ACA raises questions of premiums, tax credits and subsidies

With the opening of the online health insurance marketplaces just a little over a month away, I've been receiving many questions about how they'll work.

Q. It sounds like people who buy health insurance on the exchange will have to pay the full monthly premium for that insurance, and subsidies will be paid through tax credits that are received annually as a tax refund. How could any low-income person who is living from paycheck to paycheck afford to do that?

A. They won't have to. When consumers apply for a plan on the health insurance marketplace, also called an exchange, they'll be asked to provide income information to determine whether they're eligible for a premium tax credit. That subsidy will be available to people with incomes up to 400 percent of the federal poverty level ($45,960 for an individual in 2013, or $94,200 for a family of four).
 If they qualify, consumers can opt to receive the tax credits in advance, and the exchange will send the money directly to the insurer every month. This subsidy will reduce how much people owe up front. Consumers can also choose to receive their credit when they file their taxes the following year.
 It's important to estimate your income as accurately as possible and contact the exchange during the year if you find you're making more or less than expected, says Cheryl Fish-Parcham, deputy director for health policy at Families USA, a consumer advocacy group. That's because when completing your 2014 taxes, your estimate will be reconciled with what you actually earned.
 If in doubt, consider taking only some of the credit up front. "If people are worried about reconciliation and the possibility their income could increase, they can take part of [the credit] in advance and get the rest at tax time," advised Fish-Parcham.

Q. My employer offers affordable health insurance for me for $136 per month, but adding my husband and 22-year-old-daughter will push the premium up to about $2,050 a month. Will we be allowed to buy insurance on the exchange? We probably won't qualify for a subsidy because our income will be between $85,000 and $120,000. I fear that in comparison to the marketplace, the individual plans sold by insurance agents will be inferior.

A. Even if your employer offers health insurance, you can shop for coverage on the exchanges. However, since your income is more than 400 percent of the federal poverty level ($78,120 for a family of three in 2013), you won't be eligible for a premium tax credit if you buy a plan there.
"If you're not eligible for a tax credit, the coverage is going to look very similar inside and outside of the exchange," said Larry Levitt, senior vice president of the Kaiser Family Foundation.
Plans can't turn people down or charge them more because they have pre-existing medical conditions, for one thing, and they must cover 10 comprehensive "essential health benefits." In addition, all plans must generally cap out-of-pocket spending at $6,350 for individuals and $12,700 for families, among other things. The only plans that are exempt from the new rules are those that are grandfathered under the law.

Q. What happens when people don't pay their premiums in a timely manner after they purchased insurance on the new exchange? If they are terminated from the policy, will they be able to re-instate?

A. Consumers who are receiving premium tax credits for coverage on the exchange will get a 90-day grace period to catch up on late premium. Other consumers not getting the subsidies may get more or less time, depending on the exchange rules or state law.
Once the grace period has passed, consumers will generally have to wait until the next annual open enrollment period in the fall to re-enroll in coverage. If they're uninsured for more than three months, they could be assessed a penalty for not having insurance coverage of up to $95, or 1 percent of income in 2014, whichever is greater.
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