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ACA Implementation Limits Eligibility for Tax Credits
Employers offer benefits for a variety of reasons, but the No. 1 reason is to attract and retain quality employees. The problem is that in 2014, group health benefits may not be beneficial for your lowest income employees with uninsured dependents (family income below 400% of the Federal Poverty Level) - in fact, some employees could be penalized by working for a company that offers affordable, minimum value health coverage.
That's because offering coverage that is affordable for the employee, blocks all "related individuals" - generally, the spouse and tax-dependent children - from accessing a government premium subsidy.
By basing the affordability determination on the cost of the employee only premium, the IRS has concluded that Congressional intent was to block these individuals from obtaining premium subsidies for their dependents.
So how much is the premium subsidy? The government premium subsidy is tied to the second lowest cost Silver level benefit plan. This plan is estimated to cover 70% of an average person's health care expenditures for one year. The income cutoff for an individual premium subsidy is four times the federal poverty level or $45,960 annually and increases based on the number of dependents. Individual premiums after the subsidy are limited to a % of income cap. Individuals who have incomes with a lower % of FPL receive greater subsidies for better plans.
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Reported Income (% poverty level)
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Premium Limits
(% of income cap)
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Actuarial
Plan Value
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Out-of-Pocket Maximum
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<133
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0%
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100%
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-
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133-149
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3%-4%
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94%
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$1,983
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150-199
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4%-6.3%
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87%
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$1,983
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200-249
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6.3%-8.05%
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73%
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$2,975
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250-299
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8.05%-9.5%
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70%
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$2,975
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300-399
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9.5%
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70%
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$3,967
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The result is that most group coverage will be considered affordable for employees and their family members will not be eligible for tax credits in the state exchanges. So if the employer is contributing toward the group health plans employee only premiums and the employee is responsible for the dependent premiums (individual mandate beginning in 2014 includes all eligible dependents), the employee will have three options available to insure their dependents
- choosing the employer plan for their dependents
- purchasing coverage for their dependents on an individual exchange with no tax subsidy
- not purchasing coverage for their dependents and paying the tax penalty
For more recent updates please visit us on the web at www.insuranceisboring.com.
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