How Does Obamacare Work For Individuals?

Obamacare for individuals

Many people are unaware that tax credits exist for purchasing health insurance and thus making it affordable.

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Many people that are aware of the health insurance tax credits are afraid that their taxes are going to be effective. That is not true for most people. So what is a tax credit? Simply put, it is a discount on your health insurance premium. It’s like going to Dillard’s and seeing a $50 pair of pants on sale for 30% off or more. The tax credit is a mechanism to make health insurance more affordable.

How do I qualify for a tax credit?
The tax credits, or premium discounts as we like to call them, are based on three variables: household income, tax filing status, and employer health coverage. If you or anyone filed on your tax return are offered “affordable” health coverage through an employer (based on a federal calculation), you most likely will be disqualified from any form of a tax credit. Another requirement is that you must file a tax return in order to qualify. Failure to do so would result in disqualification. That is how the health insurance marketplace can verify your income. Lastly, your income must be between 100% and 400% of Federal Poverty Level (FPL) based on household size. So, for a family of four, if your annual household income is above $23,850 and below $95,400, then you should be able to qualify if you meet the other criteria.

I do qualify, how much might I receive?
Let’s look at Linda. She is a 46 year old female with no spouse and no dependents. She files a tax return and is not offered coverage through her employer. Her annual income is $22,000. Based on this information, she would be able to qualify for a tax credit worth $182 per month.

Let’s look at a different scenario. The Brown family includes David, age 56, Martha, age 53, Kyle, age 22, and Lauren, age 18. David works for a construction company that does not offer him health insurance, while Martha is a stay at home mom. They file a tax return with an annual income of $48,000. The Brown family would be able to qualify for a tax credit of $899 per month.

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So what does this mean for my health insurance?
The tax credits are simply a discount for health insurance. All you have to do is take the normal premium for the plan through any of the private insurance carriers operating in the exchange and subtract your tax credit amount. You would then be responsible for the net premium, or the difference.

Let’s look at Linda’s situation. Her tax credit amount is $182 per month. If the health insurance plan that she feels most comfortable with costs $298 per month, her portion of that premium would only cost her $116 per month.

Monthly premium ($298) minus tax credit ($182) = $116 Net premium
All of a sudden, Linda can afford to purchase a great health insurance plan for only $116 per month; much more affordable than the original $298.

What about the Browns?
Mr. and Mrs. Brown want to keep the premium as low as possible since they are very health and rarely visit the doctor. They want a high deductible plan. While they were shopping on their own for a plan, they couldn’t help but notice the lowest priced plan was $792.35 monthly. They could not afford that. Now that they qualify for a tax credit of $899 per month, they want to compare plans again. The Browns want to enroll in the high deductible plan since it is the lowest cost plan available. Based on the Brown’s current situation, their monthly health insurance premium would cost them $0.

monthly premium ($792) minus tax credit ($899) = $0 Net premium

*If your tax credit is greater than your health insurance premium, the net premium will become $0.01 per month.
In closing, tax credits are not for everyone. They can be scary going at it alone. It can be time-consuming. It can become a burden. However, if you are in need of health care, but cannot afford to pay $600 per month for a $5,000 deductible, then I would highly suggest at least looking into the tax credits. It would be worth 30 minutes of your time. It would also prevent you from having to pay the second year penalty for not having health insurance.

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