ACA Premium Tax Credits Now Offered in Both Federal and State Based Exchanges
On June 25, 2015, The Supreme Court ruled that the Patient Protection and Affordable Care Act (ACA), also known as “Obamacare,” allows for residents of states that did not set up their own insurance exchanges to still receive subsidies to pay for their health coverage.
Obamacare took effect in January 2014. A key component of the plan is that individuals are required to do one of the following:
- Sign up for health insurance or
- Pay a penalty
Taxpayers who have health coverage or insurance through an employer are considered covered and not subject to a penalty. Individuals without coverage have the option of seeking or buying insurance through state exchanges. If they do not, they are subject to a penalty.
To help increase participation, tax credits were made available for taxpayers who couldn’t afford coverage. Originally, the law relied on the idea that the tax credits were only available to individuals who purchased health insurance through state exchanges.
However, a number of states did not offer insurance exchanges. As states opted out, taxpayers signed up for health insurance through federal exchanges.
Without tax credits, coverage would be considered unaffordable and individuals would be exempt from the mandate to obtain coverage. The Supreme Court ruling holds that the ACA authorized tax credits for eligible Americans living not only in states with their own exchanges but also in the states with federal exchanges, enabling all eligible individuals to obtain affordable health care coverage.