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Overview of Affordability Programs Available Through the Marketplace

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Under the Affordable Care Act, millions of Americans will be eligible to purchase affordable health coverage through Marketplaces. Enrollments will start in October 2013 with an effective date of January 1, 2014.

The Affordable Care Act also provides opportunities for many individuals to reduce the cost of health insurance coverage through premium tax credits and cost-sharing reductions for eligible enrollees. The tax credits may be paid directly to insurance companies on behalf of individuals and families.

The application process that Marketplaces will use as a result of the Affordable Care Act will make it easy for individuals, and the agents and brokers who assist them, to determine if they are eligible for the premium tax credit or cost-sharing reductions.

Overview of Eligibility for Affordability Programs

Some individuals who are eligible to enroll in a QHP will be eligible for financial support to make their health insurance coverage more affordable. As part of the application process, the Marketplace will assess eligibility for premium tax credits and cost-sharing reductions based on household income relative to the Federal Poverty Level (FPL). The 2013 FPL is $11,490 for an individual and $23,550 for a family of four.

Advance Payment of the Premium Tax Credit

The premium tax credit is a new income tax provision to help individuals and families afford health insurance coverage purchased through a Marketplace.

An individual may choose to apply some or all of the tax credit towards QHP premiums costs on an advance basis – with reconciliation at the end of the year – or to receive the credit on his or her federal tax return filed for the coverage year.  

Advance payments of the premium tax credit are paid directly to the insurance company offering the QHP on a monthly basis. The income tax return for the coverage year will reconcile any advance payments of the premium tax credit with the premium tax credit allowed on the return. The Marketplace will provide documentation to the tax filer and to the IRS that will support the reconciliation process in the same way that an employer or bank provides a Form W-2 or Form 1099.

Individuals eligible for a premium tax credit who do not receive an advance payment of the premium tax credit may claim the credit on their income tax return filed for the coverage year.

Eligibility for the Advance Payment of the Premium Tax Credit

Eligibility criteria for advance payment of the premium tax credit are the following:

  • Meets the eligibility criteria for enrollment in a QHP (and ultimately enrolls in a QHP offered through the Marketplace)
  • Has an annual household income between 100% and 400% of the FPL (or lower if a lawfully present non-citizen who is ineligible for Medicaid by reason of immigration status)
  • Be a part of a tax household that will file a tax return and, if the tax household includes a married couple, that will file a joint return
  • Is not eligible for minimum essential coverage (including employer-sponsored coverage, Medicaid, CHIP, Medicare, and other forms of coverage), other than through the Individual Marketplace, unless their employer-sponsored coverage is unaffordable or does not provide minimum value

Advance payment of the premium tax credit are not available for the purchase of catastrophic coverage.

Cost-sharing Reductions

Cost-sharing reductions are subsidies that reduce the amount of out-of-pocket expenses, such as deductibles or coinsurance, an individual is responsible for as part of their coverage under a QHP. 

Some individuals who are eligible for tax credits are also eligible for cost-sharing reductions, depending on income, as determined by their modified adjusted gross income (MAGI). 


Eligibility for Cost-sharing Reductions

Eligibility criteria for cost-sharing reductions are the following:

  • Meets the eligibility criteria for enrollment in a QHP and for advance payment of the premium tax credit
  • Has an annual household income at or below 250% of the FPL, OR an annual household income at or below 300% of the FPL for American Indians and Alaska Natives
  • Is enrolled in a silver level plan through a Marketplace

Summary of Benefits and Coverage and Cost-sharing Reductions

A consumer’s summary of benefits and coverage will summarize the health plan’s benefits that apply to the QHP before taking into account financial assistance the enrollee may receive in the form of cost-sharing reductions. If a consumer is eligible for cost-sharing reductions, the cost sharing (for example, deductibles, coinsurance, or copayments) may be lower than what the consumer sees on his or her summary of benefits and coverage. Consumers who are eligible for cost-sharing reductions can review the cost-sharing information available on the Federally-facilitated Marketplace website or in their health plan’s plan documents to see what their cost sharing might be.

Next Topic: Premium Tax Credits

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*ExploreObamacare.com is not affiliated with any government agency. All information provided is for informational purposes only and no guarantee of the accuracy is hereby implied. The information was the product of researching the Affordable Care Act Bill and is subject to change.
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