|IRS Flowchart on whether you qualify for the PTC - from Pub 974. Also see IRC Section 36B.|
Four quick thoughts about the PTC and ACA:
- It seems that states with exchanges should consider ending them to save costs and let people go to the federal exchange. This seems to be an unintended consequence of the decision and the feds might not have sufficient resources to handle this possible action.
- This survival of the PTC should lead Congress and President Obama to fix it. It is too complex (see the flowchart above and the Section 36B and regulations). Also, the IRS likely does not have the resources to determine if people properly claimed it.
- Address policy issues with the PTC and other tax benefits tied to health insurance: The PTC unrealistically behaves as if individuals of all ages and all geographic regions can spend about 8% of their income to obtain health insurance. Because insurance costs more as you age and housing costs a lot more in some regions, that assumption is unrealistic. Health insurance tax rules should be examined as a whole to try to better equalize the treatment among different ways to obtain health insurance. The best deal is to get employer-provided coverage because it is tax-exempt to the worker - no income or payroll tax. And you get this benefit regardless of your income level - whether your household income is at the federal poverty line of 100 times or more of the federal poverty line. In contrast, you can only get a PTC if your household income is at or below 400% of the federal poverty line. This is a completely unfair way to subsidize health insurance costs.
- Why not take the bold step of divorcing health insurance from employment? It drives up costs, it creates unfair tax advantages for those who have it, and the cost to employers helps make them uncompetitive in the global market. The tax cost of the employer-provided health insurance exclusion is over $200 billion per year. Why not use this money to lower rates and improve and expand the PTC? Also - note that the King ruling also affects the employer mandate. With more individuals eligible to avail themselves of the PTC, it is more likely that an applicable large employer can have at least one full-time employee claiming it thereby possibly exposing the employer to the employer mandate penalty.