Beginning January 1, 2014, all citizens of the United States must have health insurance coverage - no exceptions. Failure to maintain health insurance will result in a penalty being assessed by the government for each day an individual is not covered. An individual can obtain eligible health insurance coverage in one of four ways:
- An individual or family whose income is below 100% of the Federal poverty line will be eligible for Medicaid. Currently, the government is attempting to persuade state governments to increase the financial eligibility for Medicaid, however some states have not agreed to do so. The availability of Medicaid coverage will therefore differ from state to state. No Premium Assistance Credit is available to those individuals that qualify for Medicaid.
- If an individual or his family has income that is more than 100% of the Federal poverty level, but less than 400% of the Federal poverty level and not covered by health insurance maintained by his employer, then such individual or family must obtain health insurance from a “Health Insurance Exchange” in that individual’s state. With income between 100% and 400% of the Federal poverty level an individual will be eligible for a premium subsidy (Premium Assistance Credit) in the form of a tax credit to help reduce the cost of the premium for such insurance. (See example below) Premium Assistance Credits are available only for individuals. At this time only 17 states have agreed to establish “Health Insurance Exchanges”. This means that the Federal government is required to operate the exchanges in the other states that have not established exchanges. At this time, exchanges in all states are required to begin enrollment of individuals by October 1, 2013 for health insurance coverage beginning on January 1, 2014.
- If you are over 65 years of age qualified health insurance will be available under the Medicare program.
- An individual and/or his family is covered by a health insurance plan provided to him by his employer.
The available credit is a sliding scale based upon the amount of the individual’s income relative to the Federal poverty line. The credit amount is based upon the “Applicable Percentage” of an individual’s or family’s income as compared with the premium charged by the state exchange for a “silver” level plan. (Note that under Obamacare there will be four levels of healthcare coverage available, the Bronze, Silver, Gold and Platinum Plans. Each of these plans varies basically by the amount of copays and deductibles that must be paid by the covered insured and the premiums are obviously adjusted accordingly.) The new law provides a table to determine the “Applicable Percentage” of income that must be paid for insurance coverage based upon the relation of an individual’s income to the Federal poverty limit. This current table is:
Household Income Relative To Initial Premium % Final Premium %
Federal Poverty Line
Up to 133% 2.0% 2.0%
133%-150% 3.0% 4.0%
150%-200% 4.0% 6.3%
200%-250% 6.3% 8.05%
205%-300% 8.05% 9.5%
300%-400% 9.5% 9.5%
Example: Assume that the premium charged in an area for a “Silver” Plan is $4,500 per year for single coverage (family size of 1), the applicable poverty line is $10,830 (2009 figure). The Taxpayer, a single individual enrolled in a Qualified Health Plan, has income just under 400% of the applicable poverty line of $43,320. Based on the above table, the Taxpayer final premium percentage is 9.5%. The “affordable premium amount” (i.e. the maximum annual premium determined under the Table) for the Taxpayer is equal to $4,115.40 (9.5% x $43,320). The amount allowed to the Taxpayer as a premium assistance credit will be $387.60 (i.e. $4,500 annual premium minus $4,115.40, the affordable premium amount.) The Taxpayer will not get any premium assistance credit if the premium is less than $4,115.40.
Assume that in the above illustration the Taxpayer’s income is equal to 100% of the Federal Poverty Line ($10,830). Based on the above table the Taxpayer’s final premium percentage is 2%. The Taxpayer’s affordable premium amount is $217 (2% of $10,830). The Taxpayer will be required to pay $217 per year towards the $4,500 annual insurance premium and will receive a $4,283 premium assistance credit.
Assume in the illustration above the Taxpayer’s income is $27,075 or 250% of the Federal Poverty Line. Based on the Table the Taxpayer’s final premium percentage is 8.05%. The Taxpayer’s affordable premium amount is $2,179.54 (8.05% x $27,075). Taxpayer will have to pay a premium of $2,179.54 and will receive a premium assistance credit of $2,320.46 ($4,500-$2,179.54).
Anyone earning an income above 400% of the Federal Poverty Line is NOT entitled to a “premium assistance credit.”
IRS CIRCULAR 230 DISCLOSURE NOTICE: IRS Circular 230 regulates written communications about federal tax matters between tax advisors and their clients. To the extent the preceding correspondence and/or any attachment is a written tax advice communication, it is not a full “covered opinion”. Accordingly, this advice is not intended and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS regarding the transaction or matters discussed herein.