How Much Are Obamacare Health Credits Worth?

One of the most important elements of Obamacare are premium assistance credits which are payments the federal government makes for qualifying individuals’ and families’ health insurance premiums.

Related Ads

Need Professional Help? Talk to a Lawyer

Enter Your Zip Code to Connect with a Lawyer Serving Your Area

searchbox small

One of the most important elements of Obamacare are premium assistance credits. These are payments the federal government makes for part (or even all) of qualifying individuals’ and families’ health insurance premiums.

Although they are called credits, these payments are really a government-funded subsidy. You don't need to owe any income taxes to receive the credit. Moreover, the federal government pays the full credit amount for the year directly to your health insurance company when you enroll in your health insurance plan. In other words, you don’t need to wait until your taxes have been filed and processed to receive the credit, nor will you need to pay the full premium when you purchase health insurance and then wait to be reimbursed.

The amount of the credit is determined on a sliding scale based on how much individuals must pay for health insurance as a share of their income. For example, families with incomes of 100% of the federal poverty level ($23,550 for a family of four in 2013), are required to pay no more than 2% of their household income for health insurance. The rest of the cost is paid by the government. At 400% of poverty ($94,200 for a family of four in 2013), families must pay annual premiums that are no more than 9.5% of their household income.

The credit is pegged to the cost of the premium for the second lowest cost silver plan in your health insurance exchange, also called the “benchmark plan.” You can “buy up” from this benchmark by buying a more expensive gold or platinum plan, but the tax credit won’t cover as much of the premium as it will for a silver plan. Conversely, you could “buy down” by obtaining a cheaper bronze plan. Because the premium tax credit is pegged to the cost of a silver plan, it will cover a greater percentage of the premium for a bronze plan.

Example: Sue, a single person, earns $40,000 per year. She is required to pay a maximum of 9.5% of her income ($3,800 per year) for health insurance. If silver level coverage on her state exchange cost $6,000 per year, she would be entitled to a $2,200 annual credit, or $183 per month. She must pay $217 per month for her plan. If she purchased a bronze plan with a premium of only $200 per month, she would pay only $17 out of pocket. Conversely, if she purchased a more expensive gold plan for $800 per month, she would pay $617 out of pocket each month.

If you’re young, your monthly credit may not amount to much, particularly if your income is near the upper end of the 400% FPL limit. However, if you’re older, the credit can be quite substantial because health insurance coverage costs up to three times more for older people than for the young (except in New York and Vermont where premiums are the same for all ages). For example, in San Francisco, California, a 25-year-old single person with an AGI of $35,000 would qualify for a premium tax credit of $19 per month. A 55-year-old individual with the same AGI would qualify for a $380 per month credit.

You're eligible for the premium credit if:

  • your household income is between 100% and 400% of the federal poverty level (FPL)
  • you are not eligible for other affordable coverage, and
  • you file a joint tax return (if you're married).

Almost half of American households have household incomes below 400% of FPL and may qualify for these credits. The following chart shows the 2013 federal poverty levels:

 

Household Size

 

400% of Federal Poverty Level (2013)

 

1

 

$45,960

 

2

$62,040

 

3

$78,120

 

4

$94,200

 

5

$110,280

 

6

$126,360

 

7

$142,440

 

8

$158,520

 

9 and over

For each additional person, add $16,080

 

To obtain the credit, you must apply for and obtain health insurance through your state exchange. Links to the exchanges for all 50 state are at healthcare.gov.

by: , J.D.

Get Informed

Empower yourself with our plain-English information

Do It Yourself

Handle routine tasks with our products

Find a Lawyer

Connect with a local lawyer who meets your needs

The fastest, easiest way to find, choose, and connect to tax lawyers

LA-NOLO2:DRU.1.6.1.20140626.27175