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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.

5 Responses

  1. Just realized: That reconciliation that has to happen between the advanced insurance payments and what the taxpayer’s family “deserved” will still require some sophisticated systems. But, I guess that’s an IRS problem. Nothing to do with the PPACA at all!

  2. Obama, Pelosi, and Reid don’t have to navigate this hodgepodge of rules and regs, they get to sponge off us tax payers. Gravy work if you can get it.

    • Just curious, Mike, why is it you are so contemptuous of Pelosi but you never mention Steny Hoyer? Pelosi was stupid to support Obama in the first place over Clinton but she’s not the one who is purging the ranks of liberals in the house. It’s usually Hoyer who does that.

      Reid has his good moments and bad moments. He could have been a lot tougher and I’ve seen him pull some savvy strategic moves in the past. Mostly, he’s let some of his coalition get away with murder time and time again.

      Anyway, I really wish you’d stop trying to demonize Pelosi and Reid. Something about that smacks of Tea Partyish behavior and it makes my tin foil antenna twitch.

      • Pelosi bookends Hoyer and was Speaker when he was Majority Leader. She held the reins far longer than Hoyer. Your murder statement says it all. Maybe I’m asking too much of her and Reid.

        Maybe I’m remembering how the Kosholes said Hillary wasn’t fit for the White House because her husband was President during the republican take over in 1994. By that logic Obama should have been primaried in 2012.

        Maybe Harry Truman’s “The Buck stops here” is an inoperative statement in today’s Democratic arty.

        • Let’s not forget that Pelosi had Hoyer FORCED on her. Her choice was Murtha because they both wanted to end the wars.
          I believe that the powers that be backed Hoyer because he is the typical Washington establishment process guy. Did you watch HBO’s House of Cards? THAT guy reminds me of Hoyer.
          Like I said, I will not forget that Pelosi stupidly backed Obama over Clinton for reasons known only to her. I suspect the Democratic leadership wanted a quick and easy victory featuring a Democrat they thought they could control and who didn’t have a legacy of battles with the press. They thought Hillary was a liability because of 8 years of Republican scandal mongering during the Clinton years. What they didn’t notice is that she was actually neutralizing the right wing noise machine during the primary. Ironically, I don’t think Obama ever has truly neutralized it. He brings out the racist theme every time they start making noise but he’s also compromised the Democratic message so deeply in order to pacify the ultra conservative wurlitzer that he’s hurt the brand.
          So, I understand why she did it but I think she was wrong. She looked into a crystal ball and listened to doomsayers and bought it. Now, we’re stuck. That includes her. She’s stuck with the white wealthy male power establishment with Hoyer who got rid of Eric Massa, Anothony Weiner and neutralized Charlie Rangel, she didn’t get to end the wars, and the compromiser in chief has put everything she ever valued on the table.
          Karma is a bitch. But I don’t think even Pelosi deserves the crap most people throw at her.

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