Health Insurance Premium Credits in the
Patient Protection and Affordable Care Act
(ACA)
Bernadette Fernandez
Specialist in Health Care Financing
March 12, 2014
Congressional Research Service
7-5700
www.crs.gov
R41137
Premium Credits in the Patient Protection and Affordable Care Act (ACA)
Summary
New federal tax credits, authorized under the Patient Protection and Affordable Care Act (ACA,
P.L. 111-148, as amended), first became available in 2014 to help certain individuals pay for
health insurance. The tax credits apply toward premiums for private health plans offered through
“exchanges” (also referred to as health insurance marketplaces). ACA also establishes subsidies
to reduce cost-sharing expenses.
Exchanges have been established in every state, either by the state itself or by the Secretary of
Health and Human Services (HHS), as required under ACA. Exchanges are not insurers, but
provide eligible individuals and small businesses with access to private health insurance plans.
Generally, the plans offered through the exchanges provide a comprehensive set of health services
and meet all ACA market reforms, as applicable.
The new premium credits established under ACA are advanceable and refundable, meaning
taxfilers need not wait until the end of the tax year in order to benefit from the credit, and may
claim the full credit amount even if they have little or no federal income tax liability. Premium tax
credits are generally available to individuals who enroll in an exchange plan; are part of a tax-
filing unit; have household income between specified amounts; are not eligible for other forms of
comprehensive health coverage; and are U.S. citizens or lawfully present residents. This report
provides examples of hypothetical individuals and families who qualify for the premium credits;
the examples use actual 2014 premium and tax credit amounts.
The amounts received in premium credits are based on federal income tax returns. These amounts
are reconciled in the next year and can result in overpayment of premium credits if income
increases, which must be repaid to the federal government. ACA limits the amount of required
repayments for lower-income enrollees.
In addition to premium credits, ACA authorizes new cost-sharing subsidies. Certain premium
credit recipients will also be eligible for reductions in their annual cost-sharing limits. Moreover,
certain low-income individuals will receive additional subsidies in the form of reduced cost-
sharing requirements (e.g., lower deductible).
Congressional Research Service
Premium Credits in the Patient Protection and Affordable Care Act (ACA)
Contents
Background ...................................................................................................................................... 1
Premium Credit Eligibility............................................................................................................... 2
Part of a Tax-Filing Unit ............................................................................................................ 3
Enrolled in an Individual Exchange .......................................................................................... 3
Household Income Is 100%-400% of Federal Poverty Level ................................................... 4
Not Eligible for “Minimum Essential Coverage” ...................................................................... 5
Exceptions to Minimum Essential Coverage Eligibility ..................................................... 5
Employer Contribution Toward Coverage in SHOP Exchanges ......................................... 6
Medicaid .............................................................................................................................. 6
Required Premium Contributions and Premium Credit Calculations .............................................. 7
Premium Credits in 2014 ........................................................................................................... 9
Premium Credit Examples: Self-Only and Family Coverage ........................................... 10
Reconciliation of Premium Credits ......................................................................................... 12
Enrollment: Exchanges and Premium Credits ......................................................................... 13
Cost-Sharing Subsidies .................................................................................................................. 14
Figures
Figure 1. Maximum Percentage of Household Income to Use Toward Premiums for the
Second-Lowest Cost Silver Plan, by Percent of the Federal Poverty Level ................................. 8
Figure 2. Total Estimated Exchange Enrollment, 2024 ................................................................. 14
Tables
Table 1. Income Levels at 400% FPL Applicable to 2014 Premium Credit Eligibility ................... 4
Table 2. Selected Annual Income Levels Applicable to 2014 Premium Credits ............................. 9
Table 3. Maximum Monthly Premium Contributions for Tax Credit Recipients Enrolled
in the Second-Lowest Cost Silver Plan, 2014............................................................................. 10
Table 4. Premium Contributions and Credit Amounts for the Second-Lowest Cost Silver
Plans in 2014, by Selected Coverage Tiers ................................................................................. 11
Table 5. Limits on Repayment of Excess Premium Credits Enacted by the
Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy
Overpayment Act of 2011 (P.L. 112-9) ....................................................................................... 13
Table 6. ACA Cost-Sharing Subsidies: Annual Cost-Sharing Limits,
by Household Income Tier.......................................................................................................... 15
Table 7. ACA Cost-Sharing Subsidies: Actuarial Values, by Household Income Tier .................. 16
Contacts
Author Contact Information........................................................................................................... 16
Congressional Research Service
Premium Credits in the Patient Protection and Affordable Care Act (ACA)
ew federal tax credits were authorized in the Patient Protection and Affordable Care Act
(ACA, P.L. 111-148, as amended), to help certain individuals pay for health insurance
Ncoverage, beginning in 2014.1 The tax credits apply toward premiums for private health
plans offered through “exchanges” (also referred to as health insurance marketplaces). ACA also
establishes subsidies to reduce cost-sharing expenses.
This report describes the eligibility criteria applicable to the premium tax credits and cost-sharing
subsidies, and the calculation method for the credit and subsidy amounts. It also highlights
selected issues addressed in the final regulation on premium credits.
Background
ACA requires health insurance exchanges to be established in every state by January 1, 2014,
either by the state itself or by the Secretary of Health and Human Services (HHS). The ACA
exchanges are not insurance companies; rather, they will coordinate the offer of private health
plans to qualified individuals2 and small businesses.3 Generally, exchange plans provide a
comprehensive set of health services and meet all ACA market reforms, as applicable.4 In
addition, most exchange plans comply with a requirement that measures how much a given plan
will pay for a group of individuals (who vary in terms of medical use and expenses); that measure
is referred to as actuarial value (AV).5 Most exchanges plans meet a specific AV; each AV is
designated by a precious metal: bronze (actuarial value of 60%), silver (70%), gold (80%), and
platinum (90%). For AVs, the higher the percentage, the lower the cost-sharing, on average.6
Given that ACA specifically requires exchanges to offer insurance options to individuals and
small businesses, exchanges are structured to assist these two different types of “customers.”
Consequently, there is an exchange to serve individuals and families, and another to serve small
businesses (“SHOP exchanges”), within each state. However, ACA gives states the option to
merge both exchanges and operate it under one structure.
Certain enrollees in the individual exchanges are eligible for premium assistance in the form of
federal tax credits.7 Such credits are not provided through the SHOP exchanges. The premium
1 §1401 of ACA; new §36B of the Internal Revenue Code of 1986 (IRC).
2 Enrollment in an exchange plan is voluntary; see §1312(d)(3) of ACA. This also applies to Members of Congress and
their personal staff who may only be offered coverage, by the federal government, that is created under the ACA or
offered through an exchange, per ACA§1312(d)(3)(D). While the federal government may only make certain plans
available to applicable Members and staff, such individuals may enroll in any plan that is available to them. For a
comprehensive discussion about these issues, see CRS Report R43194, Health Benefits for Members of Congress and
Certain Congressional Staff.
3 Before 2016, states will have the option to define “small employers” either as those with (1) 100 or fewer employees,
or (2) 50 or fewer employees. Beginning in 2016, small employers will be defined as those with 100 or fewer
employees. Beginning in 2017, large groups may participate in exchanges, at state option.
4 See CRS Report R42069, Private Health Insurance Market Reforms in the Patient Protection and Affordable Care
Act (ACA).
5 Actuarial value (AV) is a summary measure of a plan’s generosity, expressed as the percentage of medical expenses
estimated to be paid by the insurer for a standard population and set of allowed charges. AV is not a measure of
premiums or the benefits package. Two plans with the same AV may have different premiums and different sets of
covered benefits.
6 Since actuarial value is calculated based on a population, this measure indicates plan generosity for a group. It does
not indicate the share of medical expenses that the plan will pay for each individual enrolled in a plan. The utility of
AV is that it facilitates comparisons across plans, so that an individual/family may use this plan characteristic (along
with other factors) to decide on the most appropriate plan given health care needs and disposable income.
7 For tax years beginning after December 31, 2013, 31 U.S.C. 1324 appropriates necessary amounts to the Treasury
(continued...)
Congressional Research Service
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Premium Credits in the Patient Protection and Affordable Care Act (ACA)
credit is an advanceable, refundable tax credit, meaning taxfilers need not wait until the end of the
tax year in order to benefit from the credit, and may claim the full credit amount even if they have
little or no federal income tax liability. Receiving the credits as advanced payments means that
monthly insurance premiums will be automatically reduced by the credit amount. Therefore, the
direct cost of insurance to an individual/family will be lower than the “advertised” cost for a
given exchange plan.8
The Treasury Department promulgated final regulation on the premium credits on May 23, 2012.9
The final regulation confirmed certain eligibility and other requirements, as specified in statute;
such requirements are discussed in applicable sections of this report. In addition, the Internal
Revenue Service (IRS) has issued guidance and other documentation (such as Q&As) relevant to
premium credits.10
Premium Credit Eligibility
ACA specifies that premium credits will be available to “applicable taxpayers” in a “coverage
month” beginning in 2014.11
An applicable taxpayer is an individual who
• is part of a tax-filing unit;
• is enrolled in a plan through an individual exchange; and
• has household income at or above 100% of the federal poverty level (FPL), but
not more than 400% FPL.12
A coverage month refers to a month in which the applicable taxpayer paid for coverage offered
through an exchange, not including any month in which the taxpayer was eligible for “minimum
essential coverage” with exceptions.
These eligibility criteria are discussed in greater detail below.13
(...continued)
Secretary for disbursements due under §36B of the IRC. This permanent appropriation means that the premium credits
do not require annual appropriations.
8 The formula for calculating the premium credit amount is such that it is possible for a higher-income person who is
technically eligible for a credit to end up receiving no credit to offset the cost of buying insurance. For additional
information about this issue, see the discussion under the “Required Premium Contributions and Premium Credit
Calculations” section of this report.
9 77 Federal Register 30377, May 23, 2012.
10 See the IRS’s “Affordable Care Act (ACA) Tax Provisions” webpage for links to such documents,
http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions-Home.
11 §1401(a) of ACA; new §36B(c)(1) of the IRC.
12 The guidelines that designate the federal poverty level are used in a variety of federal programs for eligiblity
purposes. The poverty guidelines vary by family size, and by whether the individual resides in the 48 contiguous states
and the District of Columbia, Alaska, or Hawaii. Office of the Assistant Secretary for Planning and Evaluation,
“Frequently Asked Questions Related to the Poverty Guidelines and Poverty,” http://aspe.hhs.gov/Poverty/
faq.cfm#programs.
13 Consumers Union’s Tax Credit Brochures are available to help taxfilers determine their eligibility for premium tax
credits. See “Cut the Cost of Health Insurance,” http://www.consumersunion.org/tax_credit_brochure.
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Premium Credits in the Patient Protection and Affordable Care Act (ACA)
Part of a Tax-Filing Unit
Given that the premium assistance is provided in the form of tax credits, they are administered
through the tax system (although advance payments go directly to insurers).14 The credits can
only be obtained by qualifying individuals who file federal tax returns.
Married couples are required to file joint tax returns to claim the credit.15 The final regulation
includes special rules relating to the calculation and allocation of credit amounts due to changes
in filing status during a given tax year (e.g., taxpayers who marry or divorce). The final regulation
acknowledges that certain circumstances may make filing jointly a challenge (e.g., domestic
abuse, abandonment, etc.); it states that the IRS will propose additional rules to address these
kinds of circumstances.
Enrolled in an Individual Exchange
Premium credits are available only to individuals and families enrolled in a plan offered through
an individual exchange;16 premium credits are not available through the small business (“SHOP”)
exchanges. Individuals may enroll in a plan through their state’s exchange if they are (1) residing
in a state in which an exchange was established; (2) not incarcerated, except individuals in
custody pending the disposition of charges; and (3) “lawfully present” residents.17
Only lawful residents are allowed to obtain exchange coverage. Undocumented individuals are
prohibited from purchasing coverage through an exchange, even if they could pay the entire
premium without a subsidy.18 Because ACA prohibits undocumented individuals from obtaining
exchange coverage, they are not eligible for premium credits.
The final regulation clarifies the potential credit eligibility for family members of individuals who
themselves are not eligible to enroll in an exchange due to incarceration or legal status. For
example, while the final regulation restates ACA’s prohibition on incarcerated individuals
enrolling in exchange plans, the rule confirms that family members (of incarcerated individuals)
who enroll in exchange plans may receive premium credits, as long as the family members meet
all eligibility criteria.19
14 §1412(a)(3) of ACA.
15 On June 26, 2013, in United States v. Windsor, the U.S. Supreme Court struck down Section 3 of the Defense of
Marriage Act (DOMA), finding that it violated the equal protection guarantees of the Fifth Amendment. Section 3 had
required that, for purposes of federal enactments, marriage be defined as the union of one man and one woman. In light
of this ruling, HHS issued guidance which stated that same-sex spouses will be treated just like opposite-sex spouses
for premium credit eligibility purposes. See Centers for Medicare & Medicaid Services, “Guidance on Internal
Revenue Ruling 2013-17 and Eligibility for Advance Payments of the Premium Tax Credit and Cost-Sharing
Reductions,” Sept. 27, 2013, http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/
marketplace-guidance-on-irs-2013-17.pdf.
16 HHS issued guidance about the potential availability of premium credits for individuals who did not receive timely
eligiblity determinations or were not enrolled in a timely manner due to technical issues related to exchanges. For
additional information about the availability of retroactive premium credits, see “CMS Bulletin to Marketplaces on
Availability of Retroactive Advance Payments of the PTC and CSRs in 2014 Due to Exceptional Circumstances,”
February 27, 2014, http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/retroactive-advance-
payments-ptc-csrs-02-27-14.pdf.
17 §1401(a) of ACA; new §36B of the IRC.
18 §1312(f)(3) of ACA.
19 See discussion under “Individuals not lawfully present or incarcerated,” 77 Federal Register 30377, May 23, 2012.
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Premium Credits in the Patient Protection and Affordable Care Act (ACA)
Household Income Is 100%-400% of Federal Poverty Level
To be eligible for premium credits, individuals must have “household income” within statutorily
defined guidelines based on the federal poverty level (FPL).20 For purposes of premium credit
eligibility, household income is measured according to the definition for “modified adjusted gross
income” (MAGI).21 An individual whose MAGI is at or above 100% FPL up to and including
400% FPL may be eligible to receive premium credits.22
Table 1 displays the income levels at 400% FPL, the amount beyond which individuals and
families would not be eligible for premium credits in 2014 (using 2013 HHS poverty
guidelines).23
Table 1. Income Levels at 400% FPL Applicable to 2014 Premium Credit Eligibility
Based on 2013 HHS Poverty Guidelines
Number of Persons
48 Contiguous States
in Family
and DC
Alaska Hawaii
1
$45,960
$57,400
$52,920
2
$62,040
$77,520
$71,400
3
$78,120
$97,640
$89,880
4
$94,200
$117,760
$108,360
5
$110,280
$137,880
$126,840
6
$126,360
$158,000
$145,320
7
$142,440
$178,120
$163,800
8
$158,520
$198,240
$182,280
Source: CRS computations based on “Annual Update of the HHS Poverty Guidelines,” 78 Federal Register 5182,
January 24, 2013, http://www.gpo.gov/fdsys/pkg/FR-2013-01-24/pdf/2013-01422.pdf.
20 The poverty guidelines are updated annually, at the beginning of the year. However, premium credit calculations are
based on the prior year’s guildelines, in order to provide individuals with timely information as they compare and
enroll in exchange plans during the open enrollment period (which occurs prior to the begining of the plan year). For
the poverty guidelines used to calculate the credit amounts for 2014, see “Annual Update of the HHS Poverty
Guidelines,” 78 Federal Register 5182, January 24, 2013, http://www.gpo.gov/fdsys/pkg/FR-2013-01-24/pdf/2013-
01422.pdf.
21 In §2002(a) and §1401(a) of ACA, household income is defined to be MAGI, in compliance with the Internal
Revenue Code (IRC). Under the IRC, gross income is total income minus certain exclusions (e.g., public assistance
payments, employer contributions to health insurance payments). From gross income, adjusted gross income (AGI) is
calculated to reflect a number of deductions, including trade and business deductions, losses from sale of property, and
alimony payments. MAGI is defined as AGI plus certain foreign earned income and tax-exempt interest. However, for
premium credit eligibility purposes, the definition of MAGI will also include nontaxable Social Security benefits (as
amended by P.L. 112-56). For additional discussion about the use of MAGI with respect to ACA premium credits, see
CRS Report R41997, Definition of Income for Certain Medicaid Provisions and Premium Credits in ACA.
22 There are two exceptions to the lower bound income threshold at 100% FPL. One exception relates to the state
option under ACA to expand Medicaid for individuals with income up to 133% FPL (with a 5% income disregard). If a
state chooses to undertake the ACA Medicaid expansion (or has already expanded Medicaid above 100% FPL),
eligibility for premium credits would begin above the income level where Medicaid eligibility ends in such a state.
(Note that in states that do not expand Medicaid to at least 100% FPL, some low-income state residents are ineligible
for both premium credits and Medicaid.) The other exception is for lawfully present aliens with income below 100%
FPL, who are not eligible for Medicaid for the first five years that they are lawfully present. These taxpayers will be
treated as though their income is exactly 100% FPL for purposes of premium credit eligibility.
23 See Internal Revenue Service, “Questions and Answers on the Premium Tax Credit,” Q&A #6, http://www.irs.gov/
uac/Newsroom/Questions-and-Answers-on-the-Premium-Tax-Credit.
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Premium Credits in the Patient Protection and Affordable Care Act (ACA)
Notes: For 2014, the income levels used to calculate premium credit eligibility and amounts are based on 2013
HHS poverty guidelines. The poverty guidelines are updated annually for inflation. “DC” is the District of
Columbia.
Not Eligible for “Minimum Essential Coverage”
To receive a premium credit, an individual may not be eligible for “minimum essential coverage,”
with exceptions (described below). ACA broadly defines minimum essential coverage to include
Medicare Part A; Medicare Advantage; Medicaid (with exceptions); the State Children’s Health
Insurance Program (CHIP); Tricare; Tricare for Life, a health care program administered by the
Department of Veterans Affairs (VA);24 the Peace Corps program; any government plan (local,
state, federal) including the Federal Employees Health Benefits Program (FEHBP); any plan
offered in the individual health insurance market; any employer-sponsored plan (including group
plans regulated by a foreign government); any grandfathered health plan;25 any qualified health
plan offered inside or outside of exchanges; and any other coverage (such as a state high risk
pool) recognized by the HHS Secretary.26
Exceptions to Minimum Essential Coverage Eligibility
ACA provides certain exceptions regarding eligibility for minimum essential coverage and receipt
of premium credits:
• An individual who is only eligible to obtain coverage through the individual
(nongroup) health insurance market27 may be eligible to receive a premium
credit.
• An individual eligible for an employer-sponsored plan may still be eligible for
premium credits if the employer’s coverage is either (1) not affordable; that is,
the employee’s premium contribution toward the employer’s self-only plan
exceeds 9.5% of household income;28 or (2) does not provide minimum value;
24 The IRS final regulation on premium credits stated that for premium credit eligibility purposes, a person would be
considered “eligible” for a VA health program only if that person is actually enrolled in such a program. Therefore,
individuals who could enroll in such programs, but choose not to enroll, may be eligible for premium credits, providing
they meet all other eligibility criteria. See discussion under “Special rule for coverage for veterans and other individuals
under chapter 17 or 18 of Title 38, U.S.C.,” 77 Federal Register 30377, May 23, 2012.
25 A grandfathered health plan is a group health plan or health insurance coverage (including coverage from the
individual health insurance market) in which a person was enrolled since the date of enactment of ACA. For additional
information about grandfathered plans, see CRS Report R41166, Grandfathered Health Plans Under the Patient
Protection and Affordable Care Act (ACA).
26 The IRS final regulation on premium credits addresses various circumstances when individuals transition between
exchange coverage and public coverage, such as Medicaid. For example, the regulation discusses the process and time
period applicable to an individual who becomes eligible for “government-sponsored coverage,” and therefore becomes
ineligible for premium credits. See discussion under “Government-Sponsored Coverage” and “Determination of
Medicaid or Children’s Health Insurance Program (CHIP),” 77 Federal Register 30377, May 23, 2012.
27 The private health insurance market will continue to exist outside of the ACA exchanges. Moreover, almost all types
of exchange plans are allowed to be offered in the market outside of exchanges. For additional information about health
plans that are allowed to be offered inside and/or outside of exchanges, see CRS Report R43233, Private Health Plans
Under the ACA: In Brief.
28 The IRS final regulation on premium credits confirms that an employee safe harbor will be provided to an individual
who is determined to be eligible for premium credits, but later determined that the worker was eligible for affordable
employer coverage. Moreover, the employer would not be subject to a penalty because a full-time employee receives a
premium credit under the safe harbor. For a discussion of ACA’s employer requirements, see CRS Report R41159,
Potential Employer Penalties Under the Patient Protection and Affordable Care Act (ACA).
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Premium Credits in the Patient Protection and Affordable Care Act (ACA)
that is, the plan’s payments cover less than 60% of total allowed costs on
average.29
• An individual who is eligible for limited benefits under Medicaid may still be
eligible for premium credits (see “Medicaid” section below for additional
information).
Employer Contribution Toward Coverage in SHOP Exchanges
Certain small employers (and in later years, large employers at state option) may offer and
contribute toward coverage through SHOP exchanges. If an individual is enrolled in an exchange
through an employer who contributed toward that coverage, the individual will not be eligible for
premium credits.30
Medicaid
ACA’s Medicaid expansion provisions have the potential for affecting eligibility for premium
credits if certain low to middle income individuals and families seek health insurance through the
exchanges. Under ACA, states have the option to expand Medicaid eligibility to include all non-
elderly, non-pregnant individuals (i.e., childless adults and certain parents, except for those
ineligible based on certain noncitizenship status) with income up to 133% FPL.31 (ACA does not
change noncitizens’ eligibility for Medicaid.32) States that choose to implement the ACA
Medicaid expansion will receive substantial federal subsidies.33 If a person who applied for
premium credits in an exchange is determined to be eligible for Medicaid, the exchange must
have them enrolled in Medicaid.34 Therefore, any state that expands Medicaid eligibility to
include persons with income at or above 100% FPL (or any state that currently includes such
individuals) would make such individuals ineligible for premium credits. Premium credit
eligibility in such a state begins at the income level where Medicaid eligibility ends.
In general, a person may be eligible for only one subsidized health coverage program at a time.
However, exceptions are made for individuals who are eligible only for limited benefits under
Medicaid; limited benefits include the pregnancy-related benefits package, treatment of
emergency medical conditions only, and possibly other limited benefits. Individuals who have
access to only these specific limited benefits under Medicaid may qualify for premium credits if
such individuals enroll in exchanges.35
29 §1401(a) of ACA; new §36B(c)(2)(C) of the IRC.
30 §1401(a) of ACA; new §36B(c)(2)(A)(ii) of the IRC.
31 ACA specifies that an income disregard in the amount of 5% FPL will be used to determine Medicaid eligibility
based on modified adjusted gross income; thus, the effective minimum income eligibility threshold for such individuals
in this new Medicaid eligibility group will be 138% FPL.
32 As under law prior to ACA, certain lawfully present aliens are eligible for full Medicaid benefits (e.g., refugees,
asylees, and some legal permanent residents (LPRs) who have been here at least five years), while others are not (e.g.,
certain LPRs who have been here less than five years).
33 See CRS Report R41210, Medicaid and the State Children’s Health Insurance Program (CHIP) Provisions in ACA:
Summary and Timeline.
34 §§1311(d)(4) and 1413(a) of ACA. Nonetheless, nothing in ACA prohibits a Medicaid-eligible individual from
enrolling in an exchange on his/her own. However, that individual will be responsible for the entire cost of exchange
coverage, which will likely be prohibitive for a low-income individual.
35 See Health Reform GPS, “When Does Medicaid Coverage Amount to Minimum Essential Coverage Under the
Affordable Care Act? An Update on the Treasury/IRS Rules Defining Minimum Essential Coverage,” February 11,
2014, http://www.healthreformgps.org/resources/when-does-medicaid-coverage-amount-to-minimum-essential-
(continued...)
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Premium Credits in the Patient Protection and Affordable Care Act (ACA)
Required Premium Contributions and Premium
Credit Calculations
The amount of the premium tax credit varies from person to person; the credit is based on the
household income of the taxfiler (and dependents), the premium for the exchange plan in which
the taxfiler (and dependents) is (are) enrolled, and other factors. In certain instances, the credit
amount may cover the entire premium and the taxfiler pays nothing toward the premium. In other
instances, the taxfiler may pay part (or all)36 of the premium.
The calculation of the credit amount is based on a comparison of two amounts that result from
two different scenarios. The first scenario (and amount) is straightforward: the premium for the
exchange plan in which the person/family enrolls. The second scenario is more complicated: it
involves a formula that considers the premium for a standard plan in the local area in which the
person/family resides, and an amount that the person/family may be required to contribute toward
the premium. Based on a comparison of the amounts resulting from each scenario, the premium
credit will be the lesser amount. The following text box, “Calculation of the Premium Credit
Amount,” discusses these two scenarios in more detail.
Calculation of the Premium Credit Amount
The premium credit amount will be the lesser amount resulting from either:
Scenario A: The cost of the exchange plan that the taxfiler (and dependents) is (are) enrolled in;
Or
Scenario B: The excess, if any, resulting from the following formula:
The age-adjusted premium for the second-lowest cost silver plan in the taxfiler’s area (“reference
plan”),
Minus
The product of the taxfiler’s household income and the “applicable percentage” (explained in
greater detail below), based on the taxfiler’s household income relative to the federal poverty level.
Enrollee Premium Contribution
The enrollee premium contribution will be based on the lesser amount calculated above.
Scenario A: If the premium credit is based on the amount calculated under Scenario A, then the taxfiler
(and dependents) pay(s) nothing toward the premium for exchange coverage.
Scenario B: If the premium credit is based on the amount calculated under Scenario B, then the taxfiler
(and dependents) pay(s) some amount toward the premium for exchange coverage.
(...continued)
coverage-under-the-affordable-care-act-an-update-on-the-treasuryirs-rules-defining-minimum-essential-coverage/.
36 The formula for calculating the premium credit amount is such that it is possible that the result may be a credit of
zero dollars, meaning the person/family pays the entire exchange premium. See the text box “Calculation of the
Premium Credit Amount” for additional information.
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Premium Credits in the Patient Protection and Affordable Care Act (ACA)
Choice of Exchange Plan Enrollment
While the calculation in Scenario B is based on the second-lowest cost silver plan in the taxfiler’s local area,
the qualifying individual/family may enroll in any tiered plan in an exchange and still be eligible for a tax credit.
However, if the individual/family enrol s in a plan with a premium that exceeds the premium for the reference
plan, the individiual/family is responsible for paying that additional amount.
Under Scenario B, the amount that a taxfiler who receives a premium credit is required to
contribute toward the premium (for the reference plan) is capped as a percent of household
income; that is, the maximum premium contribution is the product of the taxfiler’s household
income and the “applicable percentage,” as specified in ACA. In general, the applicable
percentage is less for those with lower incomes compared with those with higher incomes; where
income is measured relative to the federal poverty level. Under Scenario B, the amount that
taxfilers with income between 100% FPL and 133% FPL may be required to contribute toward
the reference plan’s premium is capped at 2% of household income. For taxfilers with income
300%-400% FPL, their premium contribution is capped at 9.5% of income. ACA further specifies
the applicable percentages that taxfilers, whose incomes are between those two income bands,
may be required to pay toward the cost of exchange coverage under Scenario B (see Figure 1).
Figure 1. Maximum Percentage of Household Income to Use Toward Premiums for
the Second-Lowest Cost Silver Plan, by Percent of the Federal Poverty Level
Applicable to Premium Tax Credit Recipients
10%
s
9.5%
9.5%
n
9.5%
tio
9%
u
b
8.05%
tri
8%
n
o
7%
m C
iu
6.3%
6%
rem
P
r
5%
o
f
4%
me
4%
co
3%
n
f I
3%
2%
2%
% o
2%
m
1%
aximu
M
0%
100
150
200
250
300
350
400
Federal Poverty Level (%)
Source: CRS analysis of ACA.
The line graph shows the “applicable percentage” used to calculate the taxfiler’s required
premium contribution at each income level, as measured relative to the federal poverty level. The
ACA statute specifies the applicable percentage at certain incomes (income at 100% FPL, 133%
FPL, 150% FPL, etc.). At each of those incomes, the line changes slope. Specifically, at and
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Premium Credits in the Patient Protection and Affordable Care Act (ACA)
above 133% FPL up to 300% FPL, the applicable percentage increases incrementally as income
increases. For example, a person with income at 150% FPL may be required to pay a maximum
of 4% of household income toward exchange coverage. A 1% increase in income (i.e., person has
income at 151% FPL) results in a maximum premium contribution equal to 4.05% of income.
Calculation of the premium credit amount (under Scenario B) is the arithmetic difference after
subtracting the taxfiler’s required premium contribution from the premium for the second-lowest
cost silver plan (“reference plan”) available to the taxfiler. It is theoretically possible that a
person’s required premium contribution could be equal to or exceed the reference plan’s
premium, leaving that taxfiler with a premium credit of zero.37 Moreover, while the credit amount
under this scenario is based on the reference plan, the individual/family may enroll in any metal-
tier plan and still be eligible for credits. However, when a premium credit recipient enrolls in a
plan that is more expensive than the reference plan, that person must pay the additional amount.
Premium Credits in 2014
Premium tax credits to be used toward paying for health insurance in the exchanges became
available in 2014. Table 2 displays selected annual income levels used in the calculation of
premium credit amounts and required premium contributions, as discussed above.
Table 2. Selected Annual Income Levels Applicable to 2014 Premium Credits
Based on 2013 HHS Poverty Guidelines for the 48 contiguous states and the District of Columbia
Percent of Federal
Family Size
Poverty
Line (FPL)
1 person
2 persons
3 persons
4 persons
100% $11,490
$15,510
$19,530 $23,550
133% $15,282
$20,628
$25,975 $31,322
150% $17,235
$23,265
$29,295 $35,325
200% $22,980
$31,020
$39,060 $47,100
250% $28,725
$38,775
$48,825 $58,875
300% $34,470
$46,530
$58,590 $70,650
350% $40,215
$54,285
$68,355 $82,425
400% $45,960
$62,040
$78,120 $94,200
Source: CRS computations based on “Annual Update of the HHS Poverty Guidelines,” 78 Federal Register 5182,
January 24, 2013, http://www.gpo.gov/fdsys/pkg/FR-2013-01-24/pdf/2013-01422.pdf.
Notes: For 2014, the income levels used to calculate premium credit eligibility and amounts are based on 2013
HHS poverty guidelines. Different income levels, as measured against the FPL, apply separately to Alaska and
Hawaii (see Table 1).
Table 3 displays the maximum monthly premium contributions for individuals and families who
receive premium tax credits, provided that they enroll in the applicable reference plan.
37 For an illustrative example, see hypothetical person “C” and table note “c” in Table 4 of this report.
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Table 3. Maximum Monthly Premium Contributions for Tax Credit Recipients
Enrolled in the Second-Lowest Cost Silver Plan, 2014
Based on 2013 HHS Poverty Guidelines for the 48 contiguous states and the District of Columbia
Maximum Premium
Maximum Monthly Premium Contributions for Tax Credit
Federal
Contribution based on
Recipients, by Family Size
Poverty
a Percent of Income
Line
(“Applicable
(FPL)
Percentages”)
1 person
2 persons
3 persons
4 persons
100% 2.0%
$20 $27 $34 $40
132.9% 2.0%
$26 $35 $44 $53
133% 3.0%
$39 $53 $66 $79
150% 4.0%
$58 $79 $99 $119
200% 6.3% $122
$164
$206
$248
250% 8.05% $194
$261 $329 $396
300% 9.5% $274
$369
$465
$560
350% 9.5% $319
$431
$542
$654
400% 9.5% $365
$492
$619
$747
Source: CRS computations based on “Annual Update of the HHS Poverty Guidelines,” 78 Federal Register 5182,
January 24, 2013, http://www.gpo.gov/fdsys/pkg/FR-2013-01-24/pdf/2013-01422.pdf.
Notes: For 2014, the income levels used to calculate premium credit eligibility and amounts are based on 2013
HHS poverty guidelines. If individuals enroll in more expensive plans than the second-lowest cost silver plan in
their respective areas, they would be responsible for the additional premium amounts. If the required premium
contribution exceeds the actual premium amount, individuals would pay the entire premium for exchange
coverage. The premium amounts have been rounded up to the nearest dol ar amount.
Both Figure 1 and Table 3 illustrate the “cliff effect” that occurs at 133% FPL. For those
individuals with income below 133% FPL, the credits ensure that such individuals pay no more
than 2% of their income for the second-lowest cost silver plan. For incomes at or above 133%
FPL, individuals and families may pay up to 3% of their income toward premiums for their
reference plan. For example, an individual with income at 132.9% FPL (annual income of
$15,270) may be required to pay $26 in monthly premiums for the second-lowest cost plan in
2014 (see Table 3). With 12 additional dollars of income (annual income of $15,282, equivalent
to 133% FPL), this person may be required to pay $39 in monthly premiums. Therefore, the
additional $12 in annual income could lead to an additional $156 in premium contributions for
this hypothetical person in 2014. Nevertheless, some might observe that prior to implementation
of the ACA premium credits in 2014, there were no federal subsidies for health coverage for
individuals with income at this level and above, except for some narrowly defined groups. Thus,
more individuals overall may be eligible for subsidized private coverage under the ACA, than
before enactment of the law.
Premium Credit Examples: Self-Only and Family Coverage
The following hypothetical examples use actual exchange information about premiums, enrollee
contributions, and premium credit amounts; the information was compiled using the plan finder
tool at healthcare.gov.38 To facilitate comparisons across hypothetical individuals and families,
38 See https://www.healthcare.gov/find-premium-estimates/.
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the premium and tax credit amounts apply to the same geographic location: Autauga County in
Alabama (the first state and first county in the drop down menus in the plan finder tool). The
examples in Table 4 assume that the hypothetical individual (or family) is enrolled in the
reference plan (second-lowest cost silver plan). As the 2014 premium data indicate, individuals at
the same income level will face different (pre-credit) premiums based on age. This reflects the
limited age rating allowed for health insurance policies, including those offered in the individual
exchanges.39 The practical effect of ACA’s age rating requirements means that, for any given
metal-tier plan in a specific geographic area, premiums vary for adults between 21 and 64+ years
of age by a 3:1 ratio. (For examples that illustrate this 3:1 ratio, see hypothetical persons A, B, C,
and D in Table 4, and the following analysis included under “Discussion of Self-Only Coverage
Examples.”) Moreover, the premium credit amounts are greater for those with lower incomes,
compared with higher-income individuals of the same age, reflecting the income-based structure
of the premium credits.
Table 4. Premium Contributions and Credit Amounts for the Second-Lowest Cost
Silver Plans in 2014, by Selected Coverage Tiers
Applicable to Autauga County, Alabama
Monthly
Hypothetical
Maximum
(Pre-Credit)
Monthly
Person or
Federal
Premium
Premium for
Premium
Family –
Poverty Contribution
the Second-
Contribution
Monthly
Coverage
Letter
Annual
Level
as a % of
Age of
Lowest Cost
from
Credit
Tier
Designation
Income
(FPL)
Income
Adult(s)a
Silver Planb
Enrollee(s)
Amount
A $17,235
150% 4.0%
21 $201
$58 $143
B $17,235
150% 4.0% 64 $603
$58 $545
Self-Only
C $40,215
350% 9.5%
21 $201
$201c $0
D $40,215
350% 9.5%
64 $603
$319 $284
E
$29,295
150%
4.0%
40
$642
$99
$543
Family of
F
$29,295
150%
4.0%
60
$1,219
$99
$1,120
Threed
G
$68,355
350%
9.5%
40
$642
$542
$100
H
$68,355
350%
9.5%
60
$1,219
$542
$677
Source: Income levels and poverty levels from “Annual Update of the HHS Poverty Guidelines,” 78 Federal
Register 5182, January 24, 2013, http://www.gpo.gov/fdsys/pkg/FR-2013-01-24/pdf/2013-01422.pdf. Health plan
premiums and credit amounts were compiled using the health plan finder tool at https://www.healthcare.gov/
find-premium-estimates/.
Notes: For 2014, the income levels used to calculate premium credit eligibility and amounts in this table are
based on 2013 HHS poverty guidelines for the 48 contiguous states and the District of Columbia.
a. Premiums for exchange plans are age-adjusted to allow for a maximum 3:1 variation for adults between 21
and 64+ years of age. For additional information about this and other rating restrictions, see CRS Report
R42069, Private Health Insurance Market Reforms in the Patient Protection and Affordable Care Act (ACA).
b. The premiums for the plans that are currently being offered through exchanges vary according to metal tier,
geographic location, family size, age, and other factors.
c. The maximum premium contribution for an individual whose income is $40,215 in 2014 is $319 per month.
However, the monthly premium is $201 in this example, which is a lower amount than the maximum
39 See the “Rating Restrictions” discussion in CRS Report R42069, Private Health Insurance Market Reforms in the
Patient Protection and Affordable Care Act (ACA).
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premium contribution. Given this, hypothetical person C pays the entire premium for coverage in the
second-lowest cost silver plan, and the credit amount is zero.
d. Premiums for exchange plans are allowed to vary based on family size. In this table, hypothetical families E
through H are each composed of two adults of the same age and one child who is age 19. Insurance rates
for children are calculated by considering individuals under age 21 as one group. For example, if one child
who is age 5 and another child who is age 19 enrolled in the same metal-tier plan, their premiums would be
the same amount.
Discussion of Self-Only Coverage Examples
As indicated in Table 4, the monthly (pre-credit) premiums for self-only coverage in the second-
lowest cost silver plan in Autauga County, AL, are $201 for a 21-year-old individual and $603 for
a 64-year-old individual.40 Given the 3:1 age-rating among adults between 21 and 64+ years of
age, it follows that the premium for the same plan in the same county is three times higher for the
older adults (hypothetical persons B and D), than it is for the younger adults (hypothetical persons
A and C). However, for premium credit recipients, age does not determine the amount that a
given person contributes toward her premium. The formula for calculating premium contributions
from enrollees is based on income, not age (see Table 3), and such contributions are calculated
prior to determining the credit amount. Therefore, the actual amount that tax credit recipients will
pay toward exchange premiums may be the same for individuals with the same income levels,
regardless of age. For example, persons A and B are very different in age but have the same
income level; therefore, their monthly contributions toward premiums are the same amount ($58).
Person C is an example of the exception to this general rule. Persons C and D have the same
income level, so you would expect their premium contributions to be the same amount ($319, see
Table 3). However, person C’s premium ($201) is lower than the maximum premium
contribution allowed for an enrollee at that income level. Therefore, person C pays the entire
premium amount for the second-lowest cost silver plan available in that county.41
Discussion of Family Coverage Examples
The rules applicable to self-only coverage regarding age-rating for adults and calculation of
enrollee premium contributions based on income likewise apply to family coverage. Table 4
includes examples for hypothetical families comprised of two adults of the same age and one
child who is age 19. Similar to the self-only coverage examples, the families with the older adults
(families F and H) face a larger (pre-credit) premium than the families with the younger adults
(families E and G). However, the families with the same income pay the same amount toward
premiums. That is, families E and F pay $99 toward the monthly premium, while families G and
H pay $542, for the same exchange plan.
Reconciliation of Premium Credits
Under ACA, the amount received in premium credits is based on the prior year’s income tax
returns. These amounts are reconciled when individuals file tax returns for the actual year in
40 As discussed in the text box “Calculation of Premium Credit Amount” in this report, the actual credit amount will
either be the premium of the exchange plan in which the taxfiler is actually enrolled (Scenario “A”), or the amount
derived from the formula based on the second-lowest cost silver plan (Scenario “B”). Given this requirement, the
examples included in this report assume that the hypothetical individuals/families enroll in the reference plan, even
though credit recipients are allowed to enroll in any metal tier plan.
41 Note that for person C the premium contribution equals approximately 6% of income; while person D’s premium
contribution equals the maximum 9.5% of income.
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Premium Credits in the Patient Protection and Affordable Care Act (ACA)
which they receive premium credits. If a tax filing unit’s income decreases during the tax year,
and the filer should have received a larger tax credit, this additional credit amount will be
included in the tax refund for the year. On the other hand, any excess amount that was overpaid in
premium credits will have to be repaid to the federal government as a tax payment. However,
ACA imposes limits on the excess amounts to be repaid under certain conditions. For households
with incomes below 400% FPL, the law includes specific limits that apply to single and joint
filers separately—limits that will be indexed by inflation in future years.
Since the enactment of ACA, these limits have been amended twice: first under the Medicare and
Medicaid Extenders Act of 2010 (P.L. 111-309), and then under the Comprehensive 1099
Taxpayer Protection and Repayment of Exchange Subsidy Overpayment Act of 2011 (P.L. 112-9).
The current repayment limits vary by income band (see Table 5). For example, say a family
received overpayments for the tax credits they should have received in a given tax year. They will
have to repay the excess when they file federal income taxes for that year. However, if such a
family has income below 200% FPL, the IRS may only require them to repay up to $600 (for tax
credit overpayments during that tax year). In other words, while such a family may technically
owe a larger amount, repayment is limited to a maximum of $600 for a family with income below
200% FPL.
Table 5. Limits on Repayment of Excess Premium Credits Enacted by the
Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy
Overpayment Act of 2011 (P.L. 112-9)
If Household Income (Expressed as a Percentage
The Applicable Dollar Limit
of the Federal Poverty Level) Is:
for Joint Filers Is:
Less than 200%
$600
At least 200% but less than 300%
$1,500
At least 300% but less than 400%
$2,500
Note: The applicable dollar limit for single filers is 50% of the joint filer limit.
Enrollment: Exchanges and Premium Credits
As of March 1, 2014, the cumulative total for individual exchange enrollment was approximately
4.2 million persons.42 At least 3.5 million of these individuals qualified for premium tax credits.43
In its estimates for ACA’s health coverage provisions, the Congressional Budget Office (CBO)
projects exchange enrollment to be modest in the first couple years, then increase significantly
afterwards. Likewise, the estimates of federal outlays for premium credits are relatively moderate
initially, but increase rapidly after the first few years. According to its latest estimates, CBO
projects exchange enrollment in 2014 to total 8 million persons: 6 million and 2 million enrolled
in individual and SHOP exchanges, respectively. By 2024, CBO estimates that 28 million
individuals total will be enrolled in exchange coverage. Of those exchange enrollees who are
enrolled in the individual exchanges (24 million), 19 million are projected to receive premium
42 See Office of the Assistant Secretary for Planning and Evaluation, “Health Insurance Marketplace: March
Enrollment Report,” March 11, 2014, http://aspe.hhs.gov/health/reports/2014/MarketPlaceEnrollment/Mar2014/
ib_2014mar_enrollment.pdf.
43 Financial data are available for all but 83,687 persons enrolled in individual exchanges. Therefore, it is possible that
more than 3.5 million exchange enrollees qualified for tax credits as of March 1, 2014.
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credits (see Figure 2). CBO estimates that premium credits will increase federal outlays by $899
billion, from FY2015 through FY2024.44
Figure 2. Total Estimated Exchange Enrollment, 2024
Receiving
premium credits
Receiving
(regular
premium credits
eligibility)
(employer's
18 million, 64%
coverage "not
affordable")
1 million, 4%
Enrolled in
SHOP exchanges
with employer
No employer
subsidy (no
subsidy, no
premium credit)
premium credit
4 million, 14%
5 million, 18%
Source: U.S. Congressional Budget Office, The Budget and Economic Outlook: 2014 to 2024, Appendix B: Updated
Estimates of the Insurance Coverage Provisions of the Affordable Care Act , February 4, 2014,
http://www.cbo.gov/sites/default/files/cbofiles/attachments/45010-breakout-AppendixB.pdf.
Notes: Beginning in 2014, an employer’s coverage is not “affordable” when the employee’s contribution toward
the premium for the employer’s lowest-cost, self-only plan would exceed 9.5% of household income. Employees
with an employer offer of coverage may also be eligible for premium credits if the employer plan does not
provide minimum value (i.e., covers less than 60% of total allowed costs). However, the CBO projection of
individuals eligible for premium credits (besides meeting other eligibility criteria) because the employer plan
would not provide minimum value was well under 1 million, and therefore not included in CBO published
estimates or in this figure.
Cost-Sharing Subsidies
In addition to the premium credits, ACA establishes subsidies that are applicable to cost-sharing
expenses. An individual who qualifies for the premium credit and is enrolled in a silver plan
(actuarial value of 70%) through an exchange is also eligible for cost-sharing assistance.45 The
assistance is provided in two forms, and both forms are based on income (see descriptions
below). Individuals who receive cost-sharing subsidies may receive both types, as long as they
meet the applicable eligibility requirements.
ACA requires each metal tier plan to limit the total amount an enrollee will be required to pay out
of pocket for use of covered services in a year (referred to as an annual cost-sharing limit in this
report), and establishes separate limits for self-only coverage and family coverage. For 2014, the
44 U.S. Congressional Budget Office, The Budget and Economic Outlook: 2014 to 2024, Appendix B: Updated
Estimates of the Insurance Coverage Provisions of the Affordable Care Act , February 4, 2014, http://www.cbo.gov/
sites/default/files/cbofiles/attachments/45010-breakout-AppendixB.pdf.
45 ACA establishes different eligibility criteria for cost-sharing subsidies for certain American Indians and Alaska
Natives. For more information, see CRS Report R41152, Indian Health Care: Impact of the Affordable Care Act
(ACA).
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annual cost-sharing limit for self-only coverage is $6,350; the corresponding limit for family
coverage is $12,700.46 Given that tiered plans will already be required to comply with those
annual cost-sharing limits, one form of cost-sharing assistance reduces such limits (see Table 6).
The cost-sharing assistance reduces the annual limit faced by eligible individuals with income
between 100% and 250% FPL; greater reductions are provided to those with lower incomes. In
general, this cost-sharing assistance targets individuals and families who use a great deal of health
care in a year and, therefore, have high cost-sharing expenses. Enrollees who use very little health
care do not generate enough cost-sharing expenses to reach the annual limit.
Table 6. ACA Cost-Sharing Subsidies: Annual Cost-Sharing Limits,
by Household Income Tier
New Annual Cost-Sharing Limits for 2014
Household Income Tier,
by Federal Poverty Level
Self-Only Coverage
Family Coverage
100% - 150%
$2,250
$4,500
Greater than 150% - 200%
$2,250
$4,500
Greater than 200% - 250%
$5,200
$10,400
Source: “HHS Notice of Benefit and Payment Parameters for 2014,” 78 Federal Register 15483, March 11, 2013,
http://www.gpo.gov/fdsys/pkg/FR-2013-03-11/pdf/2013-04902.pdf.
Note: The cost-sharing limits applicable to tiered plans established under ACA uses existing limits applicable to
high-deductible health plans (HDHPs) that qualify to be paired with health savings accounts (HSAs). For 2014,
the cost-sharing limits for HSA-qualified HDHPs are $6,350 for self-only coverage, and $12,700 for family
coverage. The cost-sharing subsidy reduces these limits based on income.
The second form of cost-sharing assistance also applies to individuals with income between
100% and 250% FPL. For eligible individuals, the cost-sharing requirements (in the plans they
have enrolled) have been reduced to ensure that the plan covers a certain percentage of allowed
health care expenses, on average. The practical effect of this cost-sharing assistance is to increase
the actuarial value (AV)47 of the exchange plan in which the person is enrolled (see Table 7), so
enrollees face lower cost-sharing requirements than they would have without this assistance.
Given that this form of cost-sharing assistance directly affects cost-sharing requirements (e.g.,
lower deductible), both enrollees who use minimal health care and those who use a great deal of
services may potentially benefit from this assistance.
46 The cost-sharing limits established under this ACA provision uses existing limits applicable to high-deductible health
plans (HDHPs) that may be paired with health savings accounts (HSAs). Therefore, the annual cost-sharing limits that
apply to a given metal tier plan is based on the cost-sharing limits applicable to HSA-qualified HDHPs; see “Revenue
Procedure 2013-25,” http://www.irs.gov/pub/irs-drop/rp-13-25.pdf.
47Actuarial value (AV) is a summary measure of a plan’s generosity, expressed as the percentage of medical expenses
estimated to be paid by the insurer for a standard population and set of allowed charges. In other words, the higher the
percentage, the lower the cost-sharing, on average. AV is not a measure of premiums or the benefits package. Two
plans with the same AV may have different premiums and different sets of covered benefits.
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Table 7. ACA Cost-Sharing Subsidies: Actuarial Values, by Household Income Tier
Household Income Tier,
New Actuarial Values for Cost-Sharing
by Federal Poverty Level
Subsidy Recipients
100% - 150%
94%
Greater than 150% - 200%
87%
Greater than 200% - 250%
73%
Source: “HHS Notice of Benefit and Payment Parameters for 2014,” 78 Federal Register 15484, March 11, 2013,
http://www.gpo.gov/fdsys/pkg/FR-2013-03-11/pdf/2013-04902.pdf.
In order to be eligible for cost-sharing subsidies, an individual must be enrolled in a silver plan,
so that coverage already has an AV of 70%. For an individual who receives the subsidy referred to
in Table 7, the health plan imposes a set of different cost-sharing requirements, so the “silver”
plan will meet the new applicable AV. ACA does not specify how a plan reduces cost-sharing
requirements in order to increase the AV from 70% to one of the higher AVs. Through regulations,
HHS requires each insurance company that offers a plan that is subject to these cost-sharing
reductions to develop variations of its silver plan; these plan variations must comply with the
higher levels of actuarial value (73%, 87%, and 94%).48 When an individual is determined by an
exchange to be eligible for a cost-sharing subsidy, the person is enrolled in the plan variation that
corresponds with that person’s income (as indicated in Table 7). This approach ensures that the
individual automatically benefits from this cost-sharing assistance, as soon as exchange coverage
becomes effective.
The HHS Secretary will provide full reimbursements to exchange plans that provide cost-sharing
subsidies.49 CBO estimates that the cost-sharing subsidies will increase federal outlays, from
FY2015 through FY2024, by $167 billion.50
Author Contact Information
Bernadette Fernandez
Specialist in Health Care Financing
bfernandez@crs.loc.gov, 7-0322
48 See “HHS Notice of Benefit and Payment Parameters for 2014,” 78 Federal Register 15484, March 11, 2013,
http://www.gpo.gov/fdsys/pkg/FR-2013-03-11/pdf/2013-04902.pdf.
49 A given health plan is required to submit, to HHS, estimates of the amount of cost-sharing assistance it will provide
in a year. Such estimates must be submitted prior to that year, in order to receive advance payments for the estimated
amount of cost-sharing assistance. A plan must also submit to HHS actual amounts of cost-sharing assistance provided.
The actual amounts will be periodically reconciled with the amounts received by the plan in advance payments. For
additional information about these submission and payment processes, see 45 C.F.R. §156.430.
50 U.S. Congressional Budget Office, The Budget and Economic Outlook: 2014 to 2024, Appendix B: Updated
Estimates of the Insurance Coverage Provisions of the Affordable Care Act , February 4, 2014, http://www.cbo.gov/
sites/default/files/cbofiles/attachments/45010-breakout-AppendixB.pdf.
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