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Affordable Care Act’s cost-sharing subsidies spared from reduction under the sequester

March 14, 2014

The Office of Management and Budget (OMB) has released a report on the sequester-based reductions in direct spending for fiscal year (FY) 2015. A number of tax-related items are affected, as explained in this article. In addition, there is one reduction that was listed in the FY 2014 report, but was removed from the FY 2015 report—cost-sharing subsidies under the Affordable Care Act (ACA).

Premium tax credits and cost-sharing subsidies. The Code Sec. 36B premium tax credit is designed to make health insurance purchased on “Affordable Insurance Exchanges” (Exchanges) established under the ACA affordable to individuals with modest incomes (i.e., between 100% and 400% of the federal poverty level) who aren’t eligible for other qualifying coverage, like Medicare. It applies for tax years ending after Dec. 31, 2013, and can be received in advance to coincide with insurance premium due dates. An individual may also be eligible for certain cost-sharing subsidies, provided by Sec. 1402 of the ACA, which can reduce deductibles and copayments for rendered services.

In the OMB’s FY 2014 report, “cost sharing for individuals enrolling in qualified health plans” was scheduled for a $286 million sequester reduction. However, no such provision appears in the 2015 version. According to reports, the cost-sharing subsidies will be made as advance payments and paid out of the same account used for advance payments of premium tax credits (which are excluded from the sequester by virtue of being administered as credits vs. spending). This move effectively saves the subsidies from reduction under the sequester.

Sequester’s effect on IRS programs. The following were listed as IRS functions that would be reduced for FY 2015 under the sequester, and the amount of the reduction:


…Build America Bonds—$301 million.
…Payment to Issuer of Qualified Zone Academy Bonds—$4 million.
…Payment to Issuer of Qualified School Construction Bonds—$54 million.
…Payment to Issuer of New Clean Renewable Energy Bonds—$2 million.
…Payment to Issuer of Qualified Energy Conservation Bonds—$2 million.
…Payment Where Small Business Health Insurance Tax Credit Exceeds Liability for Tax—$8 million.
…Informant Payments—$5 million.
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