Cost Sharing and PPACA Subsidies

Insurance Exchanges

The PPACA sets up “American Health Benefit Exchanges” where various health insurance plans can be purchased. The plans will fall into one of five categories:

  • Bronze plan represents minimum creditable coverage and provides the essential health benefits, cover 60% of the benefit costs of the plan, with an out-of-pocket limit equal to the Health Savings Account (HSA) current law limit ($5,950 for individuals and $11,900 for families in 2010);
  • Silver plan provides the essential health benefits, covers 70% of the benefit costs of the plan, with the HSA out-of-pocket limits;
  • Gold plan provides the essential health benefits, covers 80% of the benefit costs of the plan, with the HSA out-of-pocket limits;
  • Platinum plan provides the essential health benefits, covers 90% of the benefit costs of the plan, with the HSA out-of-pocket limits;
  • Catastrophic plan available to those up to age 30 or to those who are exempt from the mandate to purchase coverage and provides catastrophic coverage only with the coverage level set at the HAS current law levels, except that prevention benefits and coverage for three primary care visits would be exempt from the deductible. This plan is only available in the individual market.

Premium Credits

These are a part of the Insurance Exchanges which provide payment assistance to people between 133% and 400% of the federal poverty line (FPL). People in this range will end up paying between 3% and 9.5% of their incomes on health insurance premiums respectively. These credits will be provided as refundable federal tax credits calculated through individual tax returns. In order to be eligible for these credits, individuals must not be eligible for other acceptable coverage options, such as Medicare, Medicaid, an “affordable” employer sponsored plan, etc.

As of 2010, 400% of the FPL is an annual income of $43,320 for a family of one, $58,280 for a family of two, $73,240 for a family of three and $88,200 for a family of four. People between 300% and 400% of the FPL will pay no more than 9.5% of their income toward health insurance premiums purchased through the Insurance Exchanges. So, for example, a family of three making $70,000 per year would pay no more than $6,650 per year on health insurance premiums.

Premium credits will apply to the second lowest available “silver” plan. They will be equal to the difference between the cost of the plan and the highest allowable premium payment. So, using the above example, if the plan cost $7,000 per year, the family of three would receive a premium credit of $350.

Additional Resources

Health Insurance Premium Credits in PPACA: http://www.ncsl.org/documents/health/HlthInsPremCredits.pdf

Kaiser Focus on Health Reform Summary: http://www.kff.org/healthreform/upload/8061.pdf

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