Premium Tax Credits Under the ACA

Under the provisions of the Patient Protection and Affordable Care Act (ACA), individuals with low or moderate incomes who purchase insurance from the new health exchanges are eligible for premium tax credits in order to afford the new coverage. According to an issue brief from the Kaiser Family Foundation, an estimated 17 million individuals who are now uninsured or who buy insurance on their own from nongroup purchasers will be eligible for these premium tax credits in 2014.

Under the ACA, individuals with incomes between 100% and 400% of the federal poverty level may be eligible for premium tax credits when purchasing coverage in a marketplace. The amount of tax credit that an individual receives depends on their family income and the cost of health insurance where they live. The percentage of tax credit ranges from 2% of income for people with income at the federal poverty line to 9.5% of income for people with incomes 4 times the federal poverty line.

Individuals who are eligible for tax credit can apply the credit directly to reduce the premium for any plan offered in the marketplace; this excludes the catastrophic plans.

The Kaiser brief estimates that 29 million people nationally may enroll in new marketplaces.

The Congressional Budget Office (CBO) estimates that 7 million individuals will enroll in health insurance exchanges in 2014, including 6 million who will receive tax credits. By 2016, the CBO estimates the number of people receiving tax credits will nearly triple, in part due to the amount of time it takes for enrollment in a new program to increase. By 2018, the CBO estimates 20 million people covered by marketplaces will receive premium tax credits.

The state-by-state tax credit eligibility varies for a number of reasons, including some states having smoother exchange rollouts, some states having greater outreach and consumer assistance resources, the state-based availability of federal grants under the ACA, and the state-based budget for implementation of the marketplaces. Tax premiums will also vary by age, because people with the same income but different ages will have varying premiums.

Kaiser put together a list of the estimated number of tax credit eligible individuals in each state, with an estimated national total of more than 17 million individuals eligible. Below is a snapshot of some of their estimates:

• Texas (2,049,000)

• California (1,903,000)

• Florida (1,587,000)

• Michigan (436,000)

• New Jersey (400,000)

• Alabama (270,000)

• Oregon (187,000)

• Massachusetts (118,000)

• Wyoming (47,000)

• Delaware (29,000)

Texas, California, and Florida each have more than 1 million tax credit eligible residents, and an additional 7 states have more than 500,000 tax credit eligible individuals.

The 5 states with the most tax credit eligible residents account for approximately 40% of all individuals nationally. On the opposite side of the spectrum, 7 states have fewer than 50,000 tax credit eligible residents.