Comparing Premium Tax Credits to Cost-Sharing Reductions
The Affordable Care Act (ACA) provides two mechanisms by which consumers who qualify may receive financial assistance. One reduces the cost of private health care insurance through advance premium tax credits (APTC). The second reduces the out-of-pocket costs associated with receiving health care services for low-income households through cost-sharing reductions (CSR).
|Advance Premium Tax Credits (APTC)||Cost-Sharing Reductions (CSR)|
|What is it?||The APTC is a tax credit or subsidy that reduces the cost of health insurance premiums.||A cost-sharing reduction (CSR) is a subsidy that reduces out-of-pocket costs for health insurance, including copayments, coinsurance and deductibles.|
|How does it work?||The APTC is paid directly to the covered individual’s health insurance carrier each month by the federal government, beginning when the individual’s enrollment begins. With this payment method, the individual does not need to wait until his or her taxes are filed in order to receive the subsidy, and does not need to pay the full cost of premiums each month. It is an option to receive the APTC this way.
Covered individuals also have the option of forgoing advance payment of the tax credit to their health insurance carrier. In this case the individual would pay the full cost of monthly premiums and instead receive the tax credit in a lump sum when filing his or her federal income taxes.
|The CSR is paid directly to the covered individual’s health insurance carrier by the federal government. There is no option for an individual to file for cost-sharing reductions on a year-end tax return.|
|Where is it available?||The APTC is only available to people applying for coverage through a health insurance marketplace such as MNsure.||The CSR is only available to people applying for a silver plan through a health insurance marketplace such as MNsure.|
|Who qualifies?||People with family incomes between 100 and 400 percent of the federal poverty level who are not eligible for Medicaid or other public health care programs and who do not have access to affordable employer-sponsored coverage. Eligibility is based on the previous year’s income tax returns.||People with family incomes between 100 percent and 250 percent of the federal poverty level who are not eligible for Medicaid or other public health care programs and who do not have access to affordable employer-sponsored coverage. Therefore, it is possible for an applicant to receive both the advance premium tax credit and cost-sharing reductions.|
|How much is it?||The subsidy amount will vary based on the person’s income. Each person applying for the APTC will be required to pay between 2 and 9.5 percent of their family income in premiums. The APTC makes up the difference between the amount the person is required to pay and the monthly premium of the benchmark plan, which is the second-lowest-cost silver plan available on the person’s state health insurance marketplace.||The cost-sharing reduction amount will vary based on the person’s income. The lower a person’s income, the more he or she will benefit from cost-sharing reductions.|
|Is it flexible?||Yes. The amount of the APTC is determined based on the cost of the benchmark plan (the second-lowest-cost silver plan in the marketplace), but can be applied to any plan in the health insurance exchange or marketplace, except catastrophic plans. In this way, a person could “buy up” to a gold plan, but still apply the APTC toward the premium. The amount of the APTC can meet, but not exceed, the premium cost of the person’s health plan.||No. The cost-sharing reductions are only available to people who enroll in a silver plan through a health insurance marketplace. A person may not apply the cost-sharing reduction amount to any other plan available inside or outside the marketplace.|
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