Introduction into PPACA Premium Tax Credit

[sengsational]

I started responding to a PM, and decided it might be useful to just put the response here, in case folks have more to add.

If you're currently buying a policy on a healthcare exchange, when you report income and family size, you pretend you're doing your distant future taxes (the taxes due in April 2017).

We're all doing our 2015 taxes in a few months. That's not the year to be concerned about (presuming you'll be buying a policy now late 2015 or anytime in 2016). In February through April, 2017 we'll all be doing our 2016 taxes. If you figure you'll have spouse and dependents on that form, that's what determines family size. Whatever you guess that your modified gross income will be on your 2016 tax form, that's what you should (somehow) get into the healthcare exchange if you want an advanced premium tax credit. If you just want to pay your premiums in full (monthly full premiums without APTC) during 2016, and instead wait to get the premium tax credit money back after you submit your 2016 tax forms, then you don't need to estimate income at all right now. You can skip that and get your PTC money in early 2017 in a tax refund check or credit against your tax liability. It becomes a cash-flow decision as to whether you want to estimate income and get the advanced PTC or not.

So what you do now is look-up what the federal poverty level is for 2017 for your family size, multiply by 4, and if you're sure you'll have less than that on the MAGI line of your 2017 1040, then you can expect to get some level of PTC. To figure out the magnitude of the tax credit, you can use one of the online calculators. The calculators use your specific geography and the pricing there, along with your income and family size to determine the magnitude of the credit.

Edit: One more point...the calculations don't change if someone in the family happens not to be on the policy that you buy on the ACA. For instance, I have a family of 3, but only my wife and I are on the exchange policy...DD is on a separate student healthcare policy.

 

[MBSC]

Good points. Just a reminder that you must go the APTC route to qualify for Cost Sharing Reductions (CSR) on Silver Plans when your MAGI is below 250% FPL.

The FPL guidelines run a year behind so you're actually looking up 2015 data for 2016 plans.

 

[DatumPoint5]

And here is a link to "one of the online calculators".
Health Insurance Marketplace Calculator | The Henry J. Kaiser Family Foundation

 

[GTFan]

Just a reminder that you must go the APTC route to qualify for Cost Sharing Reductions (CSR) on Silver Plans when your MAGI is below 250% FPL.

And this is a very important point that folks should not forget, because the cost-sharing reductions can be substantial if you think you will qualify. You get to keep the cost-shared Silver plan even if your income is subsequently above 250% FPL, so if you're close enough to get the exchange to accept your income estimate below that line it can be worth it.

 

[photoguy]

The amount of premium assistance is based on capping the cost of the second lowest silver plan in your area. Depending on your MAGI it is capped at anywhere from 2 to 9.5% of your income.

If you are young (say 40s), the amount of premium assistance might be low or nonexistent even if you are under 400% of the FPL.

Cost sharing is only available for silver plans.

I think this depends by state, but for cost sharing on Covered CA you get a huge reduction of deductibles/max OOP at <= 200% of FPL compared to 250%.

 

[sengsational]

Good additions, all.

The OP suggests that estimating income now and waiting until you do your future taxes is not much different, but indeed if you're below 250% and buy a silver ACA policy, you can get a better deal through cost sharing. And there's even a limit to how much of the cost sharing you need to pay back if your income is higher than what you estimated.

Another introductory thing to know about PPACA is that if your estimated income is too low, hc.gov will not offer an APTC. Instead, it will say that you need to turn to Medicaid. I'm no expert in this area, but I understand one may look-up if their state expanded Medicaid. I think expansion means that it aligns better with the PPACA. I just knew I didn't want to receive care under Medicaid because there are so many practitioners that do not participate.

 

[MBSC]

And there's even a limit to how much of the cost sharing you need to pay back if your income is higher than what you estimated.

The repayment limit applies to APTC. You do not repay cost sharing reductions. One exception is if you are short sighted and report an income increase to the exchange mid-year that takes you above 250% FPL. You lose the CSR. In this case, look at the big picture and just "true up" the APTC at tax filing.

APTC repayment limits: Repayments and Refunds: Estimating the Effects of 2014 Premium Tax Credit Reconciliation | The Henry J. Kaiser Family Foundation

Another introductory thing to know about PPACA is that if your estimated income is too low, hc.gov will not offer an APTC. Instead, it will say that you need to turn to Medicaid. I'm no expert in this area, but I understand one may look-up if their state expanded Medicaid.

You pay the full premium below 100% FPL in non-expansion states. They are not pointed to Medicaid but usually qualify for Catastrophic Plans based on hardship exemption.