There are two federal health insurance subsidies available with respect to coverage through an Exchange: premium tax credits and cost-sharing reductions. Both of these subsidies vary in amount based on the taxpayer’s household income, and they reduce the out-of-pocket costs of health insurance for the insured.
Premium tax credits are available for people with somewhat higher incomes (up to 400 percent of the federal poverty level (FPL)), and reduce out-of-pocket premium costs for the taxpayer.
Reduced cost-sharing is available for individuals with lower incomes (up to 250 percent of the FPL). Through cost-sharing reductions, these individuals will be eligible to enroll in plans with higher actuarial values and have the plan, on average, pay a greater share of covered benefits. This means that coverage for these individuals will have lower out-of-pocket costs at the point of service (for example, lower deductibles and copayments).
On July 22, 2014, two federal appeals courts—the District of Columbia Circuit Court and the 4th U.S. Circuit Court—issued inconsistent rulings on the availability of subsidies in states with FFEs.
In Halbig v. Burwell, the D.C. Circuit Court held that the IRS rule authorizing subsidies in states with FFEs is invalid. In a 2-1 opinion, the court ruled that the text of the ACA clearly restricts the subsidies to individuals in states that established their own Exchanges.
In King v. Burwell, the 4th Circuit Court unanimously upheld the availability of the ACA’s subsidies in states with their own Exchanges and in states with FFEs.
