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Premium Tax Credit Could Slash Private Health Insurance Costs

 |  By jsimmons@healthleadersmedia.com  
   September 15, 2010

A health insurance premium tax credit that is part of the Patient Protection and Affordable Care Act  (ACA) could assist more than 28.6 million Americans in purchasing  healthcare coverage—even if they have pre-existing conditions, change jobs, or experience drops in income, according to a study released Tuesday from Families USA. The value of the tax credits, slated to go into effect in 2014, is expected to be about $110.1 billion during the first year.

Individuals in working families—with annual incomes at or above 200% of the federal poverty level ($44,100 for a family of four in 2010)—will make up about two-thirds (65.6%) of those who will be eligible for a premium tax credit, according to the report, Lower Taxes, Lower Premiums: The New Health Insurance Tax Credit.

Overall, 95% of the people eligible for the new tax credit are going to be from "working families," the report noted. Specifically, 24.8 million of those eligible for the credits are from families with at least one worker who is employed full-time, while an additional 2.5 million people are in families with a worker who is employed part-time.

More than half of those who will be eligible for the premium tax credit will be working for small businesses with fewer than 100 workers (52.9%). About 15.2 million people will be in families in which a primary worker is employed by a business with fewer than 100 workers. Approximately 11.4 million people will be in families in which the primary worker is employed by a business with fewer than 25 workers.

The new tax credits will be providing individuals and families with tax relief—based on both their annual income and family size. For example, the tax credits would be available for four-person families with annual incomes (in current dollars) of up to $88,200; a three-person family would be eligible with incomes up to $73,240.

"This is one of the largest middle-income tax cuts in history," said Ron Pollack, executive director of Families USA, in a statement.

The tax credits will be provided on a sliding-scale. For example, a four-person family purchasing a $15,000 family insurance plan in 2014 with $60,000 in annual income would receive tax relief of approximating $10,200. A similar family with annual income of $35,000 would receive tax relief approximating $13,600.

When a person or family qualifies for a tax credit, the dollars from the credit will go directly into the health plan in which they are enrolled—offsetting the cost of the family's health premiums for that healthcare plan, according to the report.

The tax credits also will be advanceable: This means that families would not have to wait until their taxes have been filed and processed in order to receive the tax credit and enroll in coverage. They also would not have to pay the full premium cost at the time of enrollment—and then wait to be reimbursed

Families USA, a Washington, DC-based non-profit advocate for consumer health care has released state-specific data about the number of people in each state who will be eligible for the tax credits and the amount of tax relief provided to families in that state in 2014.

Janice Simmons is a senior editor and Washington, DC, correspondent for HealthLeaders Media Online. She can be reached at jsimmons@healthleadersmedia.com.

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