Code Section 36B
| Code Section | Effective Date | Name of Act | Name of Provision | 10yr Revenue Estimate ($millions) |
|---|---|---|---|---|
| 36B | 12/31/2013 | Three Percent Withholding Repeal and Job Creation Act of 2011 | Modification of Calculation of Modified Adjusted Gross Income for Determining Eligibility for Certain HealthcareRelated Programs | 12,986 |
| 36B | 12/31/2013 | The Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 | Increase in Amount of Overpayment of Health Care Credit Which Is Subject to Recapture | 24,882 |
| 36B, 139D, and 4980H | *See note below | Revenue Provision of the Department of Defense and Full-Year Continuing Appropriations Act of 2011 | Free Choice Vouchers | 418 |
| 36B and 208 | 12/31/2013 | Patient Protection and Affordable Care Act | Refundable Tax Credit Providing Premium Assistance for Coverage Under a Qualified Health Plan | -107,000 |
*Note on Effective Date
The provision is effective as if included in the provisions of, and the amendments made by, the provisions of PPACA to which they relate.
Modification of Calculation of Modified Adjusted Gross Income for Determining Eligibility for Certain HealthcareRelated Programs
Explanation of Provision
The provision revises the definition of modified adjusted gross income in section 36B to include the amount of the taxpayer’s Social Security benefits that is excluded from gross income. Thus, for purposes of the premium assistance credit, modified adjusted gross income is defined as adjusted gross income increased by: (1) any amount excluded by section 911 (the exclusion from gross income for citizens or residents living abroad), (2) any tax-exempt interest received or accrued during the tax year, plus (3) an amount equal to the portion of the taxpayer’s Social Security benefits excluded from gross income.163
Increase in Amount of Overpayment of Health Care Credit Which Is Subject to Recapture
Explanation of Provision
Under the provision, the applicable dollar amounts with respect to overpayments of advance premium assistance credit for a taxable year are revised as shown in Table 3 below (one half of the applicable dollar amount shown in Table 3 for unmarried individuals who are not surviving spouses or filing as heads of households).106
TABLE 3. RECONCILIATION
| Household Income (Expressed as a percent of FPL) | Applicable Dollar Amount |
| Less than 200% | $600 |
| At least 200% but less than 300% | $1,500 |
| At least 300% but less than 400% | $2,500 |
Persons with household incomes of 400 percent of FPL and above must repay the full amount of the premium assistance credit received through an advance payment.
Free Choice Vouchers
Explanation of Provision
The provision repeals the statutory provisions relating to free choice vouchers.
Refundable Tax Credit Providing Premium Assistance for Coverage Under a Qualified Health Plan
Explanation of Provision
- Premium assistance credit
- The low income premium credit phase-out
- Minimum essential coverage and employer offer of health insurance coverage
- Procedures for determining eligibility
- Reconciliation
1. Premium assistance credit
The provision creates a refundable tax credit (the ‘‘premium assistance credit’’) for eligible individuals and families who purchase health insurance through an exchange.713 The premium assistance credit, which is refundable and payable in advance directly to the insurer, subsidizes the purchase of certain health insurance plans through an exchange.
Under the provision, to receive advance payment of the premium assistance credit, an eligible individual enrolls in a plan offered through an exchange and reports his or her income to the exchange. Based on the information provided to the exchange, the individual receives a premium assistance credit based on income and the Treasury pays the premium assistance credit amount directly to the insurance plan in which the individual is enrolled. The individual then pays to the plan in which he or she is enrolled the dollar difference between the premium tax credit amount and the total premium charged for the plan.714 Individuals who fail to pay all or part of the remaining premium amount are given a mandatory three-month grace period prior to an involuntary termination of their participation in the plan. Initial eligibility for the premium assistance credit is based on the individual’s income for the tax year ending two years prior to the enrollment period. Individuals (or couples) who experience a change in marital status or other household circumstance, experience a decrease in income of more than 20 percent, or receive unemployment insurance, may update eligibility information or request a redetermination of their tax credit eligibility.
The premium assistance credit is generally available for individuals (single or joint filers) with household incomes between 100 and 400 percent of the Federal poverty level (‘‘FPL’’) for the family size involved.715 Individuals who are not eligible for certain other health insurance, including certain health insurance through an employer or a spouse’s employer, may not be eligible for the credit. Household income is defined as the sum of: (1) the taxpayer’s modified adjusted gross income, plus (2) the aggregate modified adjusted gross incomes of all other individuals taken into account in determining that taxpayer’s family size (but only if such individuals are required to file a tax return for the taxable year). Modified adjusted gross income is defined as adjusted gross income increased by: (1) the amount (if any) normally excluded by section 911 (the exclusion from gross income for citizens or residents living abroad), plus (2) any tax-exempt interest received or accrued during the tax year. To be eligible for the premium assistance credit, taxpayers who are married (within the meaning of section 7703) must file a joint return. Individuals who are listed as dependents on a return are ineligible for the premium assistance credit.
As described in Table 1 below, premium assistance credits are available on a sliding scale basis for individuals and families with household incomes between 100 and 400 percent of FPL to help offset the cost of private health insurance premiums. The premium assistance credit amount is determined based on the percentage of income the cost of premiums represents, rising from two percent of income for those at 100 percent of FPL for the family size involved to 9.5 percent of income for those at 400 percent of FPL for the family size involved. Beginning in 2014, the percentages of income are indexed to the excess of premium growth over income growth for the preceding calendar year. Beginning in 2018, if the aggregate amount of premium assistance credits and cost-sharing reductions 716 exceeds 0.504 percent of the gross domestic product for that year, the percentage of income is also adjusted to reflect the excess (if any) of premium growth over the rate of growth in the consumer price index for the preceding calendar year. For purposes of calculating family size, individuals who are in the country illegally are not included.
Premium assistance credits, or any amounts that are attributable to them, cannot be used to pay for abortions for which federal funding is prohibited. Premium assistance credits are not available for months in which an individual has a free choice voucher (as defined in section 10108 of the Act).
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2. The low income premium credit phase-out
The premium assistance credit increases, on a sliding scale in a linear manner, as shown in the table below.
| Household Income (expressed as a percent of poverty line) | Initial Premium (percentage) | Final Premium (percentage) |
|---|---|---|
| 100% through 133% | 2.0 | 2.0 |
| 133% through 150% | 3.0 | 4.0 |
| 150% through 200% | 4.0 | 6.3 |
| 200% through 250% | 6.3 | 8.05 |
| 250% through 300% | 8.05 | 9.5 |
| 300% through 400% | 9.5 | 9.5 |
The premium assistance credit amount is tied to the cost of the second lowest-cost silver plan (adjusted for age) which: (1) is in the rating area where the individual resides, (2) is offered through an exchange in the area in which the individual resides, and (3) provides self-only coverage in the case of an individual who purchases self-only coverage, or family coverage in the case of any other individual. If the plan in which the individual enrolls offers benefits in addition to essential health benefits,717 even if the State in which the individual resides requires such additional benefits, the portion of the premium that is allocable to those additional benefits is disregarded in determining the premium assistance credit amount.718 Premium assistance credits may be used for any plan purchased through an exchange, including bronze, silver, gold and platinum level plans and, for those eligible,719 catastrophic plans.
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3. Minimum essential coverage and employer offer of health insurance coverage
Generally, if an employee is offered minimum essential coverage 720 in the group market, including employer-provided health insurance coverage, the individual is ineligible for the premium tax credit for health insurance purchased through a State exchange. If an employee is offered unaffordable coverage by his or her employer or the plan’s share of the total allowed cost of benefits is less than 60 percent of such costs, the employee can be eligible for the premium tax credit, but only if the employee declines to enroll in the coverage and satisfies the conditions for receiving a tax credit through an exchange. Unaffordable is defined as coverage with a premium required to be paid by the employee that is more than 9.5 percent of the employee’s household income, based on the self-only coverage.721 The percentage of income that is considered unaffordable is indexed in the same manner as the percentage of income is indexed for purposes of determining eligibility for the credit (as discussed above). The Secretary of the Treasury is informed of the name and employer identification number of every employer that has one or more employees receiving a premium tax credit.
No later than five years after the date of the enactment of the provision the Comptroller General must conduct a study of whether the percentage of household income used for purposes of determining whether coverage is affordable is the appropriate level, and whether such level can be lowered without significantly increasing the costs to the Federal Government and reducing employer-provided health coverage. The Secretary reports the results of such study to the appropriate committees of Congress, including any recommendations for legislative changes.
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4. Procedures for determining eligibility
In order to receive an advance payment of the premium assistance credit, exchange participants must provide to the exchange certain information from their tax return from two years prior during the open enrollment period for coverage during the next calendar year. For example, if an individual applies for a premium assistance credit for 2014, the individual must provide a tax return from 2012 during the 2103 open enrollment period. The Internal Revenue Service (‘‘IRS’’) is authorized to disclose to HHS limited tax return information to verify a taxpayer’s income based on the most recent return information available to establish eligibility for advance payment of the premium tax credit. Existing privacy and safeguard requirements apply. Individuals who do not qualify for advance payment of the premium tax credit on the basis of their prior year income may apply for the premium tax credit based on specified changes in circumstances. For individuals and families who did not file a tax return in the prior tax year, the Secretary of HHS will establish alternative income documentation that may be provided to determine income eligibility for advance payment of the premium tax credit.
The Secretary of HHS must establish a program for determining whether or not individuals are eligible to: (1) enroll in an exchange offered health plan; (2) receive advance payment of a premium assistance credit; and (3) establish that their coverage under an employer- sponsored plan is unaffordable. The program must provide for the following: (1) the details of an individual’s application process; (2) the details of how public entities are to make determinations of individuals’ eligibility; (3) procedures for deeming individuals to be eligible; and, (4) procedures for allowing individuals with limited English proficiency to have proper access to exchanges.
In applying for enrollment in an exchange-offered health plan, an individual applicant is required to provide individually identifiable information, including name, address, date of birth, and citizenship or immigration status. In the case of an individual applying to receive advance payment of a premium assistance credit, the individual 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 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 provision specifies actions to be undertaken if inconsistencies are found. The Secretary of HHS, in consultation with the Social Security Commissioner, the Secretary of Homeland Security, and the Treasury Secretary must establish procedures for appealing determinations resulting from the verification process, and redetermining eligibility on a periodic basis.
An employer must be notified if one of its employees is determined to be eligible for a premium assistance credit because the employer does not provide minimal essential coverage through an employer-sponsored plan, or the employer does offer such coverage but it is not affordable or does not provide minimum value. The notice must include information about the employer’s potential liability for payments under section 4980H and that terminating or discriminating against an employee because he or she received a credit or subsidy is in violation of the Fair Labor Standards Act.722 An employer is generally not entitled to information about its employees who qualify for the premium assistance credit. Employers may, however, be notified of the name of the employee and whether his or her income is above or below the threshold used to measure the affordability of the employer’s health insurance coverage.
Personal information submitted for verification may be used only to the extent necessary for verification purposes and may not be disclosed to anyone not identified in this provision. Any person, who submits false information due to negligence or disregard of any rule, and without reasonable cause, is subject to a civil penalty of not more than $25,000. Any person who intentionally provides false information will be fined not more than $250,000. Any person who knowingly and willfully uses or discloses confidential applicant information will be fined not more than $25,000. Any fines imposed by this provision may not be collected through a lien or levy against property, and the section does not impose any criminal liability.
The provision requires the Secretary of HHS, in consultation with the Secretaries of the Treasury and Labor, to conduct a study to ensure that the procedures necessary to administer the determination of individuals’ eligibility to participate in an exchange, to receive advance payment of premium assistance credits, and to obtain an individual responsibility exemption, adequately protect employees’ rights of privacy and employers’ rights to due process. The
results of the study must be reported by January 1, 2013, to the appropriate committees of Congress.
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5. Reconciliation
If the premium assistance received through an advance payment exceeds the amount of credit to which the taxpayer is entitled, the excess advance payment is treated as an increase in tax. For persons with household income below 500% of the FPL, the amount of the increase in tax is limited as shown in the table below (one half of the applicable dollar amount shown below for unmarried individuals who are not surviving spouses or filing as heads of households).
723
| Household Income (expressed as a percent of poverty line) | Applicable dollar amount |
|---|---|
| Less than 200% | $600 |
| At least 200% but less than 250% | $1,000 |
| At least 250% but less than 300% | $1,500 |
| At least 300% but less than 350% | $2,000 |
| At least 350% but less than 400% | $2,500 |
| At least 400% but less than 450% | $3,000 |
| At least 450% but less than 500% | $3,500 |
If the premium assistance received through an advance payment is less than the amount of the credit to which the taxpayer is entitled, the shortfall is treated as a reduction in tax.The eligibility for and amount of advance payment of premium assistance is determined in advance of the coverage year, on the basis of household income and family size from two years prior, and the monthly premiums for qualified health plans in the individual market in which the taxpayer, spouse and any dependent enroll in an exchange. Any advance premium assistance is paid during the year for which coverage is provided by the exchange. In the subsequent year, the amount of advance premium assistance is required to be reconciled with the allowable refundable credit for the year of coverage. Generally, this would be accomplished on the tax return filed for the year of coverage, based on that year’s actual household income, family size, and premiums. Any adjustment to tax resulting from the difference between the advance premium assistance and the allowable refundable tax credit would be assessed as additional tax or a reduction in tax on the tax return.
Separately, the provision requires that the exchange, or any person with whom it contracts to administer the insurance program, must report to the Secretary with respect to any taxpayer’s participation in the health plan offered by the Exchange. The information to be reported is information necessary to determine whether a person has received excess advance payments, identifying information about the taxpayer (such as name, taxpayer identification number, months of coverage) and any other person covered by that policy; the level of coverage purchased by the taxpayer; the total premium charged for the coverage, as well as the aggregate advance payments credited to that taxpayer; and information provided to the Exchange for the purpose of establishing eligibility for the program, including changes of circumstances of the taxpayer since first purchasing the coverage. Finally, the party submitting the report must provide a copy to the taxpayer whose information is the subject of the report.
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106- As discussed in Part Seven, Section E, the definition of modified adjusted gross income applicable for purposes of the credit was amended by Pub. L. No. 112–56. As amended, modified adjusted gross income is defined as adjusted gross income increased by: (1) any amount excluded by section 911 (the exclusion from gross income for citizens or residents living abroad), (2) any tax-exempt interest received or accrued during the tax year, and (3) an amount equal to the portion of the taxpayer’s Social Security benefits (as defined in section 86(d)) that is excluded from income under section 86 (that is, the amount of the taxpayer’s Social Security benefits that are excluded from gross income).
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163- Because the definition of modified adjusted gross income used in section 36B is incorporated by reference for purposes of determining eligibility to participate in certain other healthcare-related programs, such as reduced cost-sharing, Medicaid for the nonelderly, and the Children’s Health Insurance Program, the revised definition applies also to those programs. In addition, the provision directs the Secretary of the Treasury (or the Secretary’s delegate) to estimate annually the impact of the revised definition on the Social Security trust funds and, if a negative impact is estimated, to transfer an amount from the general fund sufficient to ensure that the Social Security trust funds are not reduced.
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713- Individuals enrolled in multi-state plans, pursuant to section 1334 of the Patient Protection and Affordable Care Act, Pub. L. No. 111–148, are also eligible for the credit.
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714- Although the credit is generally payable in advance directly to the insurer, individuals may choose to purchase health insurance out-of-pocket and claim the credit at the end of the taxable year. The amount of the reduction in premium is required to be included with each bill sent to the individual.
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715- Individuals who are lawfully present in the United States but are not eligible for Medicaid because of their immigration status are treated as having a household income equal to 100 percent of FPL (and thus eligible for the premium assistance credit) as long as their household income does not actually exceed 100 percent of FPL.
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716- As described in section 1402 of the Patient Protection and Affordable Care Act, Pub. L. No. 111–148.
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717- As defined in section 1302(b) of the Patient Protection and Affordable Care Act, Pub. L. No. 111–148.
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718- A similar rule applies to additional benefits that are offered in multi-State plans, under section 1334 of the Patient Protection and Affordable Care Act, Pub. L. No. 111–148.
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719- Those eligible to purchase catastrophic plans either must have not reached the age of 30 before the beginning of the plan year, or have certification of an affordability or hardship exemption from the individual responsibility payment, as described in new sections 5000A(e)(1) and 5000A(e)(5), respectively.
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720- As defined in section 5000A(f) of the Patient Protection and Affordable Care Act, Pub. L.
No. 111–148.
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721- The 9.5 percent amount is indexed for calendar years beginning after 2014.
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722- Pub. L. No. 75–718.
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723- Medicare and Medicaid Extenders Act of 2010, Pub. L. No. 111–309, sec. 208. Prior to the Medicare and Medicaid Extenders Act of 2010, for persons whose household income was below 400% of the FPL, the amount of the increase in tax was limited to $400 ($250 for unmarried individuals who are not surviving spouses or filing as heads of households).
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