Individuals and families who purchased health insurance through Covered California or another Marketplace exchange will receive a 1095-A statement of tax credits and one column will be marked SLCSP. This odd acronym stands for the Second Lowest Cost Silver Plan and is instrumental in determining the specific household Premium Tax Credit.
What is affordable health insurance?
The big question when the Affordable Care Act was being developed was the definition of affordable. The final formula for defining what is an affordable health insurance premium to an individual or family included ascribing a percentage of the household income that can reasonably be expected to be spent for a health insurance.
This ends up being a sliding scale percentage based on the family’s income relative to the federal poverty level (FPL). A household income of 133% should have to spend no more than 2% of their income on health insurance. An individual or family whose income is 400% of the FPL should have to spend no more than 9.5% of their Modified Adjusted Gross Income (MAGI) under the ACA structure.
Second Lowest Cost Silver Plan, SLCSP
But these percentages are meaningless unless you have real health insurance premiums on which to base the formula. Do you give people a credit based on the some high deductible plan or a gold-plated no deductible plan. It was decided that the local Second Lowest Cost Silver Plan would act as the benchmark in the affordability formula. This would allow families to purchase a modest health plan without breaking the budget.
ACA formula for tax credits
In general, when a household applies for health insurance through one of the Marketplace exchanges their income is matched to the FPL to get an affordability percentage also known as the Applicable Figure on IRS Form 8962 Premium Tax Credit reconciliation. The affordability percentage multiplied by the income yields the annual dollar amount that the family is expected to contribute toward their health insurance premiums. The Applicable Figure affordability percentage can be found on page 6 of the instructions for Form 8962.
SLCSP regional input
The ACA formula then looks at the region’s Second Lowest Cost Silver Plan’s annual premium amount. The difference between what the family is expected to pay based on their affordability percentage and the total amount of the SLCSP equals the tax credit. It’s possible that the calculated tax credit will exceed the annual premiums if family selects a lower cost Bronze plan. Conversely, a family could opt to spend more of their income on a Gold or Platinum plan as the tax credit amount, based on the SLCSP, will cover less of those premiums.
|Family of Four|
|MAGI||$47,100||Modified Adjusted Gross Income|
|FPL %||200%||($47,100 divided by $23,550 or FPL)|
|Affordabilty Percentage||6.30%||200% = 6.3% from Page 6, Instructions 8962|
|Household Contribution||$2,967||($47,100 times 6.3%)|
|SLCSP||$9,756||($813 x 12 months) Will vary by region.|
|Tax Credit||$6,789||SLCSP annual cost minus Household contribution|
|APTC||$566||Monthly tax credit sent to health plan|
Premium Tax Credit
In the example above a family of four has a MAGI of $47,100. This happens to be twice the FPL for a family of four or $23,550 from page 4 of the instructions for Form 8962. On page six of those instruction we are told that the affordability percentage is .0630 or 6.3%. In other words, if the household income is 200% of the FPL, the family should have to spend no more than 6.3% of their income on health insurance. That is considered affordable. The Second Lowest Cost Silver Plan in their pricing region has monthly premiums of $813 a month or $9,756 per year. (In California dependent children under age 19 would be automatically enrolled in Medi-Cal if the household income is below 266% of the federal poverty line.) The family’s premium tax credit is the difference between the annual premium of the SLCSP and their affordable contribution of $2,967. This equates to $6,789 annual tax credit or $566 per month that could have been advanced to their chosen health plan.
Limits of the SLCSP
- The SLCSP will be reported 1095-A to be used on Form 8962 Premium Tax Credit reconciliation.
- Columns A and B of the 1095-A may be exactly the same because the household selected the health plan that was also the SLCSP in the region.
- Each pricing region will have its own SLCSP.
- If only one plan is offered in the region, then it will also be the SLCSP.
- If the individual or family moved from one region to another, there will be two different SLCSPs used for the respective months the family resided in each region.
- Changing the household’s Modified Adjusted Gross Income (MAGI) does not change the SLCSP unless it was associated with a move to a different region.
- Even if the household chose the most expensive Silver plan offered, the benchmark is still the second least expensive Silver plan offered.
- The SLCSP will be the same even if the household qualifies for and Enhanced Silver plan. The premium of the Silver plans are all the same regardless of whether it has reduced cost sharing amount under Silver 73, 87 or 94.
- The SLCSP does not have any role in Medicaid or Medi-Cal eligibility. That is solely a function of the MAGI.
- If the family chose a Bronze plan and the tax credit established by the SLCSP was larger than the premiums for the Bronze plan, the IRS will not return any unused Premium Tax Credit as a refund.
- Form 8962 Premium Tax Credit Reconciliation
- I8962 Instructions Premium Tax Credit