Understanding PPACAs Exchange Premium Subsidies

By Kristi R. Gauthier, Esq. Clark Hill PLC
Oct. 29, 2013

In order to make health insurance coverage more affordable to individuals and families with lower and moderate incomes, the Patient Protection and Affordable Care Act (PPACA) provides financial assistance, in the form of premium subsidies, for individuals purchasing insurance coverage on the Marketplace (also known as the Exchange).  However, even with the Exchanges up and running as of October 1st, many people, including employers, are still struggling to understand who is eligible for a premium subsidy. 

Who Is Eligible for the Exchange Premium Subsidies?
Citizens and legal residents of the United States in families with incomes between 100% and 400% of the federal poverty level and who not offered affordable, minimum value coverage through an employer are eligible to receive a premium subsidy to reduce the cost of health coverage on the Exchange.

Who Is Not Eligible for Exchange Premium Subsidies?
The following individuals are not eligible to receive subsidies for Exchange coverage:

• Non-citizens or legal residents of the United States.
• Individuals in families with household income in excess of 400% of the federal poverty level.
• Individuals who are eligible for public coverage, such as Medicaid.
• Individuals who are offered affordable and minimum value coverage through an employer.

What is the Amount of the Exchange Premium Subsidy?
The amount of the premium subsidy varies with income level and is structured so that the cost an eligible individual would have to pay for silver level coverage (a “70/30 plan”) does not exceed a specified percentage of the individual’s income, as follows:
 

How Will Individuals Know They Are Eligible for Exchange Premium Subsidies?
When individuals shop for coverage on the Exchange, they will be asked to predict their income for 2014 and based on this information, as well as IRS information for the previous year’s income reporting, individuals will be informed of the applicable premium subsidy amount, if any. 

If an individual’s income changes from what was predicted and reported to the Exchange, the individual will be obligated to reconcile the premium amount paid with the amount the individual was actually entitled to receive based on actual income levels. If the individual receives more than he/she was entitled to, he/she will owe it back in the form of additional federal taxes. (Note:  There are some caps on the amount a person has to pay back, based on their income.)

How Does Employer Provided Coverage Impact an Individual’s Ability to Obtain a Premium Credit for Exchange Coverage?
If an employer, regardless of size, provides health coverage to its employees that is considered “affordable” and of “minimum value” the employees would not be eligible for any premium subsidies on the Exchange.  This does not mean that the employees could not purchase coverage on the Exchange, it only means that they would not be eligible for any premium subsidies. 

If an employer offers health coverage to its employees but that coverage is not affordable or of minimum value, such an offer of coverage would not preclude an individual from obtaining a premium subsidy.  With that said,  beginning in 2015 if the employer is an “Applicable Large Employer” (meaning an employer that averaged 50 or more full-time equivalent employees in the previous calendar year) and a full-time employee is eligible to obtain a premium subsidy, the employer could face potential penalties under PPACA’s employer shared responsibility provisions.

*This article is not intended to give legal advice. It is comprised of general information. Employers facing specific issues should seek the assistance of legal counsel.

Kristi R. Gauthier is a senior attorney in Clark Hill’s Birmingham office and concentrates her practice in Employee Benefits Law. Kristi has represented clients in a wide variety of employee benefits issues involving health and welfare benefits, as well as retirement plans. Kristi is admitted to practice in the State of Michigan, the U.S. District Court for the Eastern District of Michigan, and the U.S. Sixth Circuit Court of Appeals. She also is active in the legal community with memberships in the American Bar Association, the State Bar of Michigan, and the Oakland County Bar Association where she is a member of the Employee Benefits Committee. Kristi also serves as a member of the Clark Hill Diversity and Inclusion Committee. Kristi has lectured on various employee benefits issues, including ERISA compliance, healthcare reform, COBRA, section 125 plans, 403(b) plans and IRS plan correction programs. Kristi is also a co-author of the ABA publication ERISA Survey of Federal Circuits. Kristi was named a “Rising Star” by Michigan Super Lawyers in 2011.