The HCTC, which pays a portion of health plan premiums for certain eligible workers and retirees, is set to expire at the end of 2013 when certain PPACA provisions, including PPACA premium tax credits, cost- sharing subsidies, and expansion of Medicaid eligibility, are implemented. The HCTC program is administered by the IRS and currently pays for 72.5 percent of health plan premiums for HCTC participants. The amount of the credit is based solely on the participant’s health plan premium amount and is not based on other factors, such as the participant’s income. As an example of the credit, an HCTC participant with an annual premium of $10,000 would receive a credit of $7,250. Individuals potentially eligible for the HCTC include manufacturing and service workers who lost their jobs due to foreign import competition and were eligible for TAA benefits (representing about 51 percent of all potentially eligible individuals), and certain retirees between the ages of 55 and 64 whose pensions from a former employer were terminated and are now paid by the PBGC (representing about 47 percent of all potentially eligible individuals). We have previously reported that many potentially eligible individuals do not participate in the HCTC program. In 2010, less than 10 percent of those potentially eligible for the program participated in the HCTC (see table 1). Some of the potentially eligible individuals may in fact not be eligible for the HCTC, for example if they are eligible for Medicare or Medicaid, or if they are covered by their spouse’s employer-sponsored health plan under certain conditions. Others may choose not to participate, for example if even with the HCTC they still cannot afford the cost of their share of health plan premiums. HCTC participants obtain coverage from HCTC-qualified health plans, which include COBRA plans, HCTC state-qualified plans, VEBA plans, and individual market plans. In 2011, the majority of HCTC participants received coverage from COBRA plans (46 percent) or HCTC state-qualified plans (37 percent). A smaller proportion of HCTC participants received coverage from VEBA plans (10 percent) or individual market plans (1 percent). Beginning on January 1, 2014, a premium tax credit will be available to help eligible tax filers and their dependents pay for qualified health plans purchased through the PPACA exchanges, to be administered by the IRS. PPACA premium tax credits will be calculated using income reported on tax returns.tax filers and their dependents who are (1) enrolled in one or more qualified health plans through a PPACA exchange, and (2) not eligible for minimum essential coverage other than coverage in the individual The credits will generally be available to eligible market. For example, individuals would not be eligible if they had coverage in a government program, such as Medicare or Medicaid, or certain employer-sponsored coverage. Tax filers eligible for PPACA premium tax credits will be those with household incomes from 100 percent to 400 percent of the federal poverty level (FPL) for the tax year in which they are receiving the PPACA premium tax credit. The amount of the PPACA premium tax credit will vary by household income level, family size, and other factors. It will subsidize a portion of the tax filer’s health insurance premiums. The tax filer’s contribution to premiums will be based on their household income relative to the FPL, and will range from 2 percent of their household income for those with household incomes from 100 percent to less than133 percent of the FPL, to 9.5 percent of household income for those with household incomes from 300 percent up to 400 percent of the FPL (see table 2). Eligibility for PPACA premium tax credits by household income level based on the FPL may vary by state because states may choose not to expand eligibility for Medicaid to nonelderly individuals whose household income does not exceed 133 percent of the FPL.rule, tax filers with household incomes from 100 percent of the FPL and up to 400 percent of the FPL will be eligible for PPACA premium tax credits. However, also under the PPACA rule, in states that expand Medicaid, individuals with household incomes from 100 percent and up to 138 percent of the FPL will be eligible for Medicaid and therefore ineligible for PPACA premium tax credits. Further, in states that do not expand Medicaid, individuals with household incomes from 100 percent and up to 400 percent of the FPL will be eligible for PPACA premium tax credits, and individuals with household incomes less than 100 percent of the FPL will not be eligible for PPACA premium tax credits and may not Under the PPACA be eligible for Medicaid, depending on their states’ Medicaid eligibility criteria. The applicable household income level expressed as a percent of the FPL determines an individual’s share of his or her annual premium. The amount of the premium for the second-lowest-cost silver plan in the PPACA exchange available in the state where the eligible individual resides will be the reference for calculating the amount of the PPACA premium tax credit. tax credit for two different people, both in a family of four, one with a household income at 150 percent of the FPL, and the other with a household income at 300 percent of the FPL, using a hypothetical annual premium of $10,000 for the second-lowest-cost silver plan (reference plan) in the PPACA exchange available in the state where they reside. The expiration of the HCTC and implementation of the PPACA premium tax credits and Medicaid expansion will affect HCTC participants’ costs for health plans in multiple ways. Projections from our analysis of 2010 IRS data show that about 69 percent of HCTC participants will likely either be ineligible for a PPACA premium tax credit or Medicaid, or will be eligible for a PPACA premium tax credit that is less generous than the HCTC. These projections show that about 37 percent of HCTC participants will likely be ineligible for either a PPACA premium tax credit or Medicaid because their incomes are too high, and 32 percent will be eligible for a PPACA premium tax credit less generous than the HCTC. On the other hand, at least 27 percent of HCTC participants will be eligible for a PPACA premium tax credit more generous than the HCTC or be eligible for Medicaid. An additional 3 percent of all participants will likely be ineligible for a PPACA premium tax credit because their incomes are too low, and their eligibility for Medicaid will depend in part on their state’s decision on Medicaid expansion (see table 4). For the HCTC participants who will likely be eligible for a PPACA premium tax credit in 2014, projections from our analysis of 2010 IRS data show that there will be variation in the extent to which their credit differs from the HCTC. For example, of the total 39,464 HCTC participants in our analysis, 6,492 will likely receive a PPACA premium tax credit at least 25 percent less than the HCTC. However, up to 12,141 participants will likely receive a credit similar to or greater than the HCTC. For example, 2,922 participants will likely receive a PPACA premium tax credit of about the same value as the HCTC (within 5 percentage points above or below the HCTC). In addition, depending in part on whether or not their state expands Medicaid, between 1,823 and 3,217 participants will likely receive a credit more than 25 percent higher than the HCTC (see fig. 1). The PPACA premium tax credit was designed to provide a larger subsidy amount to lower-income tax filers than to higher-income tax filers. Thus, lower-income HCTC participants who will likely be eligible for a PPACA will pay a smaller share of their incomes for premium tax creditpremiums under PPACA in 2014 than they did under the HCTC. For example, projections from our analysis of 2010 IRS data show that while all 2,488 HCTC participants with incomes from 100 percent to 150 percent of the FPL will likely pay between 2 percent and 4 percent of their incomes for health plan premiums under the PPACA rule, 1,456 HCTC participants—close to 60 percent of participants in the same income range—paid 9.5 percent or more of their incomes for health plan premiums under the HCTC. In contrast, while all 7,658 HCTC participants with incomes from 300 percent to 400 percent of the FPL will likely pay 9.5 percent of their household income for premiums under the PPACA rule, 2,391—over 30 percent of participants in the same income range— paid less than 4 percent of their household income for premiums under the HCTC (see fig. 2). Unlike the HCTC that pays 72.5 percent of health plan premiums, individuals eligible for a PPACA premium tax credit will continue to pay that set percentage even if premiums increase because PPACA rules limit the amount individuals will pay for premiums to a set percentage of their incomes. The expiration of the HCTC and implementation of PPACA cost-sharing subsidies will also affect HCTC participants’ out-of-pocket costs for health plans. Projections from our analysis of 2010 IRS data show that up to 28 percent of all HCTC participants who are eligible for the PPACA premium tax credit will likely also be eligible for a PPACA cost-sharing subsidy in 2014 to help pay for deductibles and copays, depending in part on whether or not their state expands Medicaid. Similar cost-sharing subsidies are not available for the HCTC, therefore, this would be an additional financial benefit for those who qualify. The effect of the expiration of the HCTC and implementation of certain PPACA provisions will likely be different for nonparticipants—individuals who were potentially eligible for the HCTC in 2010 but did not participate in it—than it will be for participants.