Last week I began my series on the 2010 Health Reform legislation. Specifically, I covered the portion of the legislation which contained the health coverage "individual mandate" for U.S. citizens that will be phased in beginning in 2014. This week we'll look at the centerpiece of the health care legislation: a provision for tax credits to low and middle income individuals and families for the purchase of health insurance.

Premium assistance tax credits for purchasing health insurance. For tax years ending after 2013, the new law creates a refundable tax credit (the "premium assistance credit") for eligible individuals and families who purchase health insurance through an Exchange. 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, 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 IRS 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 assistance credit amount and the total premium charged for the plan. For employed individuals who purchase health insurance through an Exchange, the premium payments are made through payroll deductions.

The premium assistance credit will be available for individuals and families with incomes up to 400% of the federal poverty level ($43,320 for an individual or $88,200 for a family of four, using 2009 poverty level figures) who are not eligible for Medicaid, employer sponsored insurance, or other acceptable coverage. The credits will be available on a sliding scale basis. The amount of the credit will be based on the percentage of income represented by the cost of the premium, rising from 2% of income for those at 100% of the federal poverty level for the family size involved to 9.5% of income for those at 400% of the federal poverty level for the family size involved.

What is an "Exchange"? It appears that it will be a federally supervised marketplace for those health insurance policies meeting specific eligibility and benefit criteria, to be made available to qualifying individuals and employer groups of graduated sizes. Basically, this is the same system the federal government already operates for federal employees.

Although any type of credit is helpful to those who qualify, the obstacles to qualify for the credit seem impossible to overcome. Why would an individual who already reports his or her income on a tax return also have to report the same information to the Exchange? Can we say RED TAPE?!

Next week I will dive into the provision which levies higher Medicare taxes on high-income taxpayers.


(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).