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Who is eligible to claim the new ACA premium tax credit this year? A look at data from 10 states


Each year millions of low- to moderate-income Americans supplement their income by claiming the Earned Income Tax Credit (EITC) during tax season. Last year, 1 in 5 taxpayers claimed the credit and earned an average of nearly $2,400.

This tax season, some of those eligible for the EITC may also be able to claim, for the first time, a new credit created by the Affordable Care Act (ACA) to offset the cost of purchasing health insurance for lower-income Americans. It’s called the ACA premium tax credit.

To qualify for the ACA premium tax credit, filers need first to have an annual income that falls between 100 and 400 percent of the federal poverty line (between $11,670 and $46,680 for a single-person household in 2014). Beyond the income requirements, however, filers must also be ineligible for other public or private insurance options like Medicaid or an employer-provided plan.

Why the tax credit overlap matters

Identifying the Americans eligible for both credits is important because it sheds light on how many still need help paying for health insurance even after the ACA extended coverage options.

In a recent study of the EITC-eligible population, Elizabeth Kneebone, Jane R. Williams, and Natalie Holmes estimated what share of EITC-eligible filers might also qualify for the ACA premium tax credit this year.

Below, see a list of the top 10 states with the largest overlap between filers eligible for the EITC and those estimated to qualify for the ACA premium tax credit.* Notably, none of these states has expanded Medicaid coverage to low-income families after the passage of the ACA.

Nationally, an estimated 7.5 million people (4.2 million “tax units”) are likely eligible for both the ACA premium tax credit and the EITC. Nearly 1.3 million of those tax units are from the following ten states.

1. Florida

Overlap: 22.5 percent / 405,924 tax units
State-based exchange? No Expanded Medicaid coverage? No

2. Texas

Overlap: 21.4 percent / 513,061 tax units
State-based exchange? No Expanded Medicaid coverage? No

3. South Dakota

Overlap: 20.5 percent / 15,124 tax units
State-based exchange? No Expanded Medicaid coverage? No

4. Georgia

Overlap: 19.8 percent / 186,020 tax units
State-based exchange? No Expanded Medicaid coverage? No

5. Louisiana

Overlap: 19.6 percent / 86,512 tax units
State-based exchange? No Expanded Medicaid coverage? No

6. Idaho

Overlap: 19.3 percent / 28,855 tax units
State-based exchange? Yes Expanded Medicaid coverage? No

7. Montana

Overlap: 18.9 percent / 18,138 tax units
State-based exchange? No Expanded Medicaid coverage? No

8. Wyoming

Overlap: 18.4 percent / 7,276 tax units
State-based exchange? No Expanded Medicaid coverage? No

9. Utah

Overlap: 18.1 percent / 42,284
State-based exchange? No (Utah runs a small businesses marketplace, but it relies on the federal government for an individual marketplace) Expanded Medicaid coverage? No

10. Oklahoma

Overlap: 18.0% / 63,045 tax units
State-based exchange? No Expanded Medicaid coverage? No

* For the purposes of this list, we measured the overlap in “tax units,” not people. One tax unit equals a single tax return. If a family of four together qualifies for the ACA premium tax credit, they would be counted as one tax unit, not four, since they filed jointly with one tax return.

Authors

  • Delaney Parrish
Image Source: © Rick Wilking / Reuters
      
 
 




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Is the ACA in trouble?


Editor's Note: This post originally appeared in InsideSources. The author wishes to thank Kevin Lucia for helpful comments and suggestions.

United Health Care’s surprise announcement that it is considering whether to stop selling health insurance through the Affordable Care Act’s health exchanges in 2017 and is also pulling marketing and broker commissions in 2016 has health policy analysts scratching their heads. The announcement is particularly puzzling, as just a month ago, United issued a bullish announcement that it was planning to expand to 11 additional individual markets, taking its total to 34.

United’s stated reason is that this business is unprofitable. That may be true, but it is odd that the largest health insurer in the nation would vacate a growing market without putting up a fight. Is United’s announcement seriously bad news for Obamacare, as many commentators have asserted? Is United seeking concessions in another area and using this announcement as a bargaining chip? Or, is something else going on? The answer, I believe, is that the announcement, while a bit of all of these things, is less significant than many suppose.

To make sense of United’s actions, one has to understand certain peculiarities of United’s business model and some little-understood aspects of the Affordable Care Act.

  • Most of United’s business consists of group sales of insurance through employers who offer plans to their employees as a fringe benefit. United has chosen not to sell insurance aggressively to individuals in most places and, where it does, not to offer the lowest-premium plans. In some states, it does not sell to individuals at all.
  • In 49 states, insurers may sell plans either through the ACA health exchange or directly to customers outside the exchanges. The exceptions are Vermont and the District of Columbia in which individuals buying insurance must go through their exchanges. Thus, insurers may find that “good” risks—those with below-average use of health care—disproportionately buy directly, while the “poor” risks buy through the exchanges.
  • State regulators must review insurance premiums to assure that they are reasonable and set other rules that insurers must follow. This process typically involves some negotiation. With varying skill and intensity, state insurance commissioners try to hold down prices. If they are too lax, buyers may be overcharged. If they are too aggressive, insurers may simply withdraw from the market, causing politically-unpopular inconvenience. These negotiations go on separately in 50 states and the District of Columbia each and every year.
  • Finally, fewer people are now expected to buy insurance through the health exchanges than was expected a couple of years ago. ACA subsidies are modest for people with moderate incomes and the penalties for not carrying insurance have been small. Some people with modest incomes face high deductibles, high out-of-pocket costs, narrow networks of providers, or some mix of all three. As a result, some people who expected not to need much health care have chosen to ‘go bare’ and pay the modest penalties for not carrying insurance.

What seems to have happened—one can’t be sure, as the United announcement is Delphic—is that the company, which mostly delayed its participation in the individual exchanges until 2015, incurred substantial start-up costs, enrolled few customers who turned out to be sicker than anticipated, and experienced more-than-anticipated attrition. Other insurers, including Blue-Cross/Blue-Shield plans nation-wide which hold a dominant position in individual markets in many states, did well enough so that Joseph Swedish, CEO of Anthem, Inc., one of the largest of the ‘Blues,’ announced that his company is firmly committed to the exchanges. But minor players in the individual market, such as United, may have concluded that the costs of developing that market are too high for the expected pay-off.

In evaluating these diverse factors, one needs to recognize that the ACA, in general, and the health exchanges, in particular, have changed insurance markets in fundamental ways. Millions of people who were previously uninsured are now trying to understand the bewildering complexities of health insurance. Insurance companies have a lot to learn, too. The ACA now bars insurance companies from ‘underwriting’—the practice of varying premiums based on the characteristics of individual customers, something at which they were quite expert. Under the ACA, insurance companies must sell insurance to all comers, however sick they may be, and must charge premiums that can vary only based on age. Now, companies must ‘manage’ risk, which is easier for a company with a large market share of the individual market, as the Blues have in most states, than it is for a company like United with only a small share.

What this means is that United’s announcement is regrettable news for those states from which they may decide to withdraw, as its departure would reduce competition. United might also use the threat of departure to negotiate favorable terms with states and the Administration. And it means that federal regulators need to write regulations to discourage individual customers from practices that unfairly saddle insurers with risks, such as buying insurance outside open-enrollment periods designed for exceptional circumstances and then dropping coverage a few months later. But it would be a mistake to treat United’s announcement, presumably made for good and sufficient business reasons, as a portentous omen of an ACA crisis.

Authors

Publication: InsideSources
     
 
 




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