What is a premium tax credit?

A premium tax credit is a subsidy provided under the Affordable Care Act specifically designed to assist lower-income individuals and families in affording health insurance premiums. This credit is based on household income and the federal poverty level, ensuring that those who qualify pay a reduced rate for their health coverage. It is applied to the cost of premiums for health plans purchased through the Health Insurance Marketplace, making coverage more accessible for a population that may struggle to afford regular premiums without this assistance.

The mechanisms of the premium tax credit enable many individuals to receive health care coverage at a substantially lower cost than they would otherwise pay, which aligns with the goals of the Affordable Care Act to increase health insurance availability and affordability. This option directly addresses the need for financial support in purchasing health insurance, distinguishing it from a fixed annual payment, a penalty for non-coverage, or being broad-based assistance, which may not specifically target those within lower-income brackets.