Subsidies: Who is eligible and how do they work?

June 5, 2013

Starting January 1, 2014, some of your individual clients may be able to get subsidies or tax credits when they buy health coverage. So who can get these subsidies or tax credits, and how do they work? We’ll break it down for you.

Subsidies for individuals

In 2014, people who qualify may be able to get a tax credit from the government to help them buy health coverage and pay their premiums. Or they may qualify for subsidies from the government to help them pay for their out-of-pocket health care costs. And they don’t have to wait until tax time to get it. The tax credit can be used for any individual plan sold on the exchange, or health care marketplace.

Who qualifies

  • Tax credit:
    • People who are U.S. citizens or legally live in the U.S.
    • People earning between 100% and 400% of the federal poverty level if they are not eligible for other sources of minimum essential coverage, including government-sponsored programs such as Medicare and Medicaid or Medi-Cal in California.
    • Single people with household modified adjusted gross incomes from 100% to 400% of the federal poverty level would earn from $11,490 to $45,960 each year.
    • A family of four with household modified adjusted gross income from 100% to 400% of the federal poverty level would earn from $23,550 to $94,200 each year.
  • Subsidy:
    • People with incomes up to 250% of the federal poverty level may also get an extra subsidy when they buy a silver level plan. These subsidies are lower cost shares for services covered by the silver plan. The federal government subsidizes the higher benefits provided by the insurer.

Who doesn’t qualify

  • People who can get Medicare or Medicaid (Medi-Cal in California)
  • People who can get a plan of a minimum value at work with premiums that cost less than 9.5% of their earnings

When health insurance marketplace open enrollment starts

Open enrollment for plans offered through the health insurance marketplace begins on October 1, 2013, and plan coverage starts as early as January 1, 2014.


Health care reform: Know the rules and penalties of the individual mandate

May 29, 2013

The individual mandate starts in January 2014 and is an important part of the Affordable Care Act. The individual mandate requires people legally living in the U.S. to buy a minimum amount of health coverage unless they are exempt. In general, people who don’t have to file taxes due to low income are exempt from the individual mandate.

But how does it work? And what are the penalties for people who don’t get coverage?

How the individual mandate works

When people file their 2014 taxes in 2015, they’ll need to report whether or not they had health coverage in 2014. If they did have coverage, they will need to report if they qualified for a tax credit or subsidy. Health coverage includes a group plan, an individual plan, Medicare or Medicaid. If they don’t have health coverage, they could face a tax penalty. Each year, the penalty increases.

What are the tax penalties?

If a person doesn’t have a health plan, he or she will pay a tax penalty as follows:.

  • 2014: Penalty is the larger amount – $95 or 1% of taxable earnings
  • 2015: Penalty is the larger amount – $325 or 2% of taxable earnings
  • 2016: Penalty is the larger amount – $695 or 2.5% of taxable earnings

What happens if your clients can’t pay for a plan?

People may qualify for a tax credit through the exchange based on their incomes. People earning between 100% and 400% of the federal poverty level can qualify if they are not eligible for other sources of minimum essential coverage, including government-sponsored programs such as Medicare and Medicaid.

This includes:

  • Individuals with modified adjusted gross incomes of $11,490 to $45,960 a year
  • Families of four with modified adjusted gross incomes of $23,550 to $ 94,200 a year.

People may qualify for cost-sharing subsidies based on their income. This includes:

  • Individuals with modified adjusted gross incomes of $11,490 to $28,725 a year.
  • Families of four with modified adjusted gross incomes of $23,500 to $58,875 a year.

To learn about other health care reform topics, check out the timeline and FAQs on our broker/employer health care reform website or visit our member website,

This article applies to:

  • California, Wisconsin, Virginia, Ohio, New York, Nevada, New Hampshire, Missouri, Maine, Kentucky, Indiana, Georgia, Connecticut,  and Colorado
  • Small Group, Large Group,  and Individual (under 65)

IRS Proposed Rules Address Exchange Minimum Value and Affordability Rules for HRAs, HSAs and Wellness

Resource type: Legal Update: archive

Jurisdiction:                                                     USA

The Internal Revenue Service (IRS) released proposed regulations addressing the health insurance premium tax credit under health care reform. The regulations provide guidance on determining whether health coverage under an eligible employer-sponsored plan provides minimum value and is affordable for purposes of determining health exchange-related penalties under health care reform.

PLC Employee Benefits & Executive Compensation


On April 30, 2013, the IRS released proposed regulations addressing health care reform’s premium tax credit for the health insurance exchanges …show full speedread

On April 30, 2013, the IRS released proposed regulations addressing health care reform’s premium tax credit for the health insurance exchanges. The proposed regulations provide guidance on determining whether coverage under an eligible employer-sponsored plan provides minimum value (MV), and include rules for health reimbursement arrangements (HRAs), health savings accounts (HSAs) and wellness program incentives. The regulations are proposed to apply for tax years ending after December 31, 2013.

Close speedread

On April 30, 2013, the IRS released proposed regulations addressing health care reform’s premium tax credit for the health insurance exchanges (see Practice Note, Health Insurance Exchange and Related Requirements under Health Care Reform ( The proposed regulations, which provide guidance on determining whether coverage under eligible employer-sponsored plans provides minimum value (MV), includes rules for health reimbursement arrangements (HRAs), health savings accounts (HSAs) and wellness program incentives. The proposed regulations would apply for tax years ending after December 31, 2013.

Calculating Minimum Value

Under health care reform, starting in 2014, individuals who purchase coverage under a qualified health plan through a health insurance exchange may receive a premium tax credit under Section 36B of the Internal Revenue Code (IRC). However, individuals may not receive a premium tax credit if they are eligible for affordable coverage under an eligible employer-sponsored plan that provides MV and is affordable. Certain large employers may be subject to a penalty under IRC Section 4980H if they do not offer their employees minimum essential coverage that is both affordable and provides MV (see Practice Note, Employer Mandate under Health Care Reform: Overview (

Under IRC Section 36B, a plan fails to provide MV if the plan’s share of the total allowed costs of benefits provided under the plan is less than 60% of the costs. This proportion of the total allowed costs of benefits paid by the plan is called the plan’s MV percentage. In general, the MV percentage is determined by:

  • Dividing the cost of certain benefits the plan would pay for a standard population by the total cost of certain benefits for the population, including amounts the plan pays and amounts the employee pays through cost-sharing.
  • Converting the result to a percentage.

Under the proposed regulations:

  • Employer-sponsored self-insured and insured large group plans need not cover every essential health benefit (EHB) category or conform their plans to an EHB benchmark that applies to qualified health plans.
  • For MV purposes, all amounts contributed by an employer for the current year to an HSA are:
    • taken into account in determining the plan’s share of costs; and
    • treated as amounts available for first dollar coverage.
  • Amounts that are newly made available under an HRA that is integrated with an eligible employer-sponsored plan for the current plan year are taken into account for MV purposes if the amounts may be used only for cost-sharing and not to pay insurance premiums.

According to the IRS, future guidance will provide that whether an HRA is integrated with an eligible employer-sponsored plan will be determined under rules that apply for purposes of health care reform’s restrictions on lifetime and annual limit (see Practice Note, Lifetime and Annual Limits and Cost-sharing Restrictions under Health Care Reform: Application of Annual Limit Rules to HRAs (

Minimum Value and Wellness Program Incentives

Under the proposed regulations, a plan’s share of costs for MV purposes is determined without regard to reduced cost-sharing (for example, deductibles or copayments) available under a nondiscriminatory wellness program. However, for nondiscriminatory wellness programs designed to prevent or reduce tobacco use, MV may be calculated assuming that every eligible individual satisfies the program’s terms relating to prevention or reduction of tobacco use.

An example in the proposed regulations illustrates these rules. The example involves an employer that offers an eligible employer-sponsored plan that reduces the deductible by $300 for employees who either:

  • Do not use tobacco products.
  • Complete a smoking cessation course.

The deductible is reduced by $200 if an employee completes cholesterol screening within the first six months of the plan year. One employee does not use tobacco and his deductible is $3,700. A second employee uses tobacco and her deductible is $4,000. Under this example, only the incentives related to tobacco use are considered in determining the plan’s MV percentage. The first employee is treated as having earned the $300 incentive for attending a smoking cessation course. As a result, the deductible for determining the MV percentage for both employees is $3,700. (The $200 incentive for completing cholesterol screening is disregarded.)

Determining Affordability

The proposed regulations also include rules for determining how HRAs and wellness program incentives are counted in determining the affordability of eligible employer-sponsored coverage. Amounts that are newly made available under an HRA that is integrated with an eligible employer-sponsored plan for the current plan year are taken into account only in determining affordability if the employee may either:

  • Use the amounts only for premiums.
  • Choose to use the amounts for either premiums or cost-sharing.

For wellness programs, an employer-sponsored plan’s affordability is determined by assuming that each employee fails to satisfy the wellness program’s requirements, except those of a nondiscriminatory wellness program related to tobacco use. This means the affordability of a plan that charges a higher initial premium for tobacco users is determined based on the premium charged to either:

  • Non-tobacco users.
  • Tobacco users who complete the related wellness program (for example, attending smoking cessation classes).

However, the proposed regulations include special transition relief, for IRC Section 4980H penalty purposes, for group health plan years beginning before January 1, 2015. Under this relief, certain employers are not subject to a Section 4980H penalty for employees who received a premium tax credit because the employer’s offer of coverage was unaffordable or did not provide MV if the coverage generally would have been affordable or satisfied MV based on required employee premium and cost-sharing applicable for the plan if the employee satisfied wellness program requirements in effect on May 3, 2013. The transition relief applies for rewards expressed as either:

  • A dollar amount.
  • A fraction of the total required employee premium contribution (or, if applicable, employee cost-sharing).

Additional Minimum Value Safe Harbors to Be Announced

Employers can use the MV Calculator provided by HHS and the IRS to determine whether a plan provides MV. In addition, the IRS anticipates that future guidance will include several safe harbors that are examples of plan designs that would clearly satisfy the 60% threshold if measured using the MV Calculator. In the preamble to the proposed regulations, the IRS proposed that plan designs meeting the following specifications would be safe harbors for determining MV, provided that the plans cover all the benefits included in the MV Calculator:

  • A plan with a $3,500 integrated medical and drug deductible, 80% plan cost-sharing and a $6,000 maximum out-of-pocket limit for employee cost-sharing.
  • A plan with a $4,500 integrated medical and drug deductible, 70% plan cost-sharing, a $6,400 maximum out-of-pocket limit and a $500 employer contribution to an HSA.
  • A plan with a $3,500 medical deductible, $0 drug deductible, 60% plan medical expense cost-sharing, 75% plan drug cost-sharing, a $6,400 maximum out-of-pocket limit and drug co-pays of $10/$20/$50 for the first, second and third prescription drug tiers, with 75% coinsurance for specialty drugs.

The IRS requested comments on these and other common plan designs that would satisfy MV and should be designated as safe harbors.

California insurance changes

San Francisco Chronicle by Patrick Johnston –

May 5, 2013:

Over the next month, Californians will begin to get a clearer picture of the historic changes the Affordable Care Act will make in the state’s insurance market for individual plans as it expands coverage to millions of the state’s uninsured residents.

The state is scheduled to start providing the details about the health plans that will be offered through Covered California, a new competitive marketplace for individual, families and small businesses purchasing coverage.

Through Covered California, these Californians can begin purchasing insurance plans on Oct. 1 that will more resemble employer-provided insurance than the bare-bones coverage they may have had in the past.

The plans will go into effect on Jan. 1, and will offer more comprehensive coverage and smaller out-of-pocket expenses for deductibles and co-pays. Pre-existing conditions will no longer be taken into consideration, lifetime limits are eliminated, and subsidies will be available for individuals earning up to $46,000 and for families with an income of up to $94,200.

This will mean that many individuals will pay less for coverage than they did before the new federal law, but some Californians will face higher health insurance premiums.

Those on the lowest end of the income scale could see their premiums decline by as much as 84 percent, according to a report commissioned by Covered California.

But middle- and upper-income Californians who buy their coverage in the individual market and who don’t qualify for the subsidies could face premium increases of as much as 30 percent, the report said. This could be especially true in San Francisco, with its higher median income and growing ranks of self-employed entrepreneurs, who will be seeking insurance in the individual market.

Among the reasons for the higher premiums for these Californians is the shift of out-of-pocket costs into premiums – that is, Californians will have lower co-pays and deductibles because the premiums will absorb more of the underlying cost of care. This shift ultimately could save money for people who use medical services more frequently. Families earning less than $60,000 a year, for example, could save up to 76 percent on the cost of care.

Providing more comprehensive benefits also means Californians in the individual market may pay more than they have before because the plans contain additional benefits – including benefits they might never use, such as pediatric dental care for beneficiaries who have no children.
Younger people may also lose some of their price advantage because of changes in the ways health plans calculate benefits. Because they were considered to be healthier, younger beneficiaries previously paid less than older people. Under the new plan, they will still pay less than older Californians but they will pay more than before. The report estimated these changes would cause Californians under age 25 to face, on average, up to a 25 percent higher premium, while older people would see an increase of about 12 percent if they don’t qualify for subsidies. The report suggested that on average, individual premiums in California would rise 9 percent.

While these subsidies will help reduce premiums for some 2.6 million Californians, they won’t reduce the underlying cost of care, which continues to outpace inflation by almost 250 percent. These underlying costs often are outside health plans’ control, including the rising cost of hospitalization, doctors’ visits, medical tests, prescription drugs and other health care services.

Among the many reasons for the rising costs are unnecessary tests, procedures and drugs, which experts say consume about $1 of every $3 spent on health care. We are an aging population, and older people have more costly medical needs. Also, about 40 percent of adult Californians live with at least one chronic condition, and chronic conditions account for more than 75 percent of all heath care costs.

Health plans are working to reduce costs by providing wellness programs. They offer free counseling for depression, quitting smoking, losing weight, eating healthier and reducing alcohol use. They’re also limiting their overhead to about 11 cents out of every $1 in premiums. Plans are also working collaboratively to more closely align quality and payment in medical treatment and to improve cost transparency for consumers.

The federal Affordable Care Act and state law place tight limits on profits by requiring health plans to spend 80 to 85 cents out of every $1 in premiums on doctors’ and hospitals’ bills, prescription drugs, tests and other health care services for their members.

If the plans fall short of that requirement, then they must provide a rebate. California commercial plans exceeded those requirements by spending, on average, 89 cents out of every $1 in premiums on medical care.

California health plans’ net profit margins are far less than others in the industry, averaging just 3.6 percent annually. Other sectors of health care, such as the pharmaceutical industry, benefited from net profit margins of up to 16.7 percent, according to Yahoo Finance data.

While the federal health care law will expand coverage, increase benefits and make many other changes to help Californians, it does not do enough to address the rising cost of care that continues to drive up the price of premiums.

The prescription for curing our health care system calls for more cooperation among all of us – elected officials, hospitals, physicians, patients and insurers – to lower the underlying costs of care so that we can ensure coverage is affordable.

Health Care Reform Shock: Premium Hike Up To 150%?

Maryland’s largest insurer has proposed hiking average individual rates by  25% next year — and up to 150% for younger enrollees — to meet Health Care Reform’s   mandates.
 Meanwhile, CareFirst BlueCross BlueShield proposed raising premiums for small  employer plans by an average 15%.   The proposed ObamaCare rates in Maryland, just the third state where insurers  have declared their intentions, reinforce concerns raised by actuaries that a  rate shock may be coming.
 While regulators in solidly Democratic Maryland will have their say before  hefty rate increases are approved, and they may be whittled down, CareFirst said  it’s already targeting a 0% margin, down from 3% previously.   The primary factor driving the increase is a shift to guaranteed issue, with  insurers no longer able to price policies based on health status.
 Health Care Reform’s  state insurance exchanges will be able to price a policy based on age, but the  law places a maximum 3-to-1 ratio between premiums for those nearing 65 and  those under 30 vs. the 5-to-1 that is common today.
  These changes, along with the availability of government subsidies intended  to make coverage affordable, will result in an overall sicker population in the  individual market. CareFirst expects average morbidity, an insurance measure of  disease incidence, to rise 25%.
A recent study by the Society of Actuaries lends support to CareFirst’s  contentions. The group projected that the national per-person cost of claims in  the individual market would rise by 32% due to Health Care Reform. In Maryland, the  actuaries projected an increase of more than 60%.   By comparison, in Vermont and Rhode Island, the two other states where  insurers have proposed Health Care Reform’s rate hikes, the actuaries projected modest  decreases in per-person claims.
In general, the actuaries concluded that companies with higher-cost members  would discontinue coverage. Meanwhile, those opting to remain uninsured would be  younger and healthier than the current uninsured population.   “Those most likely to sign up will need coverage the most,” said Joe Antos,  health economist at the American Enterprise Institute.
  For those who qualify for Health Care Reform’s  income-based subsidies, the rate shock  may be limited. But they still might experience deductible shock — particularly  those with income above 250% of the poverty level who get help with premiums but  not out-of-pocket costs.

This article, filed from Los Angeles, appeared in Investor’s Business Daily on Monday 4/29/13 oon htheir online and paper editions…and here is the link.


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