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by Tony Novak, CPA, MBA, MT, NAHU certified consumer driven health care consultant, originally published 8/12/2011
Taxpayers with household incomes between 100 percent and 400 percent of the Federal Poverty Level will be eligible for premium tax credits for coverage purchased through the exchanges for themselves and members of their family who are not eligible for other health care coverage. The 400% of poverty level includes 68% of all Americans, according to a Kaiser Family Foundation report based on 2009 data. The advance tax credits are scheduled to start January 2014 to reduce the net cost of health insurance. These premium tax credits are paid to the health insurance provider to reduce the monthly premiums owed by families to purchase coverage.
The Congressional Budget Office estimates that when the Affordable Care Act is fully phased in, individuals receiving premium tax credits will get an average subsidy of over $5,000 per year. The average cost of health insurance is expected to average about twice than amount or about $9,800 per year for a typical small business employee with dependents. The Treasury Department proposed regulations outline eligibility standards for the premium tax credit and how such tax credits will be calculated. The Exchange will follow these standards in determining eligibility and calculating advance payments of the premium tax credit.
The coverage taxpayers may acquire with the assistance of the premium tax credits is designed to supplement rather than supersede existing employer-sponsored health programs, allowing Americans to keep the coverage they have. However, a large portion of small businesses are expected to drop their group health insurance plan by 2014 and so, in this case, the individual employees would be eligible to enroll for insurance and obtain the tax credit on their own. Small businesses are not required to offer health insurance to employees under current law or the new health reform act.
It is not clear whether the tax credit will continue to be available if the Supreme Court strikes down the provision of the health reform law that requires everyone to obtain health insurance. We believe that the tax credit will remain but that the individual mandate will not survive in its current form. Current law allows the tax credit only for specific approved types if health insurance but we expect those regulations will be liberalized to accommodate the growing portion of Americans who prefer to be enrolled in a wide range of affordable insurance arrangements. More information is available in the official Treasury Department press release.
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