Federal Subsidies, Insurance Affordability, and You: A Primer

Since writing a story about the fee for opting out of health care, I've gotten a number of questions (a few from my NEWSWEEK colleagues) on how the federal subsidies would work: who gets them, why and how they can be spent? For simplicity's sake, we'll stick to the Senate bill, which varies slightly from the subsidies provided in the House version. Here's what you need to know:

Who is eligible for a federal subsidy?

Federal subsidies are meant to make health insurance affordable for lower-income Americans who cannot now afford to pay premiums. So under the Senate bill, individuals and families who earn less than four times the federal poverty level and do not have access to employer-sponsored insurance will receive tax credits to subsidize health insurance.

Using the 2009 federal poverty level, that works out to any individual earning below $43,320, a couple below $58,280, a family of three below $72,240 or a family of four earning less than $88,200.

Anyone earning less than 133 percent of the federal poverty level (about $14,079 for an individual or $28,665 for a family of four) would be eligible to enroll in Medicaid.

How much is the federal subsidy?

That depends on how much you earn. The Senate bill provides "premium tax credits," which would reduce health-care costs to a specific percentage of an individual's or a family's income. Premiums would start at 2 percent of income for those earning 133 percent of the federal poverty level and rise to 9.8 percent for those between 300 and 400 percent of the federal poverty level. Health-care think-tank Community Catalyst has a nice chart showing everything in between, available here.

Let's say you're a family of three living on $27,465. Under the Senate bill, the federal government would provide tax credits to make your premiums equal to 4.6 percent of your income, or $105.25 per month. Higher-earning families would be expected to kick in more. A family earning $73,240, for example, would pay 9.8 percent of their income, or a monthly premium of $598.

Which plans can the subsidy be used on? When will they be received?

Federal subsidies can be used to purchase a plan on the newly created public exchange. Two more important characteristics of the subsidies: they will be advanceable, meaning recipients can claim their credit up front when paying insurance bills rather than wait until the end of the year to get their reimbursement check. The subsidies are also refundable, meaning that individuals who owe little to no taxes to government can still receive the credit.

What about out-of-pocket costs?

The Senate bill limits the amount that any American can pay out of pocket—once it hits $5,950 for an individual or $11,900 for a family, then the insurer is responsible for covering 100 percent of your costs. One small caveat for the über-wonks out there: these numbers are tied to current laws for health-savings accounts and will likely increase by the time this rule would go into effect in 2013.

So that's the law for every insured American, but for those earning less than 400 percent of the federal poverty level, the maximum would be even lower. And just like premiums, your maximum out-of-pocket costs are tied to how much you earn. If you earn between 100 and 200 percent of the federal poverty level (an individual between $10,830 and 21,660), your maximum out-of-pocket payment would be about a third of the maximum for everyone else, or $1,983. For those in the next bracket—individuals between $21,660 and $32,490—the maximum out-of-pocket payment is set at half the national level, or $2,975. For a complete chart on out-of-pocket costs, see page 4 of this report from Georgetown University's Health Policy Institute.

If you're still looking for more analysis of affordability under health-care reform, I would recommend Jonathan Cohn's excellent piece over at Kaiser Health News, where he puts all of these numbers and policies into very human terms.

And, of course, any further questions on health care and affordability, feel free to send them our way or leave them in comments—the Senate is working till 7 p.m. Christmas Eve, and so are we.