Ask the Adviser: What does the Inflation Reduction Act mean for my ACA subsidies? - Rodgers & Associates

Ask the Adviser: What does the Inflation Reduction Act mean for my ACA subsidies?

Q: I know the new Inflation Reduction Act addresses areas of concern like climate change, energy, taxes, and healthcare. But how will it impact the health insurance I purchase through the HealthCare Exchange and the subsidies for my premiums?

A: There’s good news for folks who purchase health insurance through the market­place. The Inflation Reduction Act extends premium tax credits through 2025—and expands who’s eligible.

Back in 2010, the Affordable Care Act enacted the premium tax credit, which subsi­dized insurance premiums, to help lower- and middle-income families afford health insurance. Origi­nally, household income had to be between 100% and 400% of the federal poverty level to qualify for the premium tax credit. But in 2021, the American Rescue Plan Act (ARPA) temporarily extended eligi­bility beyond the 400% cap. This meant that if a household’s income was more than 400% of the federal poverty line but met all other eligi­bility require­ments, they’d still get the credit. The Inflation Reduction Act extends this exception through 2025. 

The Inflation Reduction Act also extends the increase to the premium tax credit (intro­duced by the ARPA for 2021 and 2022) through 2025.

How does the premium tax credit work? A percentage of a household’s total income—originally between 2% and 9.5%—must go towards health insurance premiums. The higher your income, the more you need to contribute. The ARPA reduced the range to 0% to 8.5%, and the Inflation Reduction Act extends this temporary decrease through 2025. This means that out-of-pocket costs for families paying premiums for health insurance purchased through the Healthcare Exchange will remain lower for the next three years.

To qualify for the premium tax credit, you’ll need to meet the following criteria:

  • You or your family member were not eligible for affordable coverage through an eligible employer-sponsored health plan or for Medicare, Medicaid, or TRICARE.
  • You cannot file a tax return using Married Filing Separately (MFS).
  • You cannot be claimed as a dependent on another person’s tax return.
  • You cannot have purchased your health coverage outside of the health insurance marketplace.

If you meet these criteria, your premium tax credit will be calcu­lated based on your income, your family size, the cost of available health insurance coverage, and where you live. Advanced premium payments are made on your behalf to your insurer using your tax credit. This means that is if your income is higher than expected in a year, you’ll have benefited from excess advanced payments, and you’ll need to pay them back. (This can be recon­ciled when filing your tax return for the year you had coverage.)

It is helpful to work with a tax preparer and financial adviser to help project your income and premium tax credit for the years in which you buy health insurance coverage through the Healthcare Exchange. To learn what options you might have, visit HealthCare​.gov or Pennie​.com for Pennsyl­vania residents.