How the Subsidy for Your Out-Of-Pocket Maximum...

aBuying health insurance is expensive, and paying the monthly premium isn’t the only cost involved with health insurance. You also have to pay deductibles, copayments, and coinsurance when you use your health insurance. These additional out-of-pocket costs, known as cost sharing, can add up to thousands of dollars per year.The Affordable Care Act created health insurance subsidies to make buying and using health insurance more affordable for people with low and modest incomes. There are two types:Subsidies that pay monthly health insurance premiums so buying health insurance is more affordable. Learn more about this in, “How Does the Health Insurance Subsidy Work—Understanding the Premium Tax Credit.” Subsidies that help pay out-of-pocket costs like deductibles, copayments and coinsurance. These are known as reduced cost-sharing subsidies and come in two parts: Part one reduces the amount you pay for your deductible, copayments, and coinsurance each time you use your health insurance. Learn more about this subsidy in, “How the Cost-Sharing Health Insurance Subsidy Works.” Part two reduces your out-of-pocket maximum so you pay less when your health care expenses are high.The out-of-pocket maximum, or the out-of-pocket limit, is the worst-case-scenario maximum amount you’ll have to pay toward cost-sharing expenses like your deductible, copayments, and coinsurance each year. Once you’ve paid enough in deductible, copayments and coinsurance to have reached the out-of-pocket maximum, your health insurance pays all your covered healthcare expenses for the rest of the year.If you don’t use your health insurance much, your cost-sharing expenses aren’t likely to reach the out-of-pocket limit. However, if you have an expensive chronic health problem or even a single catastrophic illness or injury, you could easily pay enough in coinsurance and deductible costs to reach the out-of-pocket maximum.For example, if you fall off of a ladder and break your hip while trimming a tree, your share of the emergency room, surgery and hospitalization costs could exceed $10,000 if your health insurance policy doesn’t have an out-of-pocket limit.However, if your health insurance policy has an out-of-pocket limit of $6,000, you stop paying once you’ve paid $6,000 toward your health care bills. After that, your health insurance company pays 100 percent of your health care bills for the rest of the year. You would pay $6000 rather than $10,000. If you needed more care later in the year, your health plan would pay the entire cost.The out-of-pocket maximum doesn’t include your monthly health insurance premiums. It doesn’t include expenses for things that aren’t covered by health insurance or aren't essential health benefits. For example, if your health insurance doesn’t cover acupuncture services, your acupuncture expenses won’t count toward your out-of-pocket maximum. It doesn’t include the balance-billed portion of care you got from an out-of-network health care provider.All individual and family health insurance policies bought through the Affordable Care Act’s health insurance exchanges must have an out-of-pocket limit. The federal government regulates how high that limit can be, and the allowed amount changes each year.For 2014, the out-of-pocket maximum can’t be more than about $6,400 for an individual or $12,800 for a family. A health insurance policy can, however, have an out-of-pocket limit lower than that.How much the subsidy reduces your out-of-pocket limit depends on your income. The closer your income is to the federal poverty level, the more your out-of-pocket maximum will be reduced. FPL changes each year and varies depending on family size and where you live.The FPL used to determine your 2014 subsidy is $11,490 for an individual, $15,510 for a couple, and $19,530 for a family of three. You can find the FPL for other years and family sizes here.Since both FPL and the federal limit on out-of-pocket maximum amounts change each year, the dollar amount of your reduction will change each year.For 2014, if your income is: 100-200 percent of FPL, your out-of-pocket limit won’t be more than $2,250 for an individual. your out-of-pocket limit won’t be more than $4,500 for a family.200-250 percent of FPL, your out-of-pocket limit won’t be more than $5,200 for an individual. your out-of-pocket limit won’t be more than $10,400 for a family.A special reduction is available for Native American Indians with incomes below 300 percent of FPL. In their case, the health insurer will eliminate all cost sharing for any of the essential health benefits.The out-of-pocket maximum subsidy doesn't actually give you money. Instead, it potentially saves you money since you pay less before reaching your out-of-pocket maximum.If you reach that reduced out-of-pocket maximum and continue to use health care services, your health insurance company will end up paying more for your care than if you hadn’t received the subsidy. In that case, the federal government will reimburse your health insurance company for the extra money it spent because of your subsidy.To be eligible for this subsidy: Your income must be 100-250 percent of FPL. (This could vary from year to year but won't exceed 400 percent of FPL.) You must get your health insurance through your state’s health insurance exchange. You must choose a silver-tier health plan. If you’re married, your tax filing status must be married filing jointly. A status of married filing separately will disqualify you. You must reside in the United States legally. You can’t be incarcerated.Apply for the reduced out-of-pocket limit subsidy at your state’s health insurance exchange when you shop for health insurance. You can apply for the other health insurance subsidies at the same time. Be prepared to give the health insurance exchange information about your income, family size, and employer if you have a job. Find your state’s health insurance exchange.Except for special circumstances, you can only buy health insurance through the health insurance exchange during the yearly open enrollment period. The first-ever open enrollment period is October 1, 2013-March 31, 2014. Thereafter, open enrollment will be from October 15-December 7 every year.If you get the reduced out-of-pocket maximum subsidy, make sure to notify your health insurance exchange if your income changes during the year. If your income decreases, you may be eligible to have your subsidy adjusted to further reduce your out-of-pocket maximum.The Affordable Care Act stipulates the out-of-pocket limit be reduced by 2/3 for people with incomes from 100-200 percent of FPL. 1/2 for people with incomes from 200-300 percent of FPL. 1/3 for people with incomes from 300-400 percent of FPL.However, that’s not how it ended up working. The Department of Health and Human Services determined it would be impossible to discount the out-of-pocket maximum that much for people making more than 250 percent of FPL without violating other parts of the law or causing an increase in the deductible for some subsidy recipients. So, in the final rule fleshing out how the subsidy will work, HHS changed those figures to reduce the out-of-pocket maximum by about: 2/3 for people with incomes from 100-200 percent of FPL 1/5 for people with incomes from 200-250 percent of FPL No reduction for people with incomes above 250 percent of FPL.HHS can make adjustments to these amounts each year when it publishes its “Notice of Benefit and Payment Parameters” for the coming year.Sources:The Notice of Benefit and Payment Parameters for 2014, Department of Health and Human Services, http://www.gpo.gov/fdsys/pkg/FR-2013-03-11/html/2013-04902.htm. Accessed September 10, 2013.Actuarial Value and Cost-Sharing Reductions Bulletin, Department of Health and Human Services, http://www.cms.gov/CCIIO/Resources/Files/Downloads/Av-csr-bulletin.pdfThe Patient Protection & Affordable Care Act, section 1402 (c). Accessed September 9, 2013.Jost, Timothy, “Implementing Health Reform: The Benefit and Payment Parameters Final Rule” accessed on HealthAffairs.org, September 9, 2013.

How Does the Health Insurance Subsidy Work?

aHealth insurance is expensive, and not everyone can afford it. However, the Affordable Care Act requires that you have health insurance from January 1, 2014 onward.When they wrote the Affordable Care Act, lawmakers knew many people wouldn’t be able to afford the cost of health insurance premiums, so they included subsidies to help. One of those subsidies is the premium tax credit.The premium tax credit is designed to help people pay their monthly health insurance premiums. But, in order to get that financial help and use it correctly, you have to understand how it works.How Do I Apply for the Premium Tax Credit Health Insurance Subsidy?Apply for the premium tax credit through your state’s health insurance exchange. If you get your health insurance somewhere else, you can’t get the premium tax credit.Find out how to contact your state’s health insurance exchange.Will I Qualify for the Subsidy?People making between 100 and 400 percent of federal poverty level can qualify for the premium tax credit health insurance subsidy. Federal poverty level changes every year, and is based on your income and family size. You can look up this year’s FPL here.Using 2013 FPL levels, you'll qualify as an individual with an income range of $11,490-$45,960, a couple with an income of $15,510-$62,040, and a family of three earning $19,530-$78,120.If you meet the income qualifications, make sure something else doesn't disqualify you from receiving the subsidy. Learn more in, “Can I Get Help Paying for Health Insurance”; look for the section “What Things Disqualify Me From Getting a Health Insurance Subsidy?”How Much Money Will I Get?In order to figure out how much your premium tax credit will be, you have to know two things: Your expected contribution toward the cost of your health insuranceTip: You can look this up in the table at the bottom of the page. The cost of your benchmark health planTip: Your health insurance exchange can tell you which plan this is and how much it costs. Your benchmark plan is the silver-tiered health plan with the second lowest monthly premiums in your area. The Affordable Care Act classifies health plans based on how much of your health care costs they’re expected to cover. A bronze health plan will cover about 60 percent of the average person’s health care costs. A silver health plan will cover about 70 percent.Your subsidy amount is the difference between your expected contribution and the cost of the benchmark plan.See an example of how to calculate your monthly costs and your subsidy amount at the bottom of the page.Can I Buy a Cheaper Plan To Save Money, or Must I Buy the Benchmark Plan?Just because the benchmark plan is used to calculate your subsidy doesn’t mean you have to buy the benchmark plan. You may buy any plan listed on your health insurance exchange, but your subsidy amount stays the same.If you choose a more expensive plan, you’ll pay the difference plus your expected contribution. If you choose a plan that’s cheaper than the benchmark plan, you’ll pay less since the subsidy money will cover a larger portion of the monthly premium. If you choose a plan so cheap that costs less than your subsidy, you won’t have to pay anything for health insurance. However, you won’t get the excess subsidy back.If you’re trying to save money so you choose a plan with a lower value, (like a bronze plan instead of a silver plan), you’ll likely have higher coinsurance and copays when you use your health insurance.There’s another reason to choose a silver-tier plan. There’s a different subsidy that lowers copays, coinsurance, and deductibles for some low-income people. Eligible people can use it in addition to the premium tax credit subsidy. However, it’s only available to people who choose a silver-tier plan.Do I Have to Wait Until I File My Taxes to Get the Subsidy?You don’t have to wait until you file your taxes. You can get the premium tax credit in advance. If your income is so low that you don’t have to file taxes, you can still get the subsidy. However, if you’d rather, you may choose to get your premium tax credit as a tax refund when you file your taxes instead of having it paid in advance.How Do I Get the Money?If you choose to get the premium tax credit in advance, the government sends the money directly to your health insurance company on your behalf. You'll never actually lay your hands on the money. Your health insurer credits that money toward your cost of health insurance premiums, decreasing how much you'll pay each month.If you choose to get the premium tax credit as a tax refund, the money will be included in your refund when you file your taxes. This could mean a big tax refund. But, you'll pay more each month since you’ll be paying both your share of the premium and the share that would be have been covered by the subsidy if you'd chosen the advanced payment option.Why Wait Until I File My Taxes To Get the Subsidy?Most people won’t want to wait; they’ll choose the advance payment option. However, consider opting to get the subsidy along with your tax refund if: Your income is very close to 400 percent of FPL.Your income varies from year to year so you’re not sure how much you’ll make.When the subsidy is paid in advance, the amount of the subsidy is based on an estimate of your income for the coming year. If the estimate is wrong, the subsidy amount will be incorrect.If you earn less than estimated, the advanced subsidy will be lower than it should have been. You’ll get the rest as a tax refund.If you earn more than estimated, the government will send too much subsidy money to your health insurance company. You’ll have to pay back part or all of the excess subsidy money when you file your taxes. Even worse, if your actual income ended up more than 400 percent of FPL, you’ll have to pay back every penny of the subsidy. This could be thousands of dollars.If you get your subsidy when you file your income taxes rather than in advance, you’ll get the correct subsidy amount because you’ll know exactly how much you earned that year. You won’t have to pay any of it back.What Else Do I Need To Know When Applying for a Subsidy?If your subsidy is paid in advance, notify your health insurance exchange if your income or family size changes during the year. The exchange can re-calculate your subsidy for the rest of the year based on your new information. Example of How To Calculate the Subsidy:Figure out how your income compares to FPL.Find your expected contribution rate in the table below.Calculate the dollar amount you’re expected to contribute.Find your subsidy amount by subtracting your expected contribution from the cost of the benchmark plan.Tom is single with an income of $22,800 per year. FPL for 2013 is $11,490 for single people.To figure out how Tom’s income compares to FPL, use: income ÷ FPL x 100.$22,800 ÷ $11,490 x 100 = 198.4.Tom’s income is 198 percent of FPL. Using the table below, Tom is expected to contribute 4-6.3 percent of his income. Since he’s almost at the top of his category in the table, he uses the 6.3 percent figure. To calculate how much Tom is expected to contribute, use this equation: 6.3 ÷ 100 x income.6.3 ÷ 100 x $22,800 = $1,436.Tom is expected to contribute $1,436 per year, or about $120 per month, toward the cost of his health insurance. The premium tax credit subsidy pays the rest of the cost of the benchmark health plan. The benchmark health plan at Tom’s health insurance exchange costs $3,900 per year or $325 per month. Use this equation to figure out the subsidy amount: cost of the benchmark plan – expected contribution = amount of the subsidy.$3,900 - $1,436 = $2,464.Tom’s premium tax credit subsidy will be $2,464 per year or about $205 per month.If Tom chooses the benchmark plan, or another $325 per month plan, he’ll pay $120 per month for his health insurance. If he chooses a plan costing $425 per month, he’ll pay $220 monthly for his health insurance. If he chooses a plan costing $225 per month, he’ll only pay $20 per month for his health insurance.Your expected contribution will be