The best approach to understanding the chaos and confusion of health insurance is to familiarize yourself with the terminology specific to the industry. In the video below, Jeff Hess, individual, group, and ancillary health expert, defines Advanced Premium Tax Credits (APTC) and cost sharing reductions. Check it out!
Advanced Premium Tax Credits (APTC)
To qualify for tax credits, an individual must fall within 100% to 400% of the Federal Poverty Level (FPL). The Modified Adjusted Gross Income (MAGI) determines these percentages. Basically, for most people, the Adjust Gross Income is the same as the MAGI. Additionally, individuals must project what they are going to do for the following year. So in 2016, I have to figure out how much I’m going to make in 2017 in order to get my APTC. Where my income falls within the 100-400% range of the FPL determines the amount of APTC.
In other words, this is an advanced credit I can use to keep my premiums lower. I can use none of it, or I can use 100%. Then, I simply plug it in to my plan so it reduces my premium. For example, if I wanted a plan that is $500/month and my income along the FPL qualifies me for $400 worth of APTC, I can use that $400 to reduce my premium to $100/month. This way a health plan is affordable on a month-to-month basis.
Now at the end of the year, the government sends me a form to file with my taxes, which will reconcile the differences on what I projected my income to be with what it actually was. This makes sure that I wasn’t over-paid with APTC or under-paid. It must be completed for the following tax year.
Cost Sharing Reductions
Cost sharing reductions apply to those that are between 250% and 100% of the FPL. These people not only receive APTC, but they also get additional help. Cost sharing takes $50 copays and brings it down to a $30 copay to see the doctor. Similarly, it takes a $6,000 deductible and brings it down to a $500 deductible. Also, it will take the coinsurance and maximum-out-of-pocket from $6,850 down to $1,200. Not only does it give me money to pay for my premiums in the form of APTC, but it also lowers my out-of-pocket exposure. So when I use the insurance, I’m not out-of-pocket 100% of whatever the deductible originally was.
In short, people that are within 100% to 250% of the FPL not only get APTC to lower premiums but they also get cost sharing reductions, which lowers out-of-pocket exposure.
Get a Silver Plan
In order to see the reduction applied to your deductible, coinsurance, and out-of-pocket exposure, you have to choose a silver plan. That’s the way Centers for Medicare and Medicaid Services (CMS) arranged it. Only the silver plan can take a $6,850 maximum-out-of-pocket exposure and lower it. If you take a bronze plan, you may be paying $0 premium. However, you don’t get a cost sharing reduction. If you get a gold plan, you may get better benefits, but no cost sharing. The silver plan with cost sharing can actually be upwards of a 94 percentile actuarially. So in actuality, the silver is better than the platinum plan.
Remember: if you’re within that 100-250% of the FPL, you get APTC to lower premiums. More importantly, you have to pick a silver plan in order to get cost sharing reductions. With a silver plan, depending on if you’re within 100% of the FPL, your plan could be better than a platinum plan.
Since insurance is oftentimes overwhelmingly confusing, we want to shed light on this industry by answering YOUR questions. So if you have any questions or concerns, comment below and your question may be the topic of our next video!