New health insurance subsidy program likely to result in widespread confusion

October 30, 2012

HealthcareThe “premium subsidy program” under the Affordable Care Act (ACA) is intended to make it feasible for limited-income individuals to purchase individual health insurance coverage.  But patients are going to need extensive attorney help to cope with program requirements.

The new individual mandate requires coverage, and the concept is to “ease” this demand with partial premium support, and to create the Health Exchanges as new insurance “marketplaces”.  However, recent regulations have been released to describe how these subsidies are to work, and they are complex and intrusive. 

Subsidies are to be available for those individuals with limited income.

The subsidy amount is to be implemented through a premium tax credit.

Because the subsidy depends on income, the credit is being implemented through IRS regulations.

Final regulations were published in the Federal Register on May 23, 2012, for implementation on January 1, 2014.

When an individual or family may be eligible for a premium subsidy, the Health Exchange must collect detailed financial information, then forward the information to the IRS to confirm what subsidy will be allowed.

Partial premium payments will be made directly to the selected insurance company by the IRS.

The individual must pay the rest out-of-pocket.

At the end of the year, an income tax return must be filed to reconcile any overpayments or underpayments.

Calculation of the tax credit is complicated, which means that attorneys will often need to help clients understand their options.

There are many details that must be considered.

The allowed subsidy is the lesser of the actual premium charged, or the cost of a “benchmark” premium reduced by an income related factor.

The benchmark premium is for the age-adjusted, second-lowest-cost “silver plan” (which is a midlevel plan).

The income-related factor is given by income multiplied by an “applicable percentage.”

The applicable percentage is, in turn, based on how the taxpayer’s household income is related to the “Federal Poverty Line (FPL),” and increases for higher income.

The effect is to reduce the subsidy for those with higher incomes.

Subsidies are to be available for those with incomes under 400 percent of the FPL.

This whole process is likely to appear opaque and rather random to clients.

And if “awarded” subsidy amounts appear to be wrong, obtaining corrections will not be easy.

There will be little client privacy throughout the process, as financial information will pass through many hands.

Further, medical diagnoses and treatments will likely be linked to the same files.

Thus, clients will often be faced with a mandate at a cost they do not understand, and with having to file an income tax return to reconcile payments.

Many attorneys may experience a flood of requests for assistance throughout 2013 (getting ready) and 2014 (dealing with problems that arise).

Widespread confusion is likely.

Attorneys Ferd and Cheryl Mitchell have written a recent book on implementation of the Affordable Care Act, listed as “Legal Practice Implications of the New U.S. National Health Care Plan” (July, 2012) on www.store.westlaw.com.