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How the Health Subsidy will be processed
So you have looked at the qualifications for receiving a health subsidy and great news... you should be eligible! Congratulations. Now how will the actual mechanics of the new health subsidy work? Do you get money up front? Do you get a reduced insurance premium? Do you collect funds at tax time to offset the actual premium you paid? What if your income and therefore, your eligibility changes during the year. All good questions so let's look at the mechanics of how we expect the health subsidy to work. Keep in mind that each State might be slightly different but our online quote engine will take that in to account when you the new plans and rates are available online.
When does the health subsidy get applied
There was a concern in the law that if people genuinely met the under 400% of poverty requirement, they would be unable to "front" the health insurance premium even if there was a subsidy. The implementation of the law took this into account as it was a legitimate concern considering the cost of health insurance premiums these days. To account for this, the law stipulates that the health subsidy will be available up front to a person that is eligible at the time of enrollment in a Health Exchange plan that's eligible. Let's look at an example of how this works.
Let's say we have an individual that makes $2K monthly or roughly 200% of the Federal Poverty Level. You can find the exact amounts here. Let's also assume that the cost of a subsidy-eligible health plans on the Exchange is $400/monthly. Rates of health insurance are based on age, area, and plan benefits going forward with health reform. According to the law, the person above should not pay more than 9.5% of their income towards health insurance premiums or just under $40/monthly. The percentages may actually be lower at the lower end of the 150%-400% Federal Poverty level scale but we'll go with 9.5% as a worse case. When the person enrolls in a health insurance plan and meets the health subsidy eligibility requirements, the system will automatically deduct the subsidy of $360 so that the person would pay the $40/monthly premium. This will continue according to the billing type (monthly, quarterly, etc) for the remainder of the year. What if the income changes during the period sufficiently enough to affect the health care subsidy eligibility?
Look Back Periods and Settlement
The first year's subsidy (2014) is based on 2012 taxes or the filing April 2013. Many things can change between that filing and Jan 1st 2014. A person or family's income can increase or decrease significantly. If a person's income increases significantly to where they subsidy amounts would be affected, the person may need to repay the subsidy at tax time. They may pay less than they actually received if there revised income level was under 500% of poverty, but none the less, this is a concern for people who receive an unexpected tax hit.
In the end, it's good news that people can expect to pay the net premium amount up front with their health subsidy automatically deducted but make sure to plan accordingly if your income suddenly rises during the course of the year.
Los Angeles, Family of 4
making $60K. Subsidy=$8,388*
Iowa, Single Adult making $30K
*Based on age, expected costs, and other assumptions according to Kaiser Calculator. Actual subsidies will vary and official subsidy amounts will be available Oct 1st, 2013.
Health Subsidy Calculator
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