How the COVID relief law will rescue marketplace plan buyers

/in , , , /by

Stressed about having to pay back some or all of the premium subsidy that was paid on your behalf last year? You’re in luck: Under the American Rescue Plan Act (H.R. 1319) – passed by Congress on March 10 and expected to be signed into law by President Biden on March 12 – excess premium subsidies for 2020 do not have to be repaid to the Internal Revenue Service.

This is a one-time provision that’s being granted as part of the federal government’s massive COVID relief measure – which is also significantly increasing premiums subsidies for 2021 and 2022 – and it will come as a great relief to many of the Americans who enrolled in individual and family health plans through the health insurance marketplace /exchange last year.

Although the Affordable Care Act’s premium tax credits (premium subsidies) make health insurance affordable for millions of people, they can be a bit complicated. Unlike other tax credits, they’re available to be used up front, paid directly to your health insurance company throughout the year. (This is called APTC – advance premium tax credit – since it’s paid in advance.)

You can always opt to pay full price for a plan purchased through the exchange and then claim the whole premium tax credit on your tax return, but hardly anyone does that. Instead, most people provide the marketplace with a projection of what they think their income will be for the year, and their estimated premium tax credit is then sent to their insurer throughout the year, reducing the amount they have to pay in premiums.

The catch is that it all has to be reconciled with the IRS when policyholders file their tax returns. Depending on the circumstances, the IRS might give you additional money at that point (if your subsidy was too small), or they might make you repay some or all of the subsidy that was paid on your behalf during the year.

How the law will head off a tax-time subsidy repayment crisis

This issue was shaping up to be particularly significant for the 2020 tax year. The combination of additional federal unemployment compensation and erratic employment made it more difficult than usual for people to accurately project their income for 2020. And, as is always the case, folks whose income ended up over 400% of the federal poverty level were facing the prospect of paying back their entire premium subsidy to the IRS – repayments which could be in the thousands or even tens of thousands of dollars, depending on the circumstances.

An income boost that pushed a household over the 400% federal poverty level threshold might have happened because a person received more unemployment benefits than they expected, or because they got a new job later in the year that put their total income above the subsidy eligibility threshold. In normal years, this would mean the entire subsidy has to be repaid, regardless of how low policyholders’ income was during the months they were receiving a premium subsidy through the marketplace.

And even for people whose income stayed under 400 percent of the poverty level, there was the possibility of having to repay as much as $2,700 in excess premium subsidies, depending on the actual income and tax filing status.

Provision applies only to the 2020 tax year

But thanks to the American Rescue Plan Act, no marketplace plan buyer will have to worry about repaying excess premium subsidies for 2020. If your subsidy amount was too small, you can still claim the additional amount that you’re owed when you file your taxes. But if your subsidy ended up being too large – even if your income ended up exceeding 400% of the poverty level – you won’t owe any of it back to the IRS.

This is a one-time provision for the 2020 tax year only. So it’s still important to project your income for this year as accurately as possible, and keep the exchange updated if your income changes later this year.

How will the provision apply if you’ve already filed your taxes?

It’s not yet clear exactly how the IRS will handle excess premium tax credits for people who filed their 2020 tax returns earlier this year and already repaid some or all of their premium tax credit for 2020. Amended tax returns can always be used to make a change, but the IRS may provide other ways of recouping this money in guidance or FAQs issued in the near future. (We’ll update this if and when the IRS issues guidance and clarification.)

It’s also not yet clear how quickly tax software will reflect the fact that excess premium subsidies for 2020 do not have to be repaid. Karen Pollitz, a Senior Fellow at Kaiser Family Foundation, notes that “the forms and tax software already provide for repayment, so it will take a while to straighten all this out. And it will probably be very confusing for people who file their tax returns over the next four to five weeks.”

You’ll want to check with your tax preparer or call your tax software company to see if they have any guidance for you. The tax filing deadline is April 15, 2021, but it’s also possible to request an extension if you need it, giving you until October 15 to file your return.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

The post How the COVID relief law will rescue marketplace plan buyers appeared first on healthinsurance.org.

How the American Rescue Plan Act would boost marketplace premium subsidies

/in , , , /by

Key takeaways

Last weekend, the House of Representatives passed the American Rescue Plan Act of 2021 (H.R. 1319), an economic stimulus package designed to provide relief from the impact of COVID-19 on Americans. The bill has the support of the majority of Americans – including those registered as Republicans and Independents.

H.R. 1319 is now under consideration in the Senate, so we don’t yet know exactly what will be included in the final legislation. But the health insurance provisions in the House version of the legislation are unchanged from what the House Ways and Means Committee had initially proposed, and have not been sticking points for the bill thus far.

Several provisions in H.R. 1319 are designed to make health coverage more accessible and affordable. Today we’re taking a look at how the legislation would change the ACA’s premium subsidy structure for 2021 and 2022, and the impact that would have on the premiums that Americans pay for individual and family health coverage.

Help for 12 million marketplace enrollees, plus more who will newly enroll

If you’re among the 12 million people who purchase ACA-compliant coverage in the health insurance marketplaces, your coverage is likely to become more affordable under H.R. 1319.

What’s more, the Congressional Budget Office estimates that an additional 1.7 million people – most of whom are currently uninsured – would enroll in health plans through the marketplaces in 2022 as a result of the enhanced premium subsidies.

No one would pay more than 8.5% of their income for the benchmark plan

Some opponents of the legislation have criticized its premium subsidy enhancements as a handout to wealthy Americans. But that’s only because the legislation is designed to remedy the subsidy cliff – which can result in some households paying as much as half of their annual income for health insurance premiums. It’s a situation that’s obviously neither realistic nor sustainable for policyholders.

The Affordable Care Act (ACA) only provides premium tax credits (aka premium subsidies) if a household’s ACA-specific modified adjusted gross income doesn’t exceed 400 percent of the federal poverty level. For 2021 coverage in the continental U.S., that’s about $51,000 for a single person and $104,800 for a family of four. Depending on where you live, that might be a comfortable income – but not if you have to spend 20, 30, 40 or even 50 percent of that income on health insurance.

H.R. 1319’s adjustment to the premium tax credit guidelines would temporarily – for this year and next year – eliminate the income cap for premium subsidies. That means that – regardless of income – no one would have to pay more than 8.5 percent of their household income for the benchmark plan (the second-lowest-cost Silver plan available in the exchange in a given area).

Under this approach, subsidies would phase out gradually as income increases. Plan buyers would not be eligible for a subsidy if the benchmark plan’s full price wouldn’t be more than 8.5 percent of the household’s income. But in some areas of the country – and particularly for older applicants, who can be charged as much as three times the premiums young adults pay – premium subsidy eligibility could end up extending well above 400 percent of the poverty level.

In addition to addressing the subsidy cliff, H.R. 1319 also enhances premium subsidies for marketplace buyers who are already subsidy-eligible. The subsidies would get larger across the board, making after-subsidy premiums more affordable for most enrollees. At every income level, the legislation would reduce the percentage of income that people are expected to pay for the benchmark plan, which would result in larger subsidies.

Larger subsidies? Here are a few examples.

How much larger? It would depend on location, income, and age. Let’s take a look at some examples.

We’ll consider applicants with various income levels and ages in three locations: Albuquerque, New Mexico – where premiums are among the nation’s lowest; Jackson, Mississippi – where premiums are close to the national average; and Cheyenne, Wyoming – where premiums are among the nation’s highest.

In each location, we’ll see how things would play out for a 25-year-old, a 60-year-old, and a family of four (45-year-old parents, and kids who are 13 and 10), all at varying income levels.

American Rescue Plan Act impact on health insurance subsidiesYou can see the full comparison in this spreadsheet. (Current premiums were obtained via HealthCare.gov’s browsing tool. Premiums under H.R. 1319 were calculated using the proposed applicable percentage table in Section 9661(a) and the methodology outlined here, which would be unchanged under the new legislation.)

In most cases, you’ll notice that the subsidy amount is larger under H.R. 1319, resulting in a lower benchmark premium and also a lower price for the lowest-cost plan available to that applicant (or more plans available with no premium at all). This is because the new legislation specifically reduces the percentage of income that people have to pay for the benchmark plan. That, in turn, drives up the subsidy amounts that are necessary to reduce the benchmark premium. And since premium subsidies can be applied to any metal-level plan, it also results in a lower cost for the other available plans (or more premium-free plans, depending on the circumstances).

As you consider these numbers, note that if the current subsidy amount is $0, either the benchmark plan is already considered affordable for that person, or their income is over 400 percent of the poverty level and subsidies are simply not available. If the subsidy amount is $0 under the H.R. 1319 scenario, it means that the benchmark plan would not cost more than 8.5 percent of the applicant’s income.

As you can see, the additional subsidies would be widely available, but would be more substantial for people who are currently paying the highest premiums. Under the current rules, it may not be realistic for our Wyoming family to pay more than $30,000 in annual premiums (enrolling in the benchmark plan, with premiums in excess of $2,500 per month). The American Rescue Plan Act would bring their annual premiums for the benchmark plan down to under $10,000, which is much more manageable.

The legislation is not, however, a giveaway to wealthy Americans. If that family earned $500,000, they still wouldn’t get a premium subsidy under H.R. 1319, because even at $2,528/month, the full-price cost of the benchmark plan would only amount to 6 percent of their income. Unlike Medicare and the tax breaks for employer-sponsored health insurance, financial assistance with individual market health insurance would not extend to the wealthiest applicants.

By capping premiums at 8.5 percent of income, H.R. 1319 provides targeted premium assistance only where it’s needed. And by enhancing the existing premium subsidies, the legislation makes it easier for people at all income levels to afford health coverage.

Premium enhancements would be retroactive but also temporary

Assuming these premium subsidy enhancements are approved by the Senate, they’ll be retroactive to the start of 2021. Current enrollees will be able to start claiming any applicable extra subsidy immediately, or they can wait and claim it on their 2021 tax return. The additional premium subsidies would also be available for 2022, but would no longer be available as of 2023 unless additional legislation is enacted to extend them.

And there’s currently a special enrollment period – which continues through May 15 in most states – during which people can sign up for coverage if they haven’t already. In most states, this window can also be used by people who already have coverage and wish to change their plan, so this is definitely a good time to reconsider your health insurance coverage and make sure you’re taking advantage of the benefits that are available to you.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

The post How the American Rescue Plan Act would boost marketplace premium subsidies appeared first on healthinsurance.org.

How the American Rescue Plan Act will boost marketplace premium subsidies

/in , , , , /by

Key takeaways

Edit: The Senate passed H.R.1319 on March 6, and the House passed the bill again on March 10. President Biden signed it into law on March 11. CMS published some initial information for marketplace enrollees on March 12.

Last weekend, the House of Representatives passed the American Rescue Plan Act of 2021 (H.R. 1319), an economic stimulus package designed to provide relief from the impact of COVID-19 on Americans. The bill has the support of the majority of Americans – including those registered as Republicans and Independents.

H.R. 1319 is now under consideration in the Senate, so we don’t yet know exactly what will be included in the final legislation. But the health insurance provisions in the House version of the legislation are unchanged from what the House Ways and Means Committee had initially proposed, and have not been sticking points for the bill thus far.

Several provisions in H.R. 1319 are designed to make health coverage more accessible and affordable. Today we’re taking a look at how the legislation would change the ACA’s premium subsidy structure for 2021 and 2022, and the impact that would have on the premiums that Americans pay for individual and family health coverage.

Help for 12 million marketplace enrollees, plus more who will newly enroll

If you’re among the 12 million people who purchase ACA-compliant coverage in the health insurance marketplaces, your coverage is likely to become more affordable under H.R. 1319.

What’s more, the Congressional Budget Office estimates that an additional 1.7 million people – most of whom are currently uninsured – would enroll in health plans through the marketplaces in 2022 as a result of the enhanced premium subsidies.

No one would pay more than 8.5% of their income for the benchmark plan

Some opponents of the legislation have criticized its premium subsidy enhancements as a handout to wealthy Americans. But that’s only because the legislation is designed to remedy the subsidy cliff – which can result in some households paying as much as half of their annual income for health insurance premiums. It’s a situation that’s obviously neither realistic nor sustainable for policyholders.

The Affordable Care Act (ACA) only provides premium tax credits (aka premium subsidies) if a household’s ACA-specific modified adjusted gross income doesn’t exceed 400 percent of the federal poverty level. For 2021 coverage in the continental U.S., that’s about $51,000 for a single person and $104,800 for a family of four. Depending on where you live, that might be a comfortable income – but not if you have to spend 20, 30, 40 or even 50 percent of that income on health insurance.

H.R. 1319’s adjustment to the premium tax credit guidelines would temporarily – for this year and next year – eliminate the income cap for premium subsidies. That means that – regardless of income – no one would have to pay more than 8.5 percent of their household income for the benchmark plan (the second-lowest-cost Silver plan available in the exchange in a given area).

Under this approach, subsidies would phase out gradually as income increases. Plan buyers would not be eligible for a subsidy if the benchmark plan’s full price wouldn’t be more than 8.5 percent of the household’s income. But in some areas of the country – and particularly for older applicants, who can be charged as much as three times the premiums young adults pay – premium subsidy eligibility could end up extending well above 400 percent of the poverty level.

In addition to addressing the subsidy cliff, H.R. 1319 also enhances premium subsidies for marketplace buyers who are already subsidy-eligible. The subsidies would get larger across the board, making after-subsidy premiums more affordable for most enrollees. At every income level, the legislation would reduce the percentage of income that people are expected to pay for the benchmark plan, which would result in larger subsidies.

Larger subsidies? Here are a few examples.

How much larger? It would depend on location, income, and age. Let’s take a look at some examples.

We’ll consider applicants with various income levels and ages in three locations: Albuquerque, New Mexico – where premiums are among the nation’s lowest; Jackson, Mississippi – where premiums are close to the national average; and Cheyenne, Wyoming – where premiums are among the nation’s highest.

In each location, we’ll see how things would play out for a 25-year-old, a 60-year-old, and a family of four (45-year-old parents, and kids who are 13 and 10), all at varying income levels.

American Rescue Plan Act impact on health insurance subsidiesYou can see the full comparison in this spreadsheet. (Current premiums were obtained via HealthCare.gov’s browsing tool. Premiums under H.R. 1319 were calculated using the proposed applicable percentage table in Section 9661(a) and the methodology outlined here, which would be unchanged under the new legislation.)

In most cases, you’ll notice that the subsidy amount is larger under H.R. 1319, resulting in a lower benchmark premium and also a lower price for the lowest-cost plan available to that applicant (or more plans available with no premium at all). This is because the new legislation specifically reduces the percentage of income that people have to pay for the benchmark plan. That, in turn, drives up the subsidy amounts that are necessary to reduce the benchmark premium. And since premium subsidies can be applied to any metal-level plan, it also results in a lower cost for the other available plans (or more premium-free plans, depending on the circumstances).

As you consider these numbers, note that if the current subsidy amount is $0, either the benchmark plan is already considered affordable for that person, or their income is over 400 percent of the poverty level and subsidies are simply not available. If the subsidy amount is $0 under the H.R. 1319 scenario, it means that the benchmark plan would not cost more than 8.5 percent of the applicant’s income.

As you can see, the additional subsidies would be widely available, but would be more substantial for people who are currently paying the highest premiums. Under the current rules, it may not be realistic for our Wyoming family to pay more than $30,000 in annual premiums (enrolling in the benchmark plan, with premiums in excess of $2,500 per month). The American Rescue Plan Act would bring their annual premiums for the benchmark plan down to under $10,000, which is much more manageable.

The legislation is not, however, a giveaway to wealthy Americans. If that family earned $500,000, they still wouldn’t get a premium subsidy under H.R. 1319, because even at $2,528/month, the full-price cost of the benchmark plan would only amount to 6 percent of their income. Unlike Medicare and the tax breaks for employer-sponsored health insurance, financial assistance with individual market health insurance would not extend to the wealthiest applicants.

By capping premiums at 8.5 percent of income, H.R. 1319 provides targeted premium assistance only where it’s needed. And by enhancing the existing premium subsidies, the legislation makes it easier for people at all income levels to afford health coverage.

Premium enhancements would be retroactive but also temporary

Assuming these premium subsidy enhancements are approved by the Senate, they’ll be retroactive to the start of 2021. Current enrollees will be able to start claiming any applicable extra subsidy immediately, or they can wait and claim it on their 2021 tax return. The additional premium subsidies would also be available for 2022, but would no longer be available as of 2023 unless additional legislation is enacted to extend them.

And there’s currently a special enrollment period – which continues through May 15 in most states – during which people can sign up for coverage if they haven’t already. In most states, this window can also be used by people who already have coverage and wish to change their plan, so this is definitely a good time to reconsider your health insurance coverage and make sure you’re taking advantage of the benefits that are available to you.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

The post How the American Rescue Plan Act will boost marketplace premium subsidies appeared first on healthinsurance.org.

The Scoop: health insurance news – February 3, 2021

/in , , , , , /by

In this edition

Special enrollment periods underway (or soon to be underway) in most states

White House

An executive order signed by President Biden has authorized a COVID-related special enrollment period on HealthCare.gov. The SEP will run from February 15 to May 15.

Last week, the Biden administration announced a special enrollment period for HealthCare.gov, which will run from February 15 to May 15. This window will allow anyone eligible to use the marketplace to enroll or make a plan change, without needing a qualifying event.

The SEP applies in the 36 states that use HealthCare.gov, but 12 of the other 15 state-run exchanges have also announced similar enrollment windows — some of which are already underway:

These state-run exchanges are taking a mixed approach to this enrollment window, with some allowing anyone to enroll, and others limiting it to only people who are currently uninsured. There are only three other states that run their own exchange platforms but have not yet announced COVID-related special enrollment periods: Connecticut, Idaho, and Vermont.

House, Senate legislation would make ACA premium subsidies more generous

Democrats in Congress have long been considering various proposals to enhance the ACA’s premium subsidies and make more robust coverage more affordable. Last month, Rep. Lauren Underwood (D-Ill.) introduced the Health Care Affordability Act (H.R. 369) and Sen. Mark Warner (D-Va.) introduced the Health Care Improvement Act of 2021. Both bills include the basic health care provisions that President Biden has proposed as part of his American Recovery Plan.

One of the most important aspects of these pieces of legislation is a fundamental change in the formula for calculating premium subsidies. Under these bills, the subsidies would become more generous, allowing more Americans to purchase coverage with minimal or zero premiums, and capping premiums at no more than 8.5 percent of income, regardless of a household’s income. At ACA Signups, Charles Gaba has created graphics that will help you visualize after-subsidy premiums as a percentage of income under the status quo versus H.R. 369, as well as a previous piece of federal legislation and California’s state-based subsidy system.

Maryland legislation would create young-adult subsidy pilot program

A bill (H.B. 780) introduced last week in Maryland calls for the state to create a pilot program that would provide state-funded premium subsidies to young adults with fairly low incomes. The legislation calls for the state to use $10,000,000 per year in 2022 and 2023 to provide additional premium assistance to people between the ages of 18 and 41, with incomes between 133 percent and 140 percent of the poverty level.

The ACA already provides federal premium subsidies for people at this income level, but the subsidies aren’t as strong for young people as they are for older enrollees. The pilot program would be designed to make net premiums more affordable and boost enrollment for this demographic.

Minnesota legislation calls for transition to HealthCare.gov

Minnesota H.F. 536 – introduced on Monday – calls for the state to transition away from MNsure as of 2022 and start utilizing HealthCare.gov instead. The measure is not likely to pass in the Minnesota House, given the Democratic majority in that chamber and the lawmakers’ general support for MNsure.

In 2017, former Gov. Mark Dayton vetoed a bill that would have transitioned the state to HealthCare.gov, and MNsure has continued to be a successful state-run exchange ever since.

Over the first few years the exchanges were in operation, several states shifted from their own enrollment platforms to HealthCare.gov (although Idaho took the opposite approach, switching from HealthCare.gov to their own platform as of the 2015 plan year). But the opposite trend has been ongoing for the last couple of years, with Nevada, Pennsylvania, and New Jersey all switching away from HealthCare.gov and operating their own exchange platforms, and other states planning to follow suit over the next few years. (You can see a full timeline of all the changes here.)

Minnesota bill would require more robust coverage of outpatient mental health treatment

Minnesota H.F. 415 and S.F. 377 – both introduced last week – would require major medical plans regulated by the state of Minnesota (ie, individual and fully-insured group plans, but not self-insured group plans) to cover a member’s first four outpatient mental health visits each year with cost-sharing that doesn’t exceed $25 per visit.

There’s no mention of an exclusion for HSA-qualified high-deductible health plans (HDHP), but that would need to be added to the legislation in order to allow HSA-compliant plans to continue to be available in Minnesota. IRS rules do not allow HDHPs to pay for services like mental health care until the member has met their deductible.

Washington legislation would create state-based premium subsidies

Washington state’s Cascade Care program, including standardized plans and public option plans, is underway this year. But part of the original 2019 Cascade Care legislation called for the state to develop a plan to provide state-based premium subsidies to people earning up to 500 percent of the poverty level.

Legislation to get the ball rolling on that did not advance in last year’s session, but a new bill was introduced last week with a similar intent. S.B. 5377 calls for the state to provide premium subsidies to people with income up to 500 percent of the poverty level (and possibly a cost-sharing assistance program), as long as they’re enrolled in the lowest-cost Bronze, Silver, or Gold standardized plan available in their area. Washington’s exchange conducted a detailed analysis of various approaches to state-based premium subsidy programs last year; their report includes a recommendation that the state-funded premium subsidies be provided as a fixed-dollar amount.

S.B. 5377 also addresses some aspects of the state’s existing public option program, including participation requirements for hospitals and surgical facilities, as well as a reduction in the reimbursement rate for hospitals (currently set at 160 percent of Medicare rates, but it would decline to 135 percent of Medicare rates under S.B. 5377, leading to lower premiums for enrollees).

Mississippi and Kentucky consider extending postpartum Medicaid coverage

Mississippi lawmakers are considering S.B. 2799, which would make a variety of changes to the state’s Medicaid program, including an extension of postpartum Medicaid coverage. Under current rules, a woman in Mississippi who qualifies for Medicaid due to pregnancy is eligible for 60 days of postpartum Medicaid coverage after the baby is born, but S.B. 2799 would extend that to 12 months (during the COVID pandemic, postpartum Medicaid coverage does not terminate after 60 days, due to the current rules that prevent states from terminating Medicaid coverage for any enrollees unless they move out of the state or request a coverage termination). Medicaid covers nearly two-thirds of all births in Mississippi — the highest proportion in the nation.

The Kentucky House Democratic Women’s Caucus has created a plan they’re calling the Kentucky Maternal and Infant Health Project, comprised of 21 proposed bills that would address a wide range of issues. Among them is a measure that would extend postpartum Medicaid coverage from 60 days to 12 months. The proposal also calls for pregnancy to be considered a qualifying event, which is currently only the case in New York, Connecticut, and DC.

Montana legislative committee advances bill to prohibit abortion coverage for on-exchange plans

Last week we told you about legislation in Arizona, Texas, and Virginia that would remove state rules that prohibit abortion coverage on health plans that are sold in the exchange/marketplace in those states. Montana lawmakers are considering the opposite approach, however, with H.B. 229. The bill, which was approved by the House Judiciary Committee last week, would prohibit abortion coverage on plans sold in the Montana exchange. The only exception would be in cases where the mother’s life is in danger.

Montana is currently one of a minority of states where there is no ban on abortion coverage for on-exchange plans, and at least one insurer does offer plans that include abortion coverage.

More states consider bills that would cap out-of-pocket costs for insulin

Last year, several states enacted legislation to cap consumers’ out-of-pocket costs for insulin. Other states are considering similar bills this year, including Montana ($35/month cap), Tennessee ($100/month cap), New Jersey ($50/month cap), and New York ($30/month cap; New York already passed a bill last year that limits out-of-pocket costs for insulin, but the cap is $100. The new legislation would reduce that to $30 instead).

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

The post The Scoop: health insurance news – February 3, 2021 appeared first on healthinsurance.org.

The Scoop: health insurance news – January 20, 2021

/in , , , , , /by

In this edition

President Biden’s American Recovery Plan calls for additional premium subsidies and COBRA subsidies

Newly inaugurated President Joe Biden outlined his American Recovery Plan last week, and it includes some important provisions aimed at improving access to health coverage. The wide-ranging $1.9 trillion proposal, which would have to be approved by Congress, calls for premium tax credits to be increased “to lower or eliminate health insurance premiums” and to cap any enrollee’s after-subsidy premium at no more than 8.5 percent of their income. This second provision would primarily help people with income near or a little above 400 percent of the poverty level, and could make a substantial difference in the affordability of coverage for some households that currently have to pay full-price for their coverage — sometimes amounting to well over a quarter of their income.

The plan also calls for government subsidies of COBRA premiums through the end of September 2021. In 2009, the American Recovery and Reinvestment Act provided COBRA subsidies, which could serve as a model for how a new round of COBRA subsidies might work.

Biden’s American Recovery Plan encompasses far more than just health coverage. But if you’re curious about how health care reform might proceed under the new administration and the new Congress, check out this two-part series from Andrew Sprung, this piece from Charles Gaba, and this piece from Katie Keith.

Open enrollment ends Saturday in Massachusetts and Rhode Island

Open enrollment for 2021 health coverage is still ongoing in five states and Washington, DC (plus a COVID-related special enrollment period for uninsured residents in Maryland). But the enrollment window ends this Saturday, January 23, in Massachusetts and Rhode Island. After Saturday, residents in those states will need a qualifying event in order to enroll or make changes to their 2021 coverage.

As of this week, confirmed marketplace enrollment totals for 2021 coverage have surpassed 11.6 million nationwide.

Partial 2022 health insurance rules finalized by outgoing Trump administration

Last fall, the Trump administration published the proposed Notice of Benefit and Payment Parameters for 2022. This annual rulemaking document is wide-ranging and typically addresses a variety of issues related to the health insurance exchanges, special enrollment periods, risk adjustment, etc. At the time, we summarized several of the proposed rule changes that were most likely to directly affect people with individual market health plans.

Last week, the Trump administration announced that it was finalizing some aspects of the proposal — including the most controversial ones — but that the rest of the proposed rule changes would be finalized in an additional rule that will be issued “at a later date.” That will be under the Biden administration, which is also likely to delay the rule the Trump administration finalized last week (currently slated to take effect March 15) and reissue a new proposed rule, with a new comment period.

A total of 542 comments were submitted to CMS regarding the proposed rule changes for 2022. The comments that pertain to the rule changes that CMS finalized last week are summarized in the final rule, along with the responses from CMS. Notably:

  • Although CMS noted that “nearly all commenters on this rulemaking cautioned about potential harmful impacts to consumers” of allowing states to abandon their exchanges and rely entirely on brokers, agents, and insurers for health plan enrollment, the proposed rule change that would allow this was finalized. There would still be a role for an official exchange website in states that choose this option, but it would be minimal. And there are ongoing concerns that a switch to relying on brokers, agents, and insurers, instead of exchanges, will make it harder for Medicaid-eligible enrollees to understand the assistance and coverage that’s available to them.
  • The Trump administration’s 2018 guidance on 1332 waivers, which sharply relaxed the “guardrails” that apply to these waivers, is being officially incorporated into federal regulations.
  • The fee that insurers pay HealthCare.gov (and pass on to consumers via premiums) will be reduced in 2022. In states that rely fully on HealthCare.gov, it will be 2.25 percent of premiums; in states that run their own exchanges but use HealthCare.gov for enrollment, it will be 1.75 percent of premiums (down from a current 3 percent and 2.5 percent, respectively).

Many of the proposed rule changes are still under consideration and were not finalized last week, including the premium adjustment percentage (which would affect maximum out-of-pocket amounts and the affordability threshold for catastrophic plan eligibility), special enrollment periods when employer COBRA subsidies cease or a person loses eligibility for premium subsidies, and a rule change that would permanently allow insurers to issue MLR rebates earlier in the year.

At Health Affairs, Katie Keith has an excellent in-depth analysis of the partial final rule.

Lawsuit filed to block Georgia’s plan to eliminate its health insurance exchange

Last fall, the Trump administration approved Georgia’s 1332 waiver proposal to transition away from HealthCare.gov and instead utilize a system that relies on brokers, agents, and insurers to get people enrolled, without a centralized exchange (the finalized rule change that allows a similar approach nationwide is very reminiscent of Georgia’s 1332 waiver).

Last week, Planned Parenthood Southeast and Feminist Women’s Health Center filed a lawsuit against HHS, CMS, the Department of the Treasury, and their respective leaders, alleging that the waiver was unlawfully approved and should be vacated. Democracy Forward, which is representing the plaintiffs in the case, explained that Georgia’s 1332 waiver “will do immense damage to Georgia’s health insurance market, force Georgians to shop for insurance through private brokers and insurance companies, lead more residents to enroll in junk plans, and increase premiums.”

Bills introduced in Virginia to eliminate state ban on abortion coverage under marketplace plans; study impact of mandating coverage for infertility

Virginia is one of 26 states where health insurance plans sold in the marketplace/exchange are not allowed to provide coverage for abortions. (Virginia’s ban includes exceptions for abortion coverage in cases of rape, incest, or the mother’s life being in danger.) Legislation was introduced last week in Virginia’s Senate that would eliminate this ban, allowing insurers to offer abortion coverage if they choose to do so.

Legislation has also been introduced in Virginia that would direct the Virginia Health Insurance Reform Commission to conduct a study on the impacts of requiring health insurance plans in the state to cover infertility treatment. There are currently 19 states that mandate at least some coverage for infertility treatment.

Legislation introduced in Maryland and Rhode Island to create universal healthcare commissions

Legislation was introduced in Maryland last week that calls for the state to create a Commission on Universal Health Care. The Commission would be tasked with developing a plan for the state to establish a single-payer universal coverage system by 2024.

Legislation was also introduced in Rhode Island last week that calls for the creation of a special legislative commission that would study how the state might go about implementing a single-payer Medicare-for-All type of health coverage program in Rhode Island.

Legislation introduced in Missouri to create a Medicaid work requirement

Missouri has not yet expanded Medicaid eligibility under the ACA, but that will change this summer, thanks to a ballot initiative that voters in the state passed last year. Legislation was introduced this month in Missouri’s Senate that calls for a Medicaid work requirement in the state, effective as of January 2022. Under the terms of the bill, non-exempt Medicaid enrollees would have to work (or participate in various other community engagement activities, including volunteering, school, job training, etc.) at least 80 hours per week in order to maintain eligibility for Medicaid.

The Trump administration approved numerous work requirement waivers over the last few years, but due to lawsuits and the COVID pandemic, none are currently in effect. And the Biden administration is very unlikely to approve any additional waivers, meaning that Missouri’s legislation is likely a non-starter for the time being, even if it’s enacted.

Uncompensated care funding in Florida and Texas extended through 2030

Last Friday, the Trump administration renewed 1115 waivers in Texas and Florida, both of which are now valid through mid-2030. These waivers are for Medicaid managed care, and also provide federal funding for uncompensated care – which is more of a problem in states like Texas and Florida, due to their failure to expand Medicaid and the resulting coverage gap for low-income residents.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

The post The Scoop: health insurance news – January 20, 2021 appeared first on healthinsurance.org.

My wife and I each make about $40,000 a year. If we file our taxes separately, can we each qualify for an exchange subsidy?

/in , , , /by

Q.  My wife and I each make about $40,000/year.  If we file our taxes separately, can we each qualify for an exchange subsidy?

Obamacare subsidy calculator

Use our calculator to estimate how much you could save on your ACA-compliant health insurance premiums.

A.  No. The guidelines for eligibility are determined by total household income and the number of people in the household. For a single individual purchasing coverage with a 2021 effective date, the 400 percent mark is $51,040 in annual income (this is based on 2020 poverty level numbers, as the prior year’s numbers are always used). For two people, it’s $68,960. This makes sense, as it’s less expensive for two people to maintain one household than to maintain two separate households.  Taxpayers whose filing status is married filing separately are explicitly ineligible to receive subsidies in the exchange, regardless of their income. (See this IRS publication for more details).

Premium subsidies have to be reconciled on your tax return, using Form 8962. If you receive a premium subsidy during the year and then end up using the married filing separately status, the full amount of the subsidy that was paid on your behalf would have to be repaid to the IRS with your tax return.

In March 2014, the IRS issued a special rule with regards to married people who are unable to file a joint return because of domestic abuse. If a taxpayer files as married filing separately, premium tax credits are still available as long as (1.) the spouses are not living together, (2.) the taxpayer is unable to file a joint return because of domestic violence, and (3.) the taxpayer indicates this information on his or her tax return.

For everyone else, the rules are clear that married couples must file a joint tax return in order to qualify for subsidies in the exchanges.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

The post My wife and I each make about $40,000 a year. If we file our taxes separately, can we each qualify for an exchange subsidy? appeared first on healthinsurance.org.

What happens if my income changes and my premium subsidy is too big? Will I have to repay it?

/in , , , , , , , , , /by

Q: What happens if my income changes and my premium subsidy is too big? Will I have to repay it?

Obamacare subsidy calculator

Use our calculator to estimate how much you could save on your ACA-compliant health insurance premiums.

A: Monthly premium subsidy amounts (ie, the advance premium tax credit – APTC – that’s paid to your insurer each month to offset the cost of your premium) are estimated based on prior-year income and projections for the year ahead, but the actual premium tax credit amount to which you’re entitled depends on your actual income in the year that you’re getting subsidized health insurance coverage.

If recipients end up earning more than anticipated, they could have to pay back some of the subsidy. This can catch people off guard, especially since the tax credits are paid directly to the insurance carriers each month, but if overpaid, they must be returned by the insureds themselves.

The issue of reconciling APTCs was explained in a 2013 IRS publication (see the final column on page 30383, continued on page 30384) which clearly explains that they do expect people to pay back subsidies that are in excess of the actual amount for which the household qualifies.

But the portion of an excess subsidy that must be repaid is capped for families with incomes up to 400 percent of federal poverty level (FPL). Details regarding the maximum amount that must be repaid, depending on income, are in the instructions for Form 8962, on Table 5 (Repayment Limitation). These amounts are adjusted annually, but for the 2020 tax year, the repayment caps range from $325 to $2,700, depending on your income and your tax filing status (single filer versus any other filing status). GOP lawmakers considered various proposals in 2017 that would have eliminated the repayment limitations, essentially requiring anyone who received excess APTC to pay back the full amount, regardless of income. But those proposals were not enacted.

There are some scenarios in which repayment caps do not apply:

  • If a person projected an income below 400 percent of the poverty level (and received premium subsidies during the year based on that projection) but then ends up with an actual income above 400 percent of the poverty level (ie, not eligible for subsidies), the entire subsidy amount that was paid on their behalf has to be repaid to the IRS.
  • If a person projected an income at or above 100 percent of the poverty level (and received premium subsidies) but then ends up with an income below the poverty level (ie, not eligible for subsidies), none of the subsidy has to be repaid. This is confirmed in the instructions for Form 8962, on page 8, in the section about Line 6 (Estimated household income at least 100% of the federal poverty line). But there are new rules as of 2019 that make it less likely for people with income below the poverty level to qualify for premium subsidies based on income projections that are above the poverty level. This is explained in more detail here.

Is there any help for me if I have to repay premium subsidies?

The IRS noted that they would “consider possible avenues of administrative relief” for tax filers who are struggling to pay back excess APTC, including such options as payment plans and the waiver of interest and penalties for people who must return subsidy over-payments. If you find yourself in a situation where you must pay back a significant amount of the premium subsidies you received during the prior year, contact the IRS to see if you can work out a favorable payment plan/interest arrangement.

It’s also worth noting that contributions to a pre-tax retirement account and/or a health savings account will reduce your ACA-specific modified adjusted gross income, which is what the IRS uses to determine your premium tax credit eligibility. If you had HSA-qualified health coverage during the year, you can make HSA contributions up until the tax filing deadline the following spring. And IRA contributions can also be made up until the tax filing deadline. You’ll want to talk with your tax advisor to see what makes the most sense given your specific circumstances, but you may find that some pre-tax savings end up making you eligible for a premium subsidy afterall, or reduce the amount that you’d otherwise have to repay.

The COVID pandemic caused widespread financial uncertainty and employment upheavals throughout much of 2020. Additional federal unemployment benefits were provided to millions of people, but there are concerns that the premium tax credit reconciliation could be particularly challenging during the 2021 tax filing season, with many people having to repay subsidies that were paid on their behalf during a time they were unemployed in 2020.

In December 2020, insurance commissioners from 11 states sent a letter to President-elect Biden, recommending various immediate and long-term actions designed to improve access to health coverage and care. One of the short-term recommendations is to provide relief from subsidy claw-backs for the 2020 tax year. Even in the best of times, it can be challenging to accurately project your income for the coming year, but the uncertainty caused by the COVID pandemic made this much more challenging than usual. So it’s possible that the Biden administration and/or Congress might be able to take action to provide some relief in this area, for at least the 2020 tax year.

What if you get employer-sponsored health insurance mid-year?

Most non-elderly Americans get their health coverage from an employer. Individual health insurance is great for filling in the gaps between jobs, but what happens if you start off the year without access to an affordable employer-sponsored health insurance plan, and then get a job mid-year that provides health coverage?

If a premium subsidy was paid on your behalf during the months you had individual market coverage, you may end up having to repay some or all of the subsidy when you file your tax return. It all depends on your total income for the year, including income from your new job. If your total income still ends up being in line with the estimate you provided when you applied for your subsidy, you won’t have to pay that money back. But if your actual income for the year ends up being substantially higher than you initially projected, you may end up having to repay some or all of that subsidy when you file your taxes.

It doesn’t matter that your income was lower when you were covered under the individual market plan. In the eyes of the IRS, annual income is annual income — it can be evenly distributed throughout the year, or come in the form of a windfall on December 31. (As noted above, insurance commissioners have urged the Biden administration to consider ways of providing relief on this issue for the 2020 tax year, given that it was even more challenging than normal to accurately project an annual income during the COVID panemic).

Once you become eligible for an affordable health insurance plan through your employer that provides minimum value, you’re no longer eligible for premium subsidies as of the month you become eligible for the employer’s plan. But premium tax credit reconciliation is done on a month-by-month basis, so as long as your total income for the year is still in the subsidy-eligible range, you’ll almost certainly still be eligible for at least some amount of subsidy for the months when you had a plan that you purchased through the exchange.

Finally, if you’re offered health insurance through an employer that you feel is too expensive based on the share you have to pay, you can’t just opt out, buy your own health plan, and attempt to snag a subsidy. The fact that an affordable plan (by IRS definitions) is available to you renders you ineligible for money toward your premiums. Unfortunately, the cost of obtaining family coverage is not taken into consideration when determining whether an employer-sponsored plan is affordable, which leaves some families stuck without a viable coverage option.

How many people have to repay premium subsidies?

For 2015 coverage, subsidies were reconciled when taxes were filed in early 2016. The IRS reported in early 2017 that about 3.3 million tax filers who received APTC in 2015 had to repay a portion of the subsidy when they filed their 2015 taxes; the average amount that had to be repaid was about $870, and 60 percent of people who had to pay back excess APTC still received a refund once the excess APTC was subtracted from their initial refund. [IRS data for premium tax credit reporting is available here; as of 2019, data had only been reported for the 2014 and 2015 tax years.]

But on the opposite end of the spectrum, about 2.4 million tax filers who were eligible for a premium tax credit ended up receiving all or some of it when they filed their return. These are people who either paid full price for their exchange plan in 2015 but ended up qualifying for a subsidy based on their 2015 income, or people who got an APTC that was less than the amount for which they ultimately qualified. The average amount of additional premium tax credit paid out on tax returns for 2015 was $670.

[The IRS noted that it was very uncommon for people to pay full price for their coverage and wait to claim their full refund on their return: 98 percent of the people who claimed a premium tax credit on their return had received at least some APTC during the year.]

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

The post What happens if my income changes and my premium subsidy is too big? Will I have to repay it? appeared first on healthinsurance.org.

If an individual pays for an exchange plan, how do they pay for the premium pre-tax as would someone with an employer plan?

/in , , , , /by

Q. If an individual pays for an exchange plan, how do they pay for the premium pre-tax, the way they would if they had an employer-sponsored plan? This can be a substantial cost impact for the middle-class taxpayer who doesn’t qualify for the tax credit/subsidy. If you itemize, you do not get the full benefit that other taxpayers get. Am I missing something?

2019 Obamacare open enrollment guide

A. If you’re self-employed, you can generally deduct the full amount you pay in premiums without having to itemize your deduction. (Here’s more the self-employed health insurance deduction.)

But if you’re not self-employed, the only way to deduct your health insurance premiums is to itemize your deductions. You can only deduct your total medical expenses that exceed 7.5 percent of your AGI, although health insurance premiums count towards your total medical expenses. So as an example, if your AGI is $60,000 and your total medical expenses are $8,000 for the year (including health insurance premiums), you’d be allowed to deduct $3,500 in medical expenses as part of your itemized deductions on schedule A. (7.5 percent of $60,000 is $4,500, so you’re allowed to deduct the portion of your total medical expenses that exceeds $4,500).

Note that the medical expense deduction threshold used to be 7.5 percent of income; the ACA changed it to 10 percent, but it soon reverted to 7.5 percent and has remained at that level.

[The GOP tax bill that was enacted in December 2017 put the medical expenses deduction back to 7.5 percent, but only for 2017 and 2018. Then Section 103 of the Further Consolidated Appropriations Act, 2020, enacted in December 2019, kept that lower threshold in place for tax years 2019 and 2020. And finally, the Consolidated Appropriations Act, 2021 (Title I, Section 101) permanently reset the threshold at 7.5 percent, making it this deduction more accessible for more people going forward.]

The deductibility of health insurance premiums is an issue that has come up in health reform discussions many times over the years, and it’s undeniable that employees who must purchase their own health insurance are at a disadvantage tax-wise. Future legislation could change this, but for now, individual health insurance premiums are generally not deductible without itemizing unless you’re self-employed.

But if you qualify for a premium tax credit (the vast majority of exchange enrollees do), it will offset some or even all of the monthly premium you have to pay, putting you on much more equal footing with people who get employer-sponsored health coverage.

The post If an individual pays for an exchange plan, how do they pay for the premium pre-tax as would someone with an employer plan? appeared first on healthinsurance.org.

Self-employed health insurance deduction

/in , , , , , , , /by

Key takeaways

Self-employment and entrepreneurship are a dream for many people, and Obamacare has made that option easier to pursue, thanks to guaranteed-issue coverage, premium subsidies, and Medicaid expansion. For entrepreneurs who don’t have access to a spouse’s group health insurance plan, being self-employed usually means purchasing a policy in the individual health insurance market.

Obamacare subsidy calculator

Use our calculator to estimate how much you could save on your ACA-compliant health insurance premiums.

And for those who are used to having an employer cover all or most of the premiums on a group plan, paying for an individual policy can induce a bit of sticker shock. This was particularly true prior to 2014, when the self-employed had to pay the full premium for an individual policy. But thanks to the ACA’s premium tax credits, many self-employed Americans are now getting help paying for their coverage.

In addition to the premium tax credits, there are other ways that the self-employed can use the tax code to save a few dollars when it comes to healthcare. There are several deductions and tax credits that self-employed people can utilize:

Is there a health insurance deduction for the self-employed?

If you buy your own health insurance, you should definitely know about the long-standing health insurance premium deduction for the self-employed.

Congress implemented a 25% deduction for self-employed health insurance premiums in 1987 and made it permanent in 1994. The self-employed received even better news in 2003 when premiums became 100 percent deductible.

The deduction – which you’ll find on Line 16 of Schedule 1 (attached to your Form 1040) – allows self-employed people to reduce their adjusted gross income by the amount they pay in health insurance premiums during a given year. You’ll find the deduction on your personal income tax form, and you can file for it if you were self-employed and showed a profit for the year.

If you’re also eligible for a premium tax credit (premium subsidy), you can only deduct the part of the premiums you pay yourself. That can get into some circular math, but there are two methods that the IRS will let you use to determine your deduction and your tax credit.

You can’t take the self-employed premium deduction if you were eligible for group insurance from your spouse’s employer (or your own employer, if you have another job in addition to your self-employment). That includes eligibility for reimbursements via a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).

Talk to an expert about setting up a QSEHRA or read the QSEHRA Guide.



The ACA and more-than-2% S-corp shareholders

Since 2008, more-than-2% shareholders of an S-corp have been allowed to buy individual health insurance in their own name, and then get reimbursed by the S-corp.  The premiums were included on the shareholder’s W2, and then the shareholder was allowed to deduct the premiums on the first page of Form 1040, resulting in a lower AGI (see example 4 on page 4 of the IRS regulation from 2008).

But the ACA’s ban on employers reimbursing employees for individual health insurance premiums seemed to run counter to this provision, depending on how many S-corp shareholders were involved. This explanation from the IRS (updated December 2014) explains that a shareholder who is the sole corporate employee in an S-corp may continue to be reimbursed from the S-corp for individual health insurance (and this is clarified in Notice 2015-17, described in more detail below).

But until February 2015, the IRS had not directly addressed the issue of multiple more-than-2% shareholders, and the concern was that if there was more than one 2% shareholder, the corporation could run afoul of the market reforms in the ACA and be subject to significant penalties ($100 per day, per reimbursed employee).

At the time, most accountants—and the IRS attorney I spoke with in January 2015—agreed that if there were multiple shareholders or employees (including spouses), it was best to err on the side of caution and not get reimbursed by the S-corp if the shareholders were covered by individual (ie, non-group) health insurance.

In February 2015 however, the IRS released Notice 2015-17, and it was very good news for more-than-2% S-corp shareholders, as well as any other small business subject to the market reforms that prohibit the reimbursement of individual insurance premiums. Several provisions in Notice 2015-17 are applicable if you’re self-employed:

  • S-corps can continue to reimburse individual market premiums for their more-than-2% shareholders, until if and when the IRS releases further guidance on this issue (under the terms of Notice 2015-17, however, if an S-corp has employees who are not more-than-2% shareholders, those employees cannot be reimbursed for individual health insurance). As of early 2021, the IRS website confirms that Notice 2008-1 was still applicable as far as the tax treatment of health insurance for more-than-2% shareholders. The page notes that the IRS is still “contemplating publication of additional guidance on the application of the market reforms to a 2-percent shareholder-employee healthcare arrangement,” but clarifies that no additional guidance has yet been published.
  • If a shareholder has an individual plan that covers a spouse and the spouse is also employed by the corporation, the reimbursement arrangement is treated as if there is just one covered employee — thus the market reforms that would have prohibited reimbursement of premiums do not apply. This is particularly good news for mom-and-pop shops that have two shareholders who are married to each other; if they have a single individual health insurance policy, they can continue to have the corporation reimburse their premiums, and then deduct them on their 1040 per Notice 2008-1. This is particularly beneficial given that the ACA generally prevents a business with only two employees who are married to each other from obtaining a group health insurance plan. States have some flexibility on this, but if you’re in a state where your only option is an individual market plan, the IRS rule allowing spouses to be considered one covered employee allows the self-employed couple (with an S-Corp) the option to deduct their premiums.

In the years since 2015, there have been some rule changes regarding employers reimbursing employees for individual market premiums. When the ACA was first implemented, the federal government took a hard-line approach (as noted above) and prohibited any form of employer reimbursements for individual market insurance premiums. But the 21st Century Cures Act brought QSEHRAs into being, allowing small employers to reimburse employees for individual health insurance premiums starting in 2017. And then the Trump administration further expanded the rules, allowing ICHRAs to exist as of 2020.

But the rules described above for more-than-2% shareholders of an S-corp are even easier. The S-corp isn’t required to establish a QSEHRA or ICHRA. It can simply reimburse the shareholder for some or all of the cost of the individual market health plan, and then include the reimbursement amount in the shareholder’s W2 income (so if the shareholder earns a W2 wage of $50,000 and also receives $5,000 in health insurance premium reimbursements, their income reported in W2 Box 1 would be $55,000).

The shareholder can then deduct that amount using the self-employed health insurance deduction when they file their 1040 (so in the example above, they’d receive $55,000 in compensation from the S-corp, but they would only pay federal income tax on $50,000 of it). The self-employed health insurance deduction is taken “above the line,” which means it’s deducted before AGI is calculated, resulting in a lower AGI (in contrast, itemized deductions are taken after AGI is calculated), and thus also a lower ACA-specific MAGI.

HSAs allow insureds to pay for medical expenses with pre-tax dollars

Although being self-employed means that there’s no employer footing the bill for health insurance, it also gives entrepreneurs a lot of flexibility in terms of what type of health insurance they purchase. One popular option is an HSA-qualified high deductible health plan (HDHP).

Although some people have expressed concerns that market reforms under the ACA would be incompatible with HSAs, that has not proved to be the case, and HSA-qualified plans are still a popular choice in the individual market.

Coverage under an HDHP makes the insured eligible to open an HSA and make pre-tax contributions that can be used later to pay for medical expenses. In 2021, the contribution limit is $3,600 for people who have individual coverage under an HDHP, and $7,200 for those who have family coverage (two or more people) under an HDHP.

As is the case with the self-employed health insurance deduction, HSA contributions are deducted “above the line” on the 1040, which means the deduction is available to filers regardless of whether they itemize deductions. And there are no income limits in terms of who can contribute to an HSA — anyone who has an HSA-qualified HDHP (and meets the rest of the eligibility requirements set by the IRS) can contribute to an HSA with pre-tax money. You have until the tax filing deadline (around April 15 of the following year) to make some or all of your HSA contributions.

Although the money in an HSA can be withdrawn without penalties or taxes to pay for qualified medical expenses, some insureds choose to treat their HSAs as secondary retirement accounts, with tax implications similar to traditional IRAs: contributions are tax-deductible and distributions during retirement are taxed as income, assuming you’re using the money for something other than qualified medical expenses.

Do ACA tax credits make health insurance more affordable for the self-employed?

Thanks to the ACA, federal tax credits (subsidies) – obtained via the exchanges – are helping many families subsidize the purchase of individual health insurance. The tax credits are great for the self-employed, who had to foot the entire bill for their health insurance prior to 2014. Employees who get employer-sponsored health insurance typically enjoy a substantial subsidy in the form of pre-tax premiums and employer contributions to the premium. The ACA makes similar subsidies available for many self-employed people.

The tax credits are available to households with incomes of at least 100% of the federal poverty level (FPL) but not more than 400 percent of FPL, as long as the enrollees do not have access to Medicaid or employer-sponsored health insurance that is considered affordable (and as long as the unsubsidized cost of coverage is above the level that the IRS considers affordable). For coverage effective in 2021, the 2019 poverty level is used, and the upper annual income threshold for subsidy eligibility is $51,040 for a single individual and $122,720 for a family of five (in the continental US; Alaska and Hawaii have higher poverty level guidelines).

The relatively high income limits mean that premium tax credits are widely available: of the more than 10.5 million people who had effectuated coverage with private health plans through the exchanges as of 2020, about 86 percent qualified for premium tax credits. Nationwide, the average premium subsidy in 2020 was $491 per month (versus average full-price health insurance premiums of about $575 per month; premium subsidies cover most of the premium for most enrollees).

The tax credits can be paid directly to health insurance carriers on a monthly basis to reduce the amount that insureds have to pay for their coverage, which is the most popular option. But it’s not the only choice: people can opt to pay full price for a plan purchased through the exchange, and then claim the tax credit in full on their tax returns.

For eligible self-employed people, the tax credits make individual health insurance significantly more affordable than it would otherwise be. And since the ACA also did away with medical underwriting in the individual health insurance market, people who avoided entrepreneurship in the past because of pre-existing health conditions can now become self-employed without having to worry about being ineligible to purchase health insurance.

Can the self-employed deduct medical expenses?

If you face high medical bills and itemize your deductions, you might be able to deduct some of your medical expenses. The deduction – found on Schedule A of your income tax return — covers a wide range of medical expenses, and also includes premiums you pay for health insurance (including Medicare) or qualified long-term care. You can’t double deduct, though — if you deduct your health insurance premiums under the self-employed health insurance deduction explained above, you can’t include them in your itemized medical expenses.

And you can only deduct expenses in excess of 7.5 percent of your adjusted gross. This is the threshold that was in effect through 2012, but the ACA increased the threshold to 10 percent, meaning that people could only deduct medical expenses that exceeded 10 percent of their income. However, the Tax Cuts and Jobs Act that was enacted in December 2017 contained a provision that temporarily reset the threshold to 7.5 percent, for 2017 and 2018. And Section 103 of the Further Consolidated Appropriations Act, 2020, enacted in December 2019, keeps that lower threshold in place for tax years 2019 and 2020. Then the Consolidated Appropriations Act, 2021 (Title I, Section 101) permanently reset the threshold at 7.5 percent, making it easier for tax filers to continue to qualify for this deduction.

Spending 7.5 percent of your income on medical costs can be a hard target to hit unless you’re dealing with a significant illness or injury (and keep in mind that you can only deduct the portion of your expenses that exceed that threshold). Still, it’s one more good reason to keep track of your medical bills and health insurance premiums – just in case.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

The post Self-employed health insurance deduction appeared first on healthinsurance.org.

 

Maddox Insurance Agency

Insurance Agency in Memphis, Tennessee

Main Office

2151 Courtland Place | Memphis, TN 38104

Licensed in Tennessee, Mississippi & Arkansas

Contact

Phone: (901) 335-0154
Fax: (901) 255-9141

Lee.Maddox@maddoxinsured.com

Follow Us On