PPACA FAQ: What is the difference between a tax credit and a subsidy?

(Cross posted from Corrente)

Q: What is the difference between a tax credit and a subsidy?

Shorter answer: They apply at different income levels, you may have to pay back the credit but not the subsidy, the subsidy gets directlly credited to the insurance company you pick, instead of being figured at 1040 time, and the subsidy isn’t clawed back if your income changes.

Longer answer via Kaiser:

People with incomes between 100 and 400 percent of the federal poverty level ($11,490 to $45,960 for individuals in 2013) may be eligible for tax credits to reduce the cost of their monthly health insurance premiums.

In addition, people with incomes between 100 and 250 percent of the poverty level ($11,490 to $28,725) may qualify for cost-sharing subsidies that will bring down their deductibles, copayments and coinsurance. The subsidies also reduce the maximum amount they can be required to pay out of pocket annually for medical care.

Instead of waiting until tax time to claim the credit for the premiums on their return, people can apply to get it in advance, based on their estimated income for 2014. In that case, the state health exchange, or marketplace, will estimate the tax credit and send it directly to the insurer.

But there’s a catch. When April 15 rolls around, the Internal Revenue Service will reconcile the amount of the advance payments sent to the insurer with the taxpayer’s actual income. If a person’s income is higher than the estimate, the taxpayer will have to repay the difference.

But there’s some good news, too. If a person’s income is lower than estimated, the taxpayer will get a credit.

People who quality for the cost-sharing subsidies won’t face the same financial risk. The federal subsidies, which reduce consumers’ out-of-pocket costs, will be paid directly to insurers….

But with the subsidies, if a person’s income changes during the year, he or she won’t be responsible for any extra costs.

“It’s not a reconcilable tax credit, so consumers aren’t on the hook if their income changes,” says Christine Monahan, a senior health policy analyst at Georgetown Health Policy Institute’s Center on Health Insurance Reforms.

So complicated.

NOTE Of course, none of this complicated rigamarole would be needed with single payer. Single payer Medicare for All gets the middlemen out of the way so the health care system can get on with the business of delivering care. On the downside, single payer doesn’t given employment to thousands of trainers, accountants, tax specialists, brokers, or navigators, all of whom exist only to manage the completely unnecessary complexity ObamaCare deliberately creates. It’s as if we’re congratulating ourselves on buying bug spray for an infestation we should never have had to begin with.