Michigan Webinar: Premium Tax Credits, Tax Penalty, and Exemptions Overview December 2, 2015 8:30 am 9:30 am In order to hear the presentation please call +1 (562) 247-8422, access code 241-100-552 All Participant Phone Lines are Muted at This Time
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Calculating the Premium Tax Credit and Mandate Penalty, and an Overview of Exemptions Center on Budget and Policy Priorities December 2, 2015
Calculation of the Premium Tax Credit
How is the Amount of PTC Calculated? 6 Difference between the cost of the benchmark plan and the expected premium contribution an individual is expected to pay The premium cost of the second lowest cost silver plan available to each eligible household member What an individual is expected to contribute towards the cost of premiums (based on an individual s income and is set on a sliding scale)
Costs covered by a plan What Is the Benchmark Plan and How Is It Determined? 7 The benchmark plan is the second lowest cost silver plan available to each eligible household member QHP METAL LEVEL PLAN TIERS QHPs must provide plan designs consistent with actuarial values Platinum Gold Silver Bronze Catastrophic coverage 90% actuarial value 80% actuarial value 70% actuarial value 60% actuarial value BENCHMARK PLAN High deductible health plan available for individuals up to age 30 or some individuals exempted from the individual responsibility requirement (PTCs do not apply to these plans) Actuarial value is a measure of the percentage of expected health care costs a health plan will cover and is considered a general summary measure of health plan generosity. It represents an average for a population and does not necessarily reflect the actual cost-sharing experience of an individual. Premiums paid by consumer NOTE: When no one plan covers every member, benchmark may be based on one or more policies
Rating Factors Affect the Cost of the Benchmark Plan 8 Age Limited to no more than 3 to 1 variation Each family member rated separately Family size Total premium for family = Sum of premiums for each family member Exception: In families with > 3 members under 21, count only 3 oldest children Geographic area
Other Factors Affecting Premiums 9 Tobacco use Limit to no more than 1.5 to 1 variation Difference due to tobacco use not accounted for in PTC calculation Plan chosen by consumer Amount of PTC pegged to second lowest cost silver plan But consumer can purchase any metal plan
Expected Premium Contribution (% of Income) Expected Premium Contribution in 2016 10 12.0% 10.0% 9.66% 8.0% 8.18% 6.0% 6.41% 4.0% 2.0% 2.03% 4.07% 3.35% 3.05% 0.0% 0% 50% 100% 150% 200% 250% 300% 350% 400% Household Income (% of FPL)
2016 Expected Contributions at Certain Income Levels 11 % of FPL Annual Household Income Income Amount (For HH of 1 using 2015 FPL) Expected Premium Contribution % of Income Dollar Amount (For HH of 1 using 2015 FPL) < 133% 1 < $15,654 2.03% $318 133-138% 1 $15,654 - $16,243 3.05% - 3.35% $477 - $544 138-150% $16,243 - $17,655 3.35% - 4.07% $544 - $719 150-200% $17,655 - $23,540 4.07% - 6.41% $719 - $1,509 200-250% $23.540 - $29,425 6.41% - 8.18% $1,509 - $2,407 250-300% $29,425 - $35,310 8.18% - 9.66% $2,407 - $3,411 300-350% $35,310 - $41,195 9.66% $3,411 - $3,979 350-400% $41,195 - $47,080 9.66% $3,979 - $4,548 > 400% > $47,080 n/a n/a 1 Individuals with <138% FPL that would be eligible for Medicaid are ineligible for tax credits
Calculating the PTC: Single Individual 12 John, 24 years old Income: $23,540/year (200% FPL) Expected contribution: 6.41% of income ($1,509/year, $126/month) 3 Lowest Cost Silver Plans That Cover John: $2,544/year ($212/month) BENCHMARK PLAN $2,604/year ($217/month) $2,640/year ($220/month) PTC Calculation $2,604 $1,509 $1,095/year ($91/month)
Calculating the PTC: Family of Four 13 Teresa, Antonio, Gaby, and Michael Income: $48,500/year (200% FPL) Expected contribution: 6.41% of income ($3,109/year, $259/month) 3 Lowest Cost Silver Plans That Cover All: $8,424/year ($702/month) BENCHMARK PLAN Note: could be one or multiple policies $8,700/year ($725/month) $8,832/year ($736/month) PTC Calculation $8,700 $3,109 $5,591/year ($466/month)
Calculating the PTC: Family of Four 14 Teresa, Antonio, Gaby, and Michael Income: $48,500/year (200% FPL) Expected contribution: 6.41% of income ($3,109/year, $259/month) Kids eligible for CHIP 3 Lowest Cost Silver Plans That Cover Teresa and Antonio: $6,888/year ($574/month) BENCHMARK PLAN PTC Calculation $7,068/year ($589/month) $7,164/year ($597/month) $7,068 $3,109 $3,959/year ($330/month)
Comparing Two Reyes Family Scenarios 15 Teresa, Antonio, Gaby, and Michael Income: $48,500 (200% FPL) Expected contribution: 6.41% of income ($3,109/year, $259/month) $10,000 $9,000 $8,000 $7,000 Expected Contribution PTC $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $5,591 $3,959 $3,109 $3,109 Key takeaway Benchmark plan affects PTC amount but not expected contribution $0 All Members Eligible Parents Eligible, Kids in CHIP
Example: Impact of Expected Contribution on PTC 16 200% FPL Income: $23,540 (200% FPL) Expected Contribution: $1,509/year, $126/month (6.41% of income) PTC: $1,095/year, $91/month VS. 275% FPL Income: $32,368 (275% FPL) Expected Contribution: $2,887/ year, $241/month (8.92% of income) PTC: $0/year John, 24 years old $3,000 Expected Contribution PTC Benchmark Plan: $2,604/year, $217/month $2,500 $2,000 $1,095 $1,500 $1,000 $500 $1,509 $2,604 $0 200% FPL 275% FPL
Example: Impact of Age on PTC Calculation 17 $8,000 Age: 24 Benchmark Plan Cost: $2,604 ($217/month) PTC: $1,095 ($91/month) VS. Age: 64 Benchmark Plan Cost: $7,812 ($651/month) PTC: $6,303 ($525/month) $7,000 Expected Contribution PTC John Income: $23,540 (200% FPL) Expected Contribution: 6.41% of income, $1,509 ($126/month) $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 $6,303 $1,095 $1,509 $1,509 24 years old 64 years old
Example: Impact of Tobacco Use on PTC Calculation 18 Non-Smoker Benchmark Plan Cost: $2,604 Premium Cost: $2,604 ($217/month) PTC: $1,095 ($91/month) VS. Smoker Benchmark Plan Cost: $2,604 Premium Cost: $3,906 ($326/month) PTC: $1,095 ($91/month) $4,000 John Income: $23,540 (200% FPL) $3,500 $3,000 $2,500 Actual Contribution PTC $1,095 Expected Contribution: 6.41% of income, $1,509 ($126/month) $2,000 $1,500 $1,000 $500 $1,095 $1,509 $2,811 $0 Non-Smoker Smoker
Example: Impact of Plan Choice on Premiums 19 John PTC: $1,095 ($91/month) $3,500 $3,000 $2,500 Actual Contribution Federal Premium Credit $1,095 $2,000 $1,095 $1,095 $1,500 $1,000 $500 $1,509 $1,449 $1,095 $717 $2,181 $0 Benchmark Silver Plan Lowest Cost Silver Plan Bronze Plan Gold Plan
Individual Shared Responsibility Payment
Individual Shared Responsibility Payment 21 Everyone in a household must have minimum essential coverage or an exemption from the coverage requirement If they do not, they owe an individual shared responsibility payment, or the penalty, for every month they are uninsured Year Full-year payment is the greater of: 2015 2016 2% of household income above tax filing threshold (up to cap*) 2.5% of household income above tax filing threshold (up to cap*) $325 per adult, $162.50 per child (up to cap of $975) $695 per adult, $347.50 per child (up to cap of $2,085) 2017 and beyond Values increased by a cost-of-living adjustment *Capped at national average premium of a bronze level plan purchased through a Marketplace. The payment is prorated for the number of months without coverage during the tax filing year
Tax Penalty (in 2015) Calculating the Penalty: Filing Single (2015) 22 penalty amount in 2015 2% of Income Flat Fee $1,400 $1,200 $1,000 $10,300 (tax filing threshold, filing single) $800 $26,550 $600 $400 $200 $325 ($325 x 1 adult) $0 no penalty Household Income
Tax Penalty (in 2015) Calculating the Penalty: Filing Single (2016) 23 penalty amount in 2016 2.5% of Income Flat Fee $1,400 $1,200 $1,000 $10,450 (approx) (tax filing threshold, filing single) $38,250 $800 $600 $695 ($695 x 1 adult) $400 $200 $0 no penalty Household Income
Example: Cassie 24 Calculating the Penalty Income: $17,000 Filing Status: Single Adults: 1 Children: 0 Months uninsured: 12 Tax filing threshold in 2015: $10,300 1. $17,000 - $10,300 = $6,700 x 2% 2. $325 x 1 adult = $134.00 $325.00 Cassie s penalty for 2015 Note: In tax year 2014, Cassie would have paid only $95. If everything remains the same, in 2016 she would pay $695.
Example: Cassie 25 Calculating the Penalty Income: $17,000 Filing Status: Single Adults: 1 Children: 0 Months uninsured: 7 Tax filing threshold in 2015: $10,300 1. $17,000 - $10,300 = 2. $325 x 1 adult = $6,700 x 2% $134.00 $325.00 $325.00 x (7/12) $189.60 Cassie s penalty for 2015
Example: Ruiz Family 26 Calculating the Penalty Income: $39,500 Filing Status: Married Filing Jointly Adults: 2 (both uninsured) Children: 2 (both uninsured) Months uninsured: 12 Tax filing threshold in 2015: $20,600 1. $39,500 - $20,600 = $18,900 x 2% $378.00 2. $325 x 2 adult + $162.50 x 2 children = $975.00 Ruiz family s penalty for 2015
Example: Ruiz Family 27 Calculating the Penalty Income: $39,500 Filing Status: Married Filing Jointly Adults: 2 (one insured) Children: 2 (both insured) Months uninsured: 12 Tax filing threshold in 2015: $20,600 1. $39,500 - $20,600 = 2. $325 x 1 adult = $18,900 x 2% $378.00 $325.00 Ruiz family s penalty for 2015
Overview of Exemptions from the Shared Responsibility Payment
Exemptions from the Shared Responsibility Payment 29 Exemptions Granted by the Marketplace Hardships, including a state s failure to expand Medicaid Insurance is unaffordable Member of certain religious sects Exemptions Granted at Tax Filing Income below filing threshold Insurance is unaffordable Certain noncitizens Short coverage gap (< 3 months) Resident of a state that did not expand Medicaid Exemptions Granted by the Marketplace or at Tax Filing Indian tribe membership Incarceration Health care sharing ministry Source: http://www.irs.gov/uac/aca-individual-shared-responsibility- Provision-Exemptions
Why Apply for a Marketplace Exemption? 30 Some exemptions are not available at tax filing Religious conscience and hardships can only be claimed by application to the Marketplace Circumstances change A person who appears eligible for certain exemptions early in the year may not be eligible at tax filing
Marketplace Exemptions: Hardship 31 Hardship Exemptions Financial or domestic circumstances 1. Homelessness 2. Eviction in the last 6 months or facing eviction or foreclosure 3. Utility shut-off notice 4. Domestic violence 5. Recent death of a close family member 6. Disaster that resulted in significant property damage 7. Bankruptcy in the last 6 months 8. Debt from medical expenses in the last 24 months 9. High expenses caring for ill, disabled or aging relative 10. Failure of another party to comply with a medical support order for a dependent child who is determined ineligible for Medicaid or CHIP 11. Through an appeals process, determined eligible for a Marketplace plan or lower costs, but was not enrolled 12. Determined ineligible for Medicaid because the state did not expand 13. Individual health insurance plan was cancelled and you believe Marketplace plans are unaffordable 14. Other hardship in obtaining coverage (including for people with limited Medicaid coverage) Duration: At least one month before and after hardship When to Apply: Up to 3 years after the month of the hardship (but documentation is required in most circumstances so earlier is better)
Example: Hardship Exemption 32 Kurt Kurt had a difficult winter. After failing to pay his electric bill for three months, he received a notice in February that his electricity would be turned off. He scrambled to pay the bill and neglected other bills, including his insurance premium. After three months of non-payment his coverage was terminated retroactively. Kurt can use the utility shut-off notice to apply for a hardship exemption for the time he went without coverage. The Marketplace will determine the exact length of the exemption.
Application for Hardship Exemptions 33 Application Form: All states (except Connecticut): marketplace.cms.gov/applicationsand-forms/hardship-exemption.pdf For all Marketplace Exemption Applications: https://marketplace.cms.gov/applications-and-forms/exemptionapplications.html
Marketplace Exemptions: Affordability 34 Insurance is unaffordable Lack of affordable coverage based on projected income (>8.05% of household income) Household Income (MAGI) Adjusted Gross Income (AGI) Line 37 IRS Form 1040 Tax-Exempt Interest Line 8b IRS Form 1040 Excluded Foreign Income Line 45 and 50 IRS Form 2555 Required contribution to a salary reduction agreement* Note: As with the definition of household MAGI when determining eligibility for coverage programs, the MAGI of any tax dependent with a tax filing requirement should be included What is considered unaffordable coverage? If eligible for an offer of ESI: As an employee: the lowest cost self-only plan costs more than 8.05% of household income As a member of the employee s family: the lowest cost family plan costs more than 8.05% of household income. (OR ESI costs more than 8.05% of household income due to failure to qualify for wellness discounts) If not eligible for an offer of ESI: Lowest cost bronze plan (after PTCs) for all non-exempt members of the taxpayer s family costs more than 8.05% of household income *Increase household income by any amount that wages (or the wages of any other member of your tax household whose MAGI was included in your household income) were reduced to pay all or a portion of the premiums for employer-sponsored coverage (i.e., a salary reduction arrangement)
Why Apply for a Marketplace Exemption? 35 Example: David David lost his job in December 2015 and asks about enrolling in health coverage in January 2016 He doesn t qualify for unemployment benefits and has no income right now He feels really uncomfortable guessing about his income for 2016 because he really doesn t know He decides to wait and get insurance later An assister tells him about the exemptions that he appears eligible for to avoid penalty: Based on his low projected income, insurance is likely unaffordable
Why Apply for a Marketplace Exemption? 36 Example: David In May, he gets a job and earns $2,100/month ($16,800 for the year) He still remains uninsured for the year At tax time for 2016, David doesn t qualify for any IRS exemptions: His income is above the filing threshold ($10,300 in 2015) Based on year-end income, insurance is affordable (even for the months he had no income!) No other exemption applies On his 2016 taxes, he will owe a $695 penalty. Lesson: If a person qualifies for an exemption early in the year, claim it!
Application for Affordability Exemption 37 Application Form: FFM Application: marketplace.cms.gov/applications- and-forms/affordability-ffm-exemption- 2015.pdf Apply anytime but this exemption will be granted prospectively only. If granted the exemption, the exemption will be valid for the rest of the year even if there is a change in circumstances For all Marketplace Exemption Applications: https://marketplace.cms.gov/applications-and-forms/exemptionapplications.html
Contact Info 38 January Angeles, angeles@cbpp.org Halley Cloud, cloud@cbpp.org General inquiries: beyondthebasics@cbpp.org For more information and resources, please visit: www.healthreformbeyondthebasics.org This is a project of the Center on Budget and Policy Priorities, www.cbpp.org
Discussing APTC Use the phrase you may be eligible rather than you are eligible Income is not the only factor in determining APTC eligibility/amounts Consumers may fall within income eligibility but not receive tax credits Consumers near 400% FPL should be cautious about the amount of APTC they accept Even a small annual raise can affect eligibility and/or alter the APTC amount Stress the importance of reporting income changes to the Marketplace Self-employed consumers with unpredictable income should also be cautious about the amount of APTC they accept Remind consumers who receive APTC that they MUST file taxes and reconcile if they want to receive tax credits in the future
How to explain APTC Calculation If a consumer wants to know how their tax credit is calculated: Each year, the federal government identifies a benchmark plan and an amount they expect you to pay towards health coverage. If the amount you are expected to pay is greater than the cost of the benchmark plan, you won t receive financial assistance. What is a benchmark plan?: A benchmark plan is the second lowest cost silver plan available in your zip code. The federal government uses the monthly premium cost of this plan to calculate how much financial assistance you will receive.
Tax Penalty vs. Premium Monthly premium amounts often keep consumers from enrolling in coverage If a consumer is unsure whether or not they want to enroll due to the premium cost, offer to calculate the tax penalty for their household Add the out-of-pocket cost for a physical/wellness visit, broken arm, ER visit etc. Remind consumers the penalty increases each year
Exemptions If a consumer is still unsure about enrolling in coverage, walk them through the list of available exemptions. If the consumer does not qualify for an exemption, again remind them of the tax penalty vs. the premium cost