is the case, Fred would pay $6,711.75 of the premium and would receive a federal subsidy of $3,288.25.

Remember, the actual dollar amount of the subsidy is calculated based on the second-lowest silver plan available in your area. If Fred purchased a more expensive plan with a $15,000 premium, for example, he would pay $11,711.75 and would still receive a subsidy of $3,288.25. If Fred purchased cheaper plan with a $7,000 premium, he would pay $3,711.75 and would still receive a subsidy of $3,288.25.

To calculate how much your family will be eligible for in 2014, check out this subsidy calculator from the Kaiser Family Foundation.

Still have questions? Head on over to the HealthPlus health care reform page, where you can take a look at the ACA timeline, a glossary of health care terms and commonly asked questions.

Or you could check out the Kaiser Family Foundation website. Here, you’ll find lots of information on the ACA and what it means for you. It’s one of my favorite resources.

Photo Credit: Flickr’s Rolands Lakis

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