CWA HEALTH CARE REFORM UPDATE: Determining Subsidies on the New Exchanges

How will subsidies be determined on the exchange? What if your income changes through the year?

Individuals without adequate workplace coverage may be eligible for subsidies to help pay for coverage (premium tax credits) and to limit out-of-pocket costs (cost sharing assistance). Subsidy assistance is based on a sliding scale of household income. That is, households with more people and lower income will be eligible for more generous subsidies.

• Premium Tax Credits: The insurance exchanges will calculate the subsidy by setting a maximum price each individual would be expected to pay for a designated “benchmark” plan, as a percentage of household income. The subsidy will be defined as the difference between the amount the individual is expected to pay and the total cost of the plan. Shoppers will be able to take this subsidy and buy any level of coverage they want, as long as they pay the difference between the cost of the plan and the subsidy. 
  • This subsidy takes the form of a refundable credit on the individual’s annual income taxes. Customers on the exchanges can choose to take any portion of their estimated tax credit in advance, meaning the Treasury Department will make a payment directly to the insurance company when the plan is purchased. 
  • At the end of the year the individual will reconcile the subsidy they received on their federal income tax return. If the subsidy received is determined to be too high or too low at the end of the year, individuals will pay or receive the difference as part of their annual income tax bill. Individuals who expect their income to fluctuate significantly through the year may prefer to claim only a portion of their estimated subsidy at the time of purchase to minimize the potential of paying back money when taxes are filed.
• Cost Sharing Assistance: In addition to premium tax credits, low income workers may also be eligible for subsidies that improve the coverage they receive. For households at 250% of the federal poverty level and below, cost-sharing assistance will lower deductibles, coinsurance, out-of-pocket maximums, and/or copays. These subsidies are also work on a sliding scale of income.

Both of these subsidies will be available to people upfront when the coverage is purchased, either online, over the phone, or through a broker or other qualified navigator. The exchanges will have access to electronic data from the Internal Revenue Service, the Social Security Administration, and a credit reporting service (called Equifax) to verify reported income information. When self-reported income is substantially lower than reported from these sources, exchanges will be able to request additional documentation (such as pay stubs) in all or a large sample of such situations .

For more information on ACA subsidies check out this CWA Factsheet.

Kaiser Family Foundation has created a subsidy calculator to try out examples here.

The UC Berkeley Labor Center has also made a subsidy calculator publicly available here.