Understanding Obamacare Subsidies

When it comes to Obamacare / ACA / Marketplace plans, there are 2 ways that people can save on their healthcare costs. These are the Premium Tax Credit and the Cost Sharing Reduction.

The Premium Tax Credit is an advanced tax credit that is paid on your behalf to the health insurance company to reduce your monthly insurance premium. This subsidy is based on your household income (MAGI) and household size.

The Cost Sharing Reduction lowers your out of pocket costs for your healthcare. This subsidy is also based on your household income (MAGI) and household size. You must choose a Silver level plan for the Cost Sharing Reduction to be applied to your plan.

See below for descriptions of both subsides as well as instructions on how to calculate your Modified Adjusted Gross Income (MAGI)

Premium Tax Credit

A tax credit you can use to lower your monthly insurance payment (called your “premium”) when you enroll in a plan through the Health Insurance Marketplace. Your tax credit is based on the income estimate and household information you put on your Marketplace application

If your estimated income falls between 100% and 400% of the federal poverty level for your household size, you qualify for a premium tax credit.

You can use all, some, or none of your premium tax credit in advance to lower your monthly premium.

  • If you use more advance payments of the tax credit than you qualify for based on your final yearly income, you must repay the difference when you file your federal income tax return.
  • If you use less premium tax credit than you qualify for, you’ll get the difference as a refundable credit when you file your taxes.

You can buy health insurance through other sources, but the only way to get a premium tax credit is through the Health Insurance Marketplace.

Source: https://www.healthcare.gov/glossary/cost-sharing-reduction/

 Cost Sharing Reduction (CSR)

A discount that lowers the amount you have to pay for deductibles, copayments, and coinsurance. In the Health Insurance Marketplace, cost-sharing reductions are often called “extra savings.” If you qualify, you must enroll in a plan in the Silver category to get the extra savings.

Source: https://www.healthcare.gov/glossary/cost-sharing-reduction/

Estimating your expected income

When you fill out a health insurance application on the Health Insurance Marketplace you’ll need to estimate your expected income.
Two important things to know:

  • Marketplace savings are based on your expected household income for the year you want coverage, not last year’s income.
  • Income is counted for you, your spouse, and everyone you’ll claim as a tax dependent on your federal tax return (if the dependents are required to file). Include their income even if they don’t need health coverage. See details on who to include in your household.

How to make an estimate of your expected income
Step 1. Start with your household’s adjusted gross income (AGI) from your most recent federal income tax return. You’ll find your AGI on line 7 of IRS Form 1040.

Step 2. Add the following kinds of income, if you have any, to your AGI:

  • Tax-exempt foreign income
  • Tax-exempt Social Security benefits (including tier 1 railroad retirement benefits)
  • Tax-exempt interest
  • Don’t include Supplemental Security Income (SSI).

Step 3. Adjust your estimate for any changes you expect.
Consider things like these for all members of your household:

  • Expected raises
  • New jobs or other employment changes, including changes to work schedule or self-employment income
  • Changes to income from other sources, like Social Security or investments
  • Changes in your household, like gaining or losing dependents. Gaining or losing a dependent can have a big impact on your savings.

Now you have an estimate of your expected income.

Do Disability Benefits Count as Income under Obamacare?

If you’re receiving disability benefits, you may have to include these as income when determining if you qualify for subsidies or other benefits under Obamacare. Under the ACA, your eligibility for income-based Medicaid and subsidized health insurance is calculated using a household’s Modified Adjusted Gross Income (MAGI). How your MAGI is calculated is determined by the IRS and Medicaid regulations. Most people’s MAGI will be the same as their adjusted gross income: their total income minus deductions as reported on their tax returns. However, people receiving disability benefits may have MAGIs that differ from this amount.

Social Security Disability Insurance

If you’re receiving Social Security Disability Insurance (SSDI), your benefits are included as part of your MAGI. Currently, nontaxable Social Security benefits like SSDI payments count as income for the purpose of determining whether you qualify for subsidies. For many recipients of SSDI, this won’t matter too much. Individuals who have received SSDI benefits for 24 months automatically qualify for Medicare. However, if you’re not currently insured under Medicare, Medicaid, or other qualifying health insurance, your disability payments must be calculated as part of your income under Obamacare.

Private Disability Insurance

Disability benefits obtained through an employer’s disability insurance policy or an individual’s own private disability insurance raise different issues. Generally, your own private disability insurance benefits won’t count as income. In other words, if you’ve purchased your own disability insurance, your disability benefits aren’t subject to income tax. This is because you’ve paid the premium with your after-tax dollars. These benefits aren’t included as part of your MAGI when determining if you qualify for reduced premiums under Obamacare.

Employer Disability Insurance

If you receive benefits from your employer’s disability insurance policy, these benefits are almost always considered income. Most people who have disability insurance through work get it as a tax-free benefit. As a result, the benefits are considered income when received. If both you and your employer paid the premiums for you disability insurance, only the part of the benefits due to your employer’s payments count as income.

Source: https://injury.findlaw.com/accident-injury-law/disability-insurance-and-obamacare.html