You ask, we answer! Can employed people get Obamacare subsidies?

May 22, 2013

Welcome to Health Reform Watch, Sarah Kliff’s regular look at how the Affordable Care Act is changing the American health-care system — and being changed by it. You can reach Sarah with questions, comments and suggestions here. Check back every Monday, Wednesday and Friday afternoon for the latest edition, and read previous columns here.


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Sometimes I use this space to answer questions from readers about how the Affordable Care Act will effect them. Sometimes, those answers lead to even more questions – we are, after all, talking about a major overhaul of our health-care system.

Tim Ricchuiti is a schoolteacher in Dallas and had read a previous Health Reform Watch where I noted that employees who were offered insurance plans that met "coverage and affordability requirements" by their employers would not be eligible for tax subsidies on the health exchange.

"The 'those that meet the coverage and affordability requirements' that's giving me trouble," he wrote in an e-mail. "Next year, my school district (I'm a teacher working for Dallas ISD) will offer a plan I could use to cover my family of three; but it would cost about $1,000 a month (that's after the district contribution of $300, which is standard for all employees), or about 25 percent of my salary."

So, Ricchuiti's question is this: "Will my family be eligible for subsidies? And if so, can I only access them if I sign up for a health exchange plan?"

Ricchuiti's question hits on one of the more complex parts of the health-care law: the definition of affordable health insurance. This is an area that has actually changed with regulatory guidance from what some health experts thought the law initially would mean.

Let's start with what is in the Affordable Care Act. As I've written previously, the health law puts two requirements on employers that offer health insurance. First, it must cover a specific set of services, like hospital trips and maternity care, known as the essential health benefits. More on that here.

More pertinent to Ricchuiti's question, however, is the requirement that health insurance be affordable. The health-care law defines "affordable" as health insurance that costs less than 9.5 percent of a workers' income. This all comes from Sec. 1401 of the law, which you can see below.

This seems pretty straightforward: If health care costs more than 9.5 percent of a workers' income, it wouldn't count as an affordable health plan. The employer would get penalized for not providing accessible health insurance and the worker would become eligible for federal tax subsidies.

Except there's one crucial issue that the Affordable Care Act did not address, one that has since generated huge debate among health policy experts. Where the law says a plan can't exceed "9.5 percent of the applicable taxpayer's household income," did they mean a plan just for that worker — or for that workers' entire family?

There is a really significant price difference between buying individual and family coverage. Kaiser Family Foundation estimates that premiums for a family plan now cost nearly $10,000 more than an individual policy.

It's a whole lot easier to blow through the 9.5 percent threshold with a family plan that costs $15,745 than an individual plan with a $5,615 price tag.

There was a lot riding on how the administration decided to define the 9.5 percent threshold, whether it would use an individual or family plan as the standard. Economist Richard Burkehauser wrote a paper in 2011 estimating that, if the Obama administration went with the family-based definition, it could mean an additional $48 billion in federal subsidies as many Americans would not have their policies counted as affordable.

Except, the Obama administration did the opposite: In January, it issued guidance that said the health law would use the cost of an individual policy to determine whether an employer had exceeded the 9.5 percent threshold. This has been worrisome to consumer advocates, mostly because of cases like Ricchuiti's, where a family policy could eat up a big chunk of household income.

The cost of a family policy, then, doesn't say anything about whether a worker would be eligible for federal subsidies. The important number is how much it would cost Ricchuiti, or others, to buy an individual plan. If that number is more than 9.5 percent of household income, then it would likely mean eligibility for tax credits on the exchange.

This gets to the second part of Ricchuiti's question: If he is eligible for tax credits, "can I only access them if I sign up for a health exchange plan?" This, fortunately, is a much simpler question to answer: Yes, the tax credits must be used on the new, government-run marketplaces.

KLIFF NOTES: Top health policy reads from around the Web. 

Most doctors are now using electronic records. "More than half of U.S. doctors have switched to electronic health records and are using them to manage patients' basic medical information and prescriptions, according to federal data set to be released Wednesday. The Department of Health and Human Services says it has reached a tipping point as it seeks to steer medical providers away from paper records." Louise Radnofsky in the Wall Street Journal.

Colorado's health exchange hits a glitch in plans to release rates. "State insurance officials wanted to offer the public an easy way to check new health policy prices in preparation for 'Obamacare,' but their site wasn't working after launch early Wednesday. The glitch was an ominous sign for those critical of health-care reform as too complex and bound to lose consumers in glitch-prone computer systems. The exchange will start signing up the uninsured and small groups on Oct. 1, for policies taking effect Jan. 1, but numerous technical challenges remain." Michael Booth in the Denver Post. 

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