A project of the George Washington University's Hirsh Health Law and Policy Program and the Robert Wood Johnson Foundation

CBPP and Cato papers examine tax subsidy availability

Posted on July 19, 2012 | No Comments

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The Affordable Care Act (ACA) provides tax credits and subsidies for the purchase of qualifying health insurance plans on state-run insurance exchanges.

According to a paper recently released by the Cato Institute, the Internal Revenue Service (IRS) rule that extends tax credits and subsidies to the purchase of health insurance in federal exchanges created in states without exchanges of their own,  lacks “statutory authority. The report argues that the” text, structure, and history of the Act show that tax credits and subsidies are not available in federally run exchanges” and that the IRS rule is thus “contrary to congressional intent and cannot be justified on other legal grounds.”

However, an article published by the Center on Budget Policy and Priorities (CBPP) takes a different perspective. In providing for a federal exchange, CBPP argues, the Congress intended that it substitute for a state exchange. The CBPP article makes the case that one of the primary functions of an exchange is to determine eligibility for, and the amount of, advance premium tax credits so that people can afford to buy coverage. CBPP cites section 1321 of the ACA and section 36B of the Internal Revenue Code as evidence regarding this point. Even if the statute were ambiguous, CBPP argues, a court examining whether the Treasury regulations are valid would defer to the agency’s interpretation of the statute.

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A memorandum from the Congressional Research Service (CRS) released by the House Energy and Commerce Committee states that a "literal application" of the law would prohibit premium subsidies to be offered for plans sold outside of the Affordable Care Act's Marketplaces. The memo also provided means by which the administration could argue they possessed the authority to offer subsidies outside of the Marketplaces.
An analysis performed by the Kaiser Family Foundation found that nearly 6 in 10 Americans eligible to participate in the Affordable Care Act's (ACA) health insurance marketplaces, which equates to 17 million individuals, will qualify for insurance subsidies. To receive a subsidy through the ACA, individuals must earn between 100-400% of the federal poverty line. Most of the individuals qualifying for subsidies reside in Texas, California, and Florida. The analysis was based on population and economic data collected by the Census Bureau for 2012 and 3013, stated that.
A blog post created by Marilyn Tavenner, the Administrator of the Centers for Medicare and Medicaid Services (CMS), clarifies concerns surrounding Exchange operability after last week's release of new Affordable Care Act (ACA) regulations. In the post, Tavenner proclaimed that the Exchanges will be fully operational by the October 1st enrollment deadline. Of chief import, Tavenner responded to concerns about whether or not the Exchanges will verify an applicant's submitted income information and if there are safeguards in place to prevent applicants from fraudulently receiving subsidies. Tavenner responded in the affirmative to both, stating that an applicant's income will be compared against tax filings, social security data, and income reports. Tavenner found that individuals who falsely apply for subsidies will run the risk of receiving a penalty for perjury, and that the Internal Revenue Services (IRS) already has mechanisms in place to recollect subsidies that were overpaid or provide subsidies to those that did not initially receive the correct amount.
A new study released by Jackson Hewitt Tax Service Inc. describes an issue that may arise when uninsured individuals without bank accounts enroll into the Affordable Care Act's (ACA) health insurance Exchanges. Uninsured + Unbanked = Unenrolled= How Health Insurance Companies May Exclude 1 in 4 Eligible Americans from ACA Coverage- and What the Federal Government Can Do to Stop It finds that one quarter of Americans eligible for federal premium subsidies under the ACA, meaning their annual income falls between 100-400% of the federal poverty level, do not have a checking account. This presents an issue in regards to the types of premium payments insurers are willing to accept, as many insurers will not take debit or credit card as a payment form. The US Department of Health and Human Services (HHS) claimed they ameliorated this concern in their guidance letter issued last month by stating that insurance companies must "accept payment in ways that are non-discriminatory."
Today, Jackson Hewitt Tax Service released a study entitled, "The Supreme Court's ACA Decision and Its Hidden Surprise for Employers: Without Medicaid Expansion, Employers Face Higher Tax Penalties Under ACA." The study describes how employers in states that refuse expansion may face higher shared responsibility payments under the Affordable Care Act (ACA). Jackson Hewitt cites Texas as a specific example, stating that their refusal to expand may increase federal tax penalties on Texas employers by $299 to $448 million annually.
A study released yesterday from the Heritage Foundation indicated that many Americans will bypass better jobs in order to retain healthcare subsidies provided to them by the Affordable Care Act (ACA). Beginning in 2014, insurance subsidies will be provided to families with household incomes below 400% of the federal poverty line. Since subsidy amount is tied to income, the Heritage Foundation argues that this provision in the law will deter individuals from taking higher paying jobs in order to subsidize their insurance purchase through the state marketplaces.
Guidance issued by the Internal Revenue Service (IRS) permits married individuals separated from their spouses due to domestic violence to receive income-based premium tax credits. Typically, spouses are expected to file taxes jointly in order to be eligible for premium subsidies under the Affordable Care Act (ACA). Today's guidance allows for an exception to this rule and also extends the enrollment deadline for this population by two months, through May 31st.
The US Department of Health and Human Services (HHS) updated the federal poverty level (FPL) guidelines for 2014. The guidelines, which are slightly higher than the 2013 levels, will not impact the eligibility thresholds used to determine subsidy eligibility for health insurance enrollment for 2014. For an individual, the the FPL is now set at $11,670, which represents a 1.6% increase from 2013.