The Affordable Care Act specifies that an individual or family who is eligible for premium tax credits will be required to pay no more than a fixed percentage of their income based on the second-lowest cost silver plan available in the Marketplace in their coverage area. This applicable percentage varies only by household income as a percentage of the Federal Poverty Level (FPL) and does not depend on household members’ ages, the number of people within the household covered through the Marketplace, or Marketplace premiums. (For examples of 2015 incomes and benchmark premiums for those who are eligible for premium tax credits, see Table 2.) The applicable percentage is converted into a maximum dollar amount the household is required to pay annually for the benchmark plan, and the premium tax credit is applied to make up the difference between the maximum dollar amount and the actual premium, if any. The exact dollar amount of the premium tax credit depends on the premium of the second-lowest cost silver plan available to the household and the cost of covering the family members who are seeking Marketplace coverage.
For example, a woman with an income in 2015 equivalent to 218 percent of FPL will pay a maximum amount of $148 (see Table 2 for 2015 applicable percentages) for the second-lowest cost silver plan in her area. She can choose to buy the second-lowest silver plan if she wishes, and it will cost her up to $148 after premium tax credits. Her premium tax credit for 2015 will be the difference between $148 and what the second-lowest cost silver plan premium would be for her in 2015. She can take her premium tax credit and apply it to whatever plan in any metal tier that best fits her needs.
TABLE 2: Examples of Maximum Monthly Health Insurance Premiums for the Second-Lowest Cost Silver Plan for Marketplace Coverage for a Single Adult in 201510
Source: Applicable percentages for 2015 coverage are available at: www.irs.gov/pub/irs-drop/rp-14-37.pdf. The 2014 Federal Poverty Guidelines, used for premium tax credits for 2015 coverage, are at: http://aspe.hhs.gov/poverty/14poverty.cfm.
Many families may also be eligible for premium tax credits. For example, suppose a family with an income of $60,000 was shopping for Marketplace coverage for 2015 for all four family members. The family’s household income is equivalent to 252 percent of the FPL; therefore, the family’s premium is capped at 8.15 percent of income or no more than $407 per month for the benchmark second-lowest cost silver plan in its local area. If the premium for the second-lowest cost silver plan for the family is $805 per month, the family will receive a tax credit of $398, based on a premium after advance premium tax credits of $407 ($805 – $407 = $398). The family can apply its $398 premium tax credit toward the purchase of coverage in any metal level. Note that the maximum percent of household income paid toward the second-lowest silver plan is adjusted annually by a measure of the difference between premium growth and income growth.
11 Income examples are based on the 2014 federal poverty guidelines for the continental United States. Alaska and Hawaii have higher federal poverty guidelines, which are not shown in this table.
12 In states expanding Medicaid, individuals and families at 100 percent of the FPL who are eligible for Medicaid coverage are not eligible for premium tax credits.