Are you leaving money on the table?
Federal tax credits can help pay for your retiree medical program
Employers and plan sponsors that offer retiree healthcare coverage are challenged with many variables and obstacles to keep their plans affordable, compliant, manageable and most importantly, offer value to the participants. The strategy needs to consider the overall benefit design (deductible, copays, out-of-pocket maximums, coinsurance, visit limits, covered expenses, etc.), funding design (fully insured or self-funded) and covered populations, which all combine to represent the overall cost of the plan. Determining how to pay for the plan can be just as challenging and complex as the plan’s overall design strategy. Sources of funding are a key variable in determining how the plan can be funded and paid.
In today’s evolving benefits marketplace, an additional source of plan sponsor and retiree funding has emerged that many are now learning can provide significant relief for these funding challenges to pay for and sustain a retiree healthcare plan. The retiree marketplace strategy for Pre-Medicare retirees leverages the Affordable Care Act’s (ACA) marketplace of plans, which offers federal subsidy dollars to individuals that can qualify based on their taxable income. These federal subsidy dollars are called premium tax credits (PTCs), and they directly offset the cost of the plan the Pre-Medicare retirees select based on the retirees’ household income and family size.
PTCs, paid by the government to the health insurance carrier, help eligible individuals and families lower their monthly premiums for health insurance through the individual marketplace. To receive this federal subsidy, retirees need to meet federal income guidelines. This has become very prominent for Pre-Medicare retirees in recent years due to new federal legislation that lowered the qualification criteria on taxable income, which translates to higher subsidies per person and more people who can qualify.
With recent legislation, more people are now eligible for premium tax credits who weren’t eligible before, and the amount of the PTCs for those who were previously eligible has increased.
Employers and plan sponsors can leverage these federal subsidies as a source to help them pay for a retiree healthcare program and reduce the cash investment they have allocated to traditional healthcare funding strategies. Through an individual marketplace like Via Benefits, retirees have access to these federal PTCs. The passage of the Inflation Reduction Act (IRA) expands and enhances PTCs, continuing the historical legislative trend of improving the value of the individual marketplace solutions by improving benefits on lowering costs.PTCs are not only a way for retirees to save but also plan sponsors, creating a win-win situation.
Prior to the American Rescue Plan Act (ARPA), which expanded eligibility for the PTC, retirees would pay a higher percentage of their income to use the government subsidy. With the Inflation Reduction Act (IRA), which extended ARPA’s extension through 2025, retirees on a benchmark silver plan will never pay more their 8.5% of their income in the ACA marketplace, greatly benefiting retirees (see figure 1). For example, prior to ARPA and IRA, a retiree earning $60,000 whose premium costs are $900 per month would pay 100% of that cost. With the expanded PTCs in place, the retiree’s responsibility would only be $425. Through the Via Benefits enrollment tool, retirees simply provide their income and the tool calculates whether the PTC or their plan sponsor’s subsidy offers better savings.
Figure 1
About Via Benefits by WTW
Via Benefits Insurance Services has helped more than two million people evaluate and enroll in individual health insurance. Via Benefits is a resource offering personal service to help retirees understand coverage options through a robust online experience supported by an award-winning customer service team. Founded in 2004, it operates the first and largest Medicare marketplace in the country and, in 2014, expanded to include individual and family plans for Pre-Medicare retirees.
WTW is not an accounting firm or a law firm and does not provide any legal, accounting or tax advice or opinions. All accounting information should be verified by your accountants, and you should consult your legal counsel and/or tax advisors with respect to any legal or tax questions.