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 for the second-lowest cost silver plan available in the Marketplace in their local 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 tax credits, see Table 6.) The applicable percentage is converted into a maximum dollar amount the household is required to pay annually for the benchmark plan, and the tax credit is applied to make up the difference between the maximum dollar amount and the actual premium, if any.13 The exact dollar amount of the 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 27-year-old woman with an income of $25,000 in 2014 would be at 218 percent of the FPL.14 For tax credits in coverage year 2014, the amount she pays for the second-lowest cost silver plan is capped at $145 per month. If her premium for the second-lowest cost silver plan available is $336 per month before tax credits, then the amount of the premium tax credit will be $191 per month—the difference between specified contribution to the benchmark plan and the actual cost of the benchmark plan. Her use of the tax credit is not restricted to the second-lowest cost silver plan. She can apply the $191 per month tax credit toward any plan of her choosing in any metal level. By applying her tax credit to the lowest-cost bronze plan, which may be priced at $199 per month, she could obtain Marketplace coverage for just $8 per month after tax credits. If she picks the lowest-cost silver plan, at $226 per month, she pays just $35 per month after tax credits.
Suppose that for 2015, this woman’s income is again equivalent to 218 percent of the FPL. The maximum she will pay for the second-lowest cost silver plan in her area in 2015 is capped at $148 for 2015 (see Table 6 for 2015 applicable percentages). She can choose to buy the second-lowest silver plan if she wishes, and it will cost her up to $148 after tax credits—regardless of how much the second-lowest silver plan’s actual premium may have increased. Her 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. Again, she can take her tax credit and apply it to whatever plan in any metal tier that best fits her needs.
Examples of Maximum Monthly Health Insurance Premiums for the Second-Lowest Cost Silver Plan for Marketplace Coverage for a Single Adult in 201515
|Percent of the Federal Poverty Level||Maximum Percent of Income Paid toward Second-Lowest Cost Silver Plan||Maximum Monthly Premium Payment for Second-Lowest Cost Silver Plan|
|$46,797||401%||Not Applicable||No Limit|
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 income is equivalent to 252 percent of the FPL; therefore, the family’s premium is capped at 8.15% 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, making the premium after tax credits $407 ($805 – $407 = $398). The family can apply its $398 tax credit toward the purchase of coverage in any metal level. Note that the maximum percent of income paid toward the second-lowest silver plan is adjusted annually by a measure of the difference between premium growth and income growth.
13 If the premium of the second-lowest cost silver plan falls below the maximum amount the household pays for benchmark coverage, then the household does not receive a tax credit and pays the full premium for the benchmark plan.
14 For coverage in 2014, the 2013 Federal Poverty Guidelines are used to calculate FPL. For coverage in 2015, the 2014 Federal Poverty Guidelines are used to calculate FPL.
15 For more information on premium tax credits, see the Internal Revenue Service final rule on “Health Insurance Premium Tax Credit,” (Federal Register, May 23, 2012, vol., 77, no. 100, p. 30392; available at: http://www.gpo.gov/fdsys/pkg/FR-2012-05-23/pdf/2012-12421.pdf).
16 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.
17 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.