Premium Tax Credits

Low- and middle-income individuals and families will be eligible for federal subsidies to purchase insurance through the new exchanges.

A nurse takes medical information from a patient, who is a prison inmate.

What's the Issue?

Beginning January 1, 2014, the Affordable Care Act (ACA) requires most Americans to be insured under a public or private health plan or be subject to a tax penalty. To make insurance affordable for lower and middle income individuals and families not otherwise eligible for public or employer sponsored coverage, the ACA provides subsidies in the form of tax credits for private health insurance purchased through newly established health insurance exchanges.

The federal government and the states are now engaged in intense efforts to implement the requirements of the ACA so that enrollment can begin on October 1, 2013 with coverage and subsidies beginning in January 2014. The extent to which eligible individuals learn about, understand, and take advantage of the subsidies will be critical to the exchanges’ success or failure. As of now there is considerable confusion among the public regarding the insurance mandate, the qualifications for subsidies, and the process for enrolling in a health plan and obtaining the subsidies. 

Major unresolved issues around the ACA’s premium tax credit provisions will begin to play out in the next several months, including the effect that enrollment numbers will have on future premium prices in the individual insurance market, the costs of the subsidies and their impact on the U.S. budget, and the mechanics of administering a complicated program through the untested exchanges.

"The premium tax credit will vary based on family income and the cost of health insurance in the exchange available to the taxpayer."

What’s Next?

The first open enrollment period for the exchanges is scheduled to begin on October 1, 2013.  Outreach by federal government agencies, as well as the States, will intensify. Prior to that date, exchanges must be established, qualified health plans approved, navigators and application assisters trained, and the public educated about their new rights and responsibilities.

In addition to the government’s efforts, a number of private consumer groups are organizing campaigns for public education, outreach and enrollment, and there are a number of “premium subsidy calculators” available on the internet that can help people estimate the amount of subsidy assistance that will be available to them. At the same time, some opponents of the ACA have announced their intent to mount media efforts to discourage enrollment.