cbareport_May13 - page 7

feature article
Premium Tax Credits:
Federal Subsidies for
Individual Insurance
Ed. Note: This is the third in a series of articles that will be published in the CBA Report over the next
several months related to the 2014 implementation of the Patient Protection and Affordable Care Act. This
information was submitted for publication on March 29, 2013. It does not reflect guidance issued on or after
this date.
he affordable insurance
exchanges–or marketplaces as
they are now being called–are
scheduled to go live October 1, 2013. At
that time, individuals will be able to go to
a marketplace to shop for an individual
health insurance policy and to apply for
an advance refundable federal income
tax credit that will reduce the cost of that
Eligibility for the Credit
In order to be eligible for the
credit, an individual must gener-
ally meet three criteria:
The individual must be
enrolled in a policy purchased
through a marketplace;
The individual’s household income
must be at least 100 percent, but not more
than 400 percent, of the federal poverty
level; and
The individual must not be eligible
for minium essential coverage, which
includes (but is not limited to) Medicare,
Medicaid, the Children’s Health Insur-
ance Program and employer-provided
Although employer-provided cover-
age is considered minimum essential
coverage, eligibility for employer-pro-
vided coverage will not disqualify an
individual from the credit if the coverage
does not provide minimum value or is
Applying for the Credit
To apply for the credit, an individual
must submit an application in which he
attests to his financial information and
eligibility for minimum essential cover-
age. The marketplace will then compare
the information submitted by the indi-
vidual to information generally available
through a federally-approved electronic
data source, determine the individual’s
eligibility for the credit and estimate the
amount of credit to which the individual
is entitled.
The individual’s premium amounts
for the marketplace policy will then be
reduced by the amount of the credit ap-
proved by the marketplace.
Incorrect Credit Amounts
The marketplace’s estimate will be
based on information known to the
marketplace at the time of the applica-
tion. Because the individual’s household
income for the year cannot be known
until after the end of the year, the credit
approved by the marketplace may not be
The individual must reconcile the
approved credit and his actual household
income on his federal individual income
tax return. For example, if the indi-
vidual’s household income for the year is
less than the marketplace had anticipated
and the individual’s premiums were
therefore not reduced as much as they
should have been, the individual will
take a refundable credit on his federal
income tax return equal to the additional
amount to which he is entitled.
Employer Notification
Once a marketplace determines that
an individual is eligible for the credit,
the marketplace will notify his employer
about the determination.
Employers will want to know
which employees are eligible for
the credit because those employ-
ees could subject the employer
to a penalty. As discussed in
last month’s article, an employer
may be subject to a pay-or-play
penalty if any of its full-time em-
ployees is eligible for the credit.
When an employer receives a notifi-
cation from the marketplace, it will want
to confirm whether the employee was eli-
gible for coverage and, if so, whether that
coverage was affordable and provided
minimum value. Different standards for
“affordability” apply for purposes of the
credit and for purposes of the employer
penalty, so it is possible for an employee
to be eligible for the credit without
causing the employer to be subject to a
Employers will have the opportunity
to appeal a determination regarding their
employees’ eligibility for the credit and
may want to do so in order to prevent
application of a penalty.
Wilcoxon is a partner inThompson Hine LLP’s
employee benefits and executive compensation group
and advises employers on the legal requirements
applicable to group health plans.
By Kimberly Wilcoxon
Employers will want to know which
employees are eligible for the credit
because those employees could
subject the employer to a penalty.
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