How Do ACA Tax Subsidies Affect Premiums and Enrollment?

via RAND Corporation

To encourage enrollment in the new individual insurance exchanges, the Affordable Care Act (ACA) offers tax credits to help lower-income individuals and families buy coverage. These tax credits have faced multiple court challenges. In early November 2014, the U.S. Supreme Court announced that it will hear King v. Burwell, a challenge that disputes the legality of the ACA’s tax credits in the 34 states with federally run health insurance exchanges. What’s at stake if the Supreme Court upholds this challenge?

How ACA Subsidies Work

Buyers in the individual health insurance market are eligible for tax credits if their incomes fall between 100 and 400 percent of the federal poverty level (about $24,000 to $96,000 for a family of four) and they have no offers of coverage from other sources. According to estimates from the U.S. Department of Health and Human Services, 85 percent of enrollees in last year’s exchanges received tax credits.

A family of four with an annual of income of $52,000 — median U.S. income, according to recent data reported by the U.S. Census Bureau — is required to contribute about $3,600 annually toward health insurance premiums, with the federal government paying the rest (up to the cost of a benchmark plan). In many states, the benchmark premium for a family of four could exceed $10,000, so the annual value of the tax credit for a family can exceed $6,000..

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Eric is a Producer at Lockton Insurance Brokers, Inc., the world’s largest privately held commercial broker. Eric has over 23 years of experience in the insurance industry and has spent the last 11 years with Lockton. Eric specializes in Health & Welfare Benefits, Retirement Planning, and Executive Benefits. Eric's clients utilize his expertise in the areas of Plan Due Diligence, Transaction Structure, Fiduciary Oversight, Investment Design, Compliance and Vendor negotiation to improve the operational & financial outcome for each client. The Benefit Blog is a place to share that expertise and industry news.
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