Cost Sharing Subsidy for Individuals
with High-Deductible Plans
Out-Of-Pocket Expense Limits
The health care reform law provides for a cost-sharing
subsidy to reduce the maximum annual deductible and
out-of-pocket expense limits for high-deductible health
plans for individuals and households between 100%
and 400% of the federal poverty level (FPL). A highdeductible
health plan is currently $6,650 for self-only
coverage in 2018 and $13,300 for family coverage in
2018. High-deductible health plans are those plans that
qualify the taxpayer to contribute to a health savings account
(HSA) (or allow an employer to contribute to the
HSA of an employee).
Note: The individual does not have to contribute to an
HSA to qualify for the subsidy. The individual merely
has to have a high-deductible health plan and fall within
the FPL income range.
Note: Individuals below 133% of FPL are generally eligible
for Medicaid coverage under the health care reform
law.
Calculation of Subsidy
For individuals with household income of more than
100%, but not more than 200% of FPL, the out-of-pocket
limit is reduced by two-thirds. For those between 201%
and 300% of FPL, the out-of-pocket limit is reduced by
one-half, and for those between 301% and 400% of FPL,
the out-of-pocket limit is reduced by one-third.
Additional Benefits
As with the premium assistance credit, if the plan in
which the individual enrolls offers benefits in addition
to essential health benefits, even if the state in which
the individual resides requires the additional benefits,
the reduction in cost sharing does not apply to the additional
benefits. Individuals enrolled in both a qualified
health plan and a pediatric dental plan may not receive
a cost-sharing subsidy for the pediatric dental benefits
that are included in the essential health benefits required
to be provided by the qualified health plan.
How to Apply for the Subsidy
In applying for enrollment, an individual claiming a
cost-sharing subsidy is required to submit to the exchange
income and family size information and information
regarding changes in marital or family status or
income. Personal information provided to the exchange
is submitted to the Secretary of Health and Human Services
(HHS). In turn, the Secretary of HHS submits the
applicable information to the Social Security Commissioner,
Homeland Security Secretary, and Treasury Secretary
for verification purposes. The Secretary of HHS is
notified of the results following verification and notifies
the exchange of such results. The law specifies actions to
be undertaken if inconsistencies are found.
The secretary notifies the plan that the individual is eligible
and the plan reduces the cost sharing by reducing
the out-of-pocket limit under the provision. The
plan notifies the secretary of cost-sharing reductions
and the secretary makes periodic and timely payments
to the plan equal to the value of the reductions in cost
sharing. The provision authorizes the secretary to establish
a capitated payment system with appropriate risk
adjustments.
This brochure contains general information for taxpayers and
should not be relied upon as the only source of authority.
Taxpayers should seek professional tax advice for more information.
Copyright © 2018 Tax Materials, Inc.
All Rights Reserved
Contact Us
There are many events that occur during the year that can affect
your tax situation. Preparation of your tax return involves summarizing
transactions and events that occurred during the prior
year. In most situations, treatment is firmly established at the
time the transaction occurs. However, negative tax effects can
be avoided by proper planning. Please contact us in advance
if you have questions about the tax effects of a transaction or
event, including the following:
• Pension or IRA distributions.
• Significant change in income or
deductions.
• Job change.
• Marriage.
• Attainment of age 59½ or 70½.
• Sale or purchase of a business.
• Sale or purchase of a residence
or other real estate.
• Retirement.
• Notice from IRS or other
revenue department.
• Divorce or separation.
• Self-employment.
• Charitable contributions
of property in excess of
$5,000.
Currently, there is no provision to receive this subsidy
by claiming a credit or deduction on the income tax return
of the individual. The subsidy is paid directly by the
government to the insurance provider, which in turn reduces
the amount of out-of-pocket expenses the individual
is required to pay. Thus, low-income individuals
with high-deductible plans must deal directly with their
insurance exchange to receive the subsidy.
See www.healthcare.gov for more information about
the cost-sharing subsidy.
Coordination With Other Benefits
People who qualify for the premium assistance tax
credit will also be eligible for cost sharing assistance.
This will further reduce the limit on the out of pocket
maximum that can apply to coverage, with the amount
of the reduction depending on income. For those with
incomes between 100% and 200% of FPL, a two-third reduction
applies. For others, the reduction in the limit is
either one-half or one-third, depending on income. The
precise amount by which an individual’s out of pocket
maximum is reduced by this assistance depends on
what the maximum is for the plan in which they are
enrolled.
In addition, federal payments will be made to health insurers
to increase the actuarial value of the plan for people
with incomes under 250% of FPL. For example, for
people with incomes between 100% and 150% of FPL,
the actuarial value of the plan will be increased to 94%.
That means in addition to keeping within the lower out
of pocket maximums, insurers must make other changes
to increase the actuarial value of the coverage. Most
likely this will mean reducing plan deductibles, coinsurance
or copayments in order to meet the higher actuarial
value requirements.
For people with incomes over 250% of FPL, the actuarial
value of their plan may not exceed 70%, which is the basic
value of the silver plan even for those who receive no
financial assistance. This means that, for some people,
some cost sharing amounts could increase. That would
happen if their out of pocket maximum was decreased
to keep within the required lower maximum, because
the deductibles, copayments or coinsurance that would
otherwise apply would have to be increased to keep the
actuarial value at 70%.
Federal Poverty Guidelines (FPG)
2017 Federal Poverty Guidelines used for the 2018 Form 8962, Premium
Tax Credit.
Persons
in Family
FPG for 48 Contiguous
States and the D.C. FPG for Alaska FPG for Hawaii
1 $12,060 $15,060 $13,860
2 $16,240 $20,290 $18,670
3 $20,420 $25,520 $23,480
4 $24,600 $30,750 $28,290
5 $28,780 $35,980 $33,100
6 $32,960 $41,210 $37,910
7 $37,140 $46,440 $42,720
8 $41,320 $51,670 $47,530
More
than 8
Add $4,180 per
additional person
Add $5,230
per additional
person
Add $4,810
per additional
person