Affordable Care Act (ACA)
The information on The Affordable Care Act (Obama Care) is from Drake Tax Preparation software Healthcare website: http://www.drakehealth.com
Overview: What does the ACA mean for taxpayers?
The Patient Protection and Affordable Care Act (ACA) became law in early 2010, but its primary requirement that most Americans carry health insurance – the “individual mandate” – has started to take effect in 2014.
Who must be insured
The ACA requires most U.S. citizens and legal residents to carry minimum essential coverage on themselves and their dependents.
The deadline: Generally anyone was required to have health insurance (see below for exceptions) by Jan. 1, 2014. But since the law allows you to be uninsured for less that three months without facing a penalty, you technically had until March 31 to get covered. Also, because of difficulties with the rollout of HealthCare.gov, the website of the federal Health Insurance Marketplace, the Administration announced that anyone who was enrolled in a health plan by March 31, 2014 would not be penalized for failure to get effective coverage by the deadline.
Open enrollment ends on December 31, 2017.
Minimum essential coverage
The ACA seeks to improve the overall quality of health care insurance, in a couple of different ways. First, it required that all health plans offer the following essential benefits, which are already in effect:
- An individual cannot be turned down for insurance due to a pre-existing condition.
- Premiums cannot vary by gender – they can only vary by the state the individual is insured in, the age of the insured, and in some cases, whether the insured is a smoker.
- Employer plans that cover dependents must offer coverage for employees’ adult children up to age 26, even if the child is no longer a dependent.
Second, the minimum essential coverage requirement requires a plan to provide the following 10 essential benefits in order to be sold on a Health Insurance Marketplace:
- Ambulatory patient services
- Emergency services
- Maternity and newborn care
- Mental health and substance use disorder services, including behavioral health treatment
- Prescription drugs
- Rehabilitative and habilitative services and devices
- Laboratory services
- Preventive and wellness services and chronic disease management
- Pediatric services, including oral and vision care
Note that these are the services that a plan must provide in order to be sold on a Health Insurance Marketplace, but there are other plans that meet the requirement of minimum essential coverage without having to offer these essential benefits – there are some differences. It depends on where, how and sometimes when the insurance was purchased.
For taxpayers who already have health insurance, that coverage probably meets the minimum essential coverage requirement. As shown above, coverage under any of these government-sponsored programs qualifies as meeting the requirement:
- Medicaid or Children's Health Insurance Program (CHIP)
Note: States can voluntarily expand Medicaid to cover anyone between the ages of 19-64 who earns up to 133% of the federal poverty level. Participating states will receive federal funds to pay the full cost of enrolling newly eligible people from 2014–2016, after which the share would gradually shrink until it reached 90% in 2022. As of October 2013, 21 states are participating in the expansion.
- TRICARE for Life. TRICARE is the health care program serving active duty service members, National Guard and Reserve members, retirees, their families, survivors and certain former spouses. TRICARE for Life is TRICARE's Medicare-wraparound coverage, available to all Medicare-eligible TRICARE beneficiaries.
- Veterans’ health care
- Health care plan available to Peace Corps volunteers
In addition, the following plans meet the requirement:
Employer-sponsored plans, provided that:
The plan covers at least 60% of covered costs
The employee’s cost for self-only coverage is not more than 9.5% of the employee’s household income. (If the cost is more than 9.5% of household income, the employee may opt out of coverage and be eligible for a subsidy to purchase insurance through a Health Insurance Marketplace.)
A health plan offered in the individual market or a Health Insurance Marketplace
Coverage under a grandfathered health plan
Any other health benefits coverage – such as a state health benefits risk pool – that the Secretary of Health and Human Services and the IRS recognize as qualifying.
Exemptions for getting insured will be allowed for:
- A short-term coverage gap – If you’re uninsured for less than three consecutive months of the year, you will not face a penalty. Coverage for even one day during a month counts as coverage for the entire month.
- Anyone who is not a U.S. citizen or resident alien legally present in the United States
- Incarcerated individuals (no exemption for those incarcerated pending disposition of charges)
- Enrolled members of federally recognized American Indian and Alaskan Native tribes
- Those whose household income is below the minimum threshold for filing a tax return
- Individuals with household income below 100% of the federal poverty level in states that did not expand medicaid. Those living in states that did expand Medicaid should enroll in Medicaid to meet the individual mandate, though it is likely that they would be exempt for hardship or income level reasons, should they choose not to enroll.
- Religious objections – Exemptions will be granted to members of qualified religious sects, provided that.
- Those who cannot afford the available minimum essential coverage options. Coverage will be deemed unaffordable if it exceeds 8% of 2014 household income (8.05% of 2015 household income). The percentage is determined by dividing the taxpayer’s monthly contribution for coverage for self and exemptions by the month’s net household income. The income amount is increased by any pre-tax insurance premium withholding, and the premium amount is decreased by any available premium assistance credit. Note the following scenarios:
- Because monthly income can vary, the taxpayer may be exempt from the penalty in some months and not exempt in others.
- In some situations, a taxpayer may have to purchase insurance for a dependent or spouse separately from his or her own insurance. In such cases, the 8% unaffordability threshold for the plan is based upon the annual premium for the lowest cost bronze plan available through a Health Insurance Marketplace, minus the premium credit the dependent or spouse would receive through the Marketplace.
- Financial hardship – As a catchall for anyone who doesn’t meet the other financial exemptions, the Act allows the Secretary of Health and Human Services to exempt anyone for whom purchasing insurance would create a hardship.
- For those seeking an exemption, the Health Insurance Marketplace will be able to provide certificates of exemption for many of the exemption categories. There are also some exemptions that individuals will also be able to claim when they file their federal income tax return.
- Individuals who are not required to file a federal return are automatically exempt and do not need to take any further action.
- U.S. citizens who live abroad for a calendar year (or at least 330 days within a 12-month period) are treated as having minimum essential coverage for the year (or period). They need take no further action.
Health Insurance Marketplaces
For individuals who are not already covered, or who are not exempted, meeting the individual mandate means shopping for insurance. To make the task easier, the federal government and many states created Health Insurance Marketplaces (also known as Exchanges) – websites that allow comparison of available plans based on price, benefits and services, and quality. By pooling customers, reducing transaction costs, and increasing transparency, Health Insurance Marketplaces create more efficient and competitive markets for individuals and small employers. They will allow individuals to benefit from the pooling of risk, market leverage, and economies of scale that large businesses currently receive.
HealthCare.gov is the federal Marketplace. The site directs users to their resident state’s Marketplace, if one has been set up. If a state has not set up a Marketplace, HealthCare.gov provides the research, comparison and purchasing functions for the state’s residents.
Covered California www.coveredca,com is the state of California Marketplace
Levels of plans offered on the Marketplaces
The Marketplaces offer four levels of insurance plans: bronze, silver, gold and platinum.The levels are based on the percentage of covered costs that a plan would pay. Insurers don’t have to offer plans in all four levels.
- Bronze – The insurance plan would pay 60% of covered health care costs. The enrollee, on average, would be responsible for paying 40% of the costs.
- Unless the individual qualifies for the catastrophic plan, this is the minimal insurance that meets the individual mandate.
- The cost of bronze-level insurance is used to determine whether insurance is affordable: the cost must not be greater than 8% of family income to be considered affordable.
- Silver – Insurance would pay 70% of covered health care costs, enrollee would be responsible for 30%.
- This is also known as the Benchmark Plan that is used in determining an enrollee’s eligibility for insurance subsidies.
- Gold – Insurance would pay 80% of covered health care costs, enrollee would be responsible for 20%.
- Platinum – Insurance would pay 90% of covered health care costs, enrollee would be responsible for 10%.
In addition to these four plan levels, catastrophic plans will offer essential health benefits, but with high deductibles. Only young adults under 30 and individuals exempted from the individual mandate because they cannot find affordable insurance are allowed to purchase catastrophic plans and be considered covered under the individual mandate. (Of course, other non-qualified individuals could purchase catastrophic plans on the private market, but such coverage alone would not meet the requirements of the individual mandate, so the customer would be subject to the penalty.)
- Marketplaces will help eligible individuals get premium assistance credits or coverage through other federal or state health care programs. Marketplaces evaluate and determine eligibility for applicants in Medicaid, the Children’s Health Insurance Program (CHIP), and other health programs.
- Open enrollment on the Marketplaces for 2016 ends January 31, 2016.
- Users can shop on the Marketplace and then actually enroll by mail, if they prefer.
- Consumers can call 1-800-318-2596 (TTY: 1-855-889-4325) for help with enrollment. The number is staffed 24/7, and information is available in more than 150 languages.
- “Navigators” – specially trained advisers – are available in many areas to help in person. Navigators and marketplace-designated organizations can educate individuals about plans; they cannot tell the individual which plan to select. Their advice is free. (The Administration advises that if a navigator or federally designated organization tries to charge the individual, it is a scam.)
Find a navigator – the closest location, contact information, office hours, and more
- Anyone can shop and buy insurance through a Marketplace, regardless of household income. But if an individual is looking to have their cost of insurance subsidized, the insurance MUST be purchased through the Marketplace and the individual’s household income must be within certain percentage ranges of the federal poverty level.
- Only insurance purchased through a Marketplace is eligible for subsidy. To meet the individual mandate, a taxpayer can purchase coverage through an insurance broker, but such coverage is not eligible for a premium assistance credit.
- The same plans that are available on a Marketplace may also be offered through an insurance broker, but the price and coverage must be identical.
- To avoid overpaying or underpaying for insurance purchased through a Marketplace, the customer should return to the Marketplace and report certain life events:
- Getting married or adding a dependent
- Moving to a new state
- Losing a job
- A decrease in income of 20% or more
Premium Assistance Credit
For taxpayers who qualify, a premium assistance credit will be available to help pay for Marketplace-purchased coverage. To qualify:
- The taxpayer’s household income must be 100% to 400% of the federal poverty level.
- The taxpayer and dependents must not be eligible for Medicaid, employer-sponsored insurance, or other acceptable coverage.
Note: The law specifies that the credit is available only to those with income from 100%–400% of the federal poverty level. Those who are not eligible for Medicaid but who have household income of less than 100% of the poverty level (they live in a State that did not expand Medicaid) would not be eligible for the credit, even if they purchased insurance through a Marketplace.
The premium assistance credit will be calculated monthly and will generally be paid directly to the insurance company, lowering the premium. When not paid directly to the insurance company, the taxpayer will receive it as a refundable credit when they file their taxes.
Calculation of the credit
The premium assistance credit is determined on a sliding scale. The lower the income, the higher the credit amount: taxpayers at or above 100% of the federal poverty level would pay a maximum of 2.01% of their 2015 income for premiums, while those at 400% of the federal poverty level would pay 9.6% of their 2015 income for premiums. The credit is based on household income and family size, so that individuals at the lower end of the income scale get the most help. The credit is also based on the premium for a benchmark plan (the second-lowest cost silver plan available in the taxpayer’s resident state Marketplace). An individual or family who wants a more expensive or higher-tier plan (i.e., gold or platinum) must pay the difference.
2014 Federal poverty level for the 48 contiguous states and the District of Columbia:
Persons in family
100% federal poverty level
133% federal poverty level
250% federal poverty level
400% federal poverty level
1 member family $11,670 $15,521 $29,175 $46,680
2 member family $15,730 $20,921 $39,325 $62,920
3 member family $19,790 $26,321 $49,475 $79,160
4 member family $23,850 $31,721 $59,625 $95,400
5 member family$27,910 $37,120 $69,775 $111,640
6 member family$31,970 $42,520 $79,925 $127,880
7 member family $36,030 $47,920 $90,075 $144,120
8 member family $40,090 $53,320 $100,225 $160,360
Household income level*Maximum premium as percentage of income**
Less than 133% federal poverty line - 2.01%
At least 133% but less than 150%3.02% – 4.02%
At least 150% but less than 200%4.02% – 6.4%
At least 200% but less than 250%6.4% – 8.1%
At least 250% but less than 300%8.1% – 9.6%
At least 300% but less than 400% - 9.6%
*Based on percentage of income poverty level
**Percentage of portion of the premium the individual would pay; the balance would be the credit
The taxpayer cannot receive a credit greater than the cost of the insurance he or she purchased on the Marketplace.
The premium assistance credit is calculated by treating the family as a single, aggregated unit, and is the lesser of the following:
- The monthly premium cost for one or more qualified health plans offered through a Marketplace, for the taxpayer or a member of the taxpayer’s family; or
- The adjusted monthly premium for the second-lowest cost silver plan for the taxpayer, minus the applicable percentage of income contribution by a household, times the taxpayer’s household income, divided by 12.
Lower-income taxpayers who qualify for the premium assistance tax credit will also be eligible for cost sharing assistance if they enroll in a silver plan. This assistance will limit the plan’s maximum out-of-pocket costs, and for some will also reduce other cost sharing amounts, such as deductibles, coinsurance or copayments, that would be charged to them by their insurance plan.
The amount of the reduction depends on income. For those with incomes between 100% and 200% of poverty, a limit of 1/3 of the 2014 health savings account out-of-pocket limit (a 2/3 reduction) applies. For 2014, this would make the out-of-pocket maximum $2,117 for individual coverage and $4,233 for a family. For others, the limit is either 1/2 or 2/3 of the HSA out-of-pocket limit, depending on income. The precise amount by which your out-of-pocket maximum is reduced by this assistance depends on the maximum for the plan in which you are enrolled.
Federal poverty levelPortion of 2014 HSA
100–200% 1/3 $2,117 $4,233
201–300%1/2 $3,175 $6,350
301–400%2/3 $4,233 $8,467
Above 400%100% $6,350 $12,700
*HSA out-of-pocket expenses limit
Credit - Finer Points
- You cannot claim the premium assistance credit if someone else can claim you as a dependent on their tax return.
- If insurance for a dependent is paid for by Taxpayer A, and the dependent is claimed on a return by Taxpayer B, the premium assistance credit is calculated, reconciled and claimed on Taxpayer B’s return.
- Individuals who fail to pay all or part of their share of the premium will be given a mandatory three-month grace period before their coverage is terminated.
- No premium assistance credit is allowable for an individual who is eligible for minimum essential coverage outside of the Marketplace unless the coverage available is not affordable or does not pay for at least 60% of covered costs.
- Individuals who receive a premium assistance credit will be required to file a tax return for the year in which they received the credit.
- Individuals or couples who experience a change in marital status or other household circumstance, experience a decrease in income of more than 20%, or receive unemployment insurance, may update eligibility information or request a redetermination of their eligibility for the premium assistance credit.
- Although the credit generally will be payable in advance directly to the insurer, individuals can elect to purchase health insurance out-of-pocket and apply to the IRS for the credit at the end of the tax year. The credit is refundable.
- If a qualified health plan offers benefits in addition to the essential health benefits required to be provided, or a state requires a qualified health plan to cover benefits in addition to the required essential health benefits, then the portion of the premium for the plan properly allocable to the additional benefits will not be taken into account in determining either the monthly premium or the adjusted monthly premium used in computing the premium assistance amount. That is, the portion of the premium that is allocable to the additional benefits will be disregarded in determining the premium assistance credit amount.
- If an individual enrolls in a qualified health plan and a standalone dental benefit plan, the portion of the premium applicable to pediatric dental benefits will be treated as a premium payable for a qualified health plan.
- Premium assistance credits and cost-sharing reduction payments will not be counted as income when determining eligibility for any federal program or for any state or local program financed in whole or in part with federal funds.
- Married taxpayers won't be able to claim a premium assistance credit for a tax year if they file separate returns for that year. (Exception: This requirement is waived for a married taxpayer who is a victim of domestic violence.)
- Employer-provided insurance must offer coverage for any adult child up to age 26, even those who are not dependents. However, if an adult child who is not a dependent declines coverage, the parents would not face a penalty. Parents would only face a penalty for uninsured children if they are claimed as dependents.
- The premium assistance credit amount will be tied to the cost of the second-lowest cost silver plan (adjusted for age) that:
- Is in the rating area where the individual resides,
- Is offered through a Marketplace in the area in which the individual resides, and
- Provides self-only coverage in the case of an individual who purchases self-only coverage, or family coverage in the case of any other individual.
- Medical expense deduction – The amount of the premium that can be deducted as a medical expense will be limited to the portion of the premium that is not offset by the premium assistance credit. As a result, the taxpayer's “out-of-pocket” costs for the qualified health plan still will be deductible as a medical expense (subject to the limitations of the deduction). Also, when deducting medical expenses on Schedule A, the premium assistance credit must be subtracted from premiums paid, even if the credit was not used.
- Reconciliation of excess advance premium assistance credit payments – If the premium assistance payments made over the course of the year are greater than the premium assistance credit calculation when the individual files his or her federal tax return, the excess advance payment is treated as an increase in tax. But where the household income is less than 400% of the federal poverty level, the amount of the increase in tax is capped as the following:
- Less than 200% of the federal poverty level = $600 cap
- 200% but less than 300% of the federal poverty level = $1,500 cap
- 300% but less than 400% of the federal poverty level = $2,500 cap
- An alien individual who is lawfully present in the U.S. will be treated, for purposes of the premium assistance credit, as an “applicable taxpayer” with a household income equal to 100% of the federal poverty level for a family of the size involved if:
- The individual’s household income is not greater than 100% of the applicable federal poverty level, and
- The individual is not eligible for Medicaid because of the individual’s status as an alien.
- The lawfully present alien individual will be eligible to claim the premium assistance credit, even if the individual’s household income level would otherwise have precluded him from qualifying as an “applicable taxpayer.” The allowable credit will be based on the individual’s having household income equal to 100% of the applicable federal poverty level, even if the income is below 100% of the federal poverty level.
- While this is available to legal aliens, it is not available to U.S. citizens.
- An Individual will be treated as “lawfully present” for purposes of claiming the premium assistance credit only if the individual is, and is reasonably expected to be for the entire period of enrollment for which the credit is being claimed, a citizen or national of the U.S. or an alien lawfully present in the U.S. An individual is a lawful permanent resident of the U.S. if he or she has been lawfully accorded the privilege of residing permanently in the U.S. as an immigrant under U.S. immigration law (i.e., the individual has received a green card from the U.S. Citizenship and Immigration Services [USCIS]) and that status hasn’t been revoked and hasn’t been administratively or judicially determined to have been abandoned).
If you’re required to have health insurance but don’t (including for your dependents), or if the insurance doesn’t meet the minimum essential coverage requirement, you’ll face a penalty, called the Shared Responsibility Penalty. The penalty is figured for each uninsured month starting with January 2014, and is calculated and collected when you file your tax return.
If you are uninsured for less than three consecutive months, you will not face a penalty. If you are uninsured for three months or more, the three-month exemption is not available, and you are penalized for the entire period. Also, if you are uninsured for two or more periods during the year, only the first or earliest period is exempt from penalty.
How the penalty is calculated
Our calculator is the simplest way to figure the penalty, but here’s how it's calculated.
The penalty will be the lesser of:
- The sum of the monthly penalty amounts (see below) for the months you didn’t maintain minimum essential coverage, or
- The national average premium for a bronze plan for your family size, offered through a Health Insurance Marketplace. For 2014, the national average premium for the bronze plan was $204 per individual per month ($2,448/yr) with a cap of 5 individuals, or $1,020/mo ($12,240/year).
Basically your penalty cannot be greater than what your cost of bronze-level insurance would have been if you (and your dependents) had been covered.
Typically, the monthly penalty for an individual who fails to have minimum essential coverage is equal to the greater of 1/12 of a flat dollar amount or a percentage of income – not to exceed the cost of national bronze-level insurance:
The flat dollar amount for all nonexempt individuals in the household (up to a maximum of 300% of the flat dollar amount, which may include a spouse or dependents). The flat dollar amount is $95 in 2014, $325 in 2015, and $695 in 2016. Future years will be increased by the Cost-of-Living Adjustment. The 300% cap is $285 for 2014, $975 for 2015, and $2085 for 2016. If an individual is not age 18 as of the uncovered month, the applicable dollar amount is one-half of the flat dollar amount.
The applicable percentage of income amount is calculated as the excess of the taxpayer’s household income, minus the taxpayer’s federal income tax return filing threshold, multiplied by the percentage of income amount: 1% in 2014, 2% in 2015, and 2.5% in 2016.
Year Adult Child Family Cap% of Income
2014 $95 $47.50 $285 1%
2015 $325 $162.50 $975 2%
2016 $695 $347.50 $2,085 2.5%
The penalty will be the greater of the two calculations.