More than a decade after the Affordable Care Act (also known as obamacare) was enacted, it remains largely intact (the individual mandated penalty was removed as of 2019, and some of the law’s taxes have also been removed). repealed, including the cadillac tax).
this article explains everything you need to know about aca premium tax credits (premium subsidies). these subsidies are available through the exchange/marketplace in all states. Open enrollment for Marketplace plans runs from November 1 to January 15 in most states (this schedule also applies to plans purchased outside of the Marketplace, but subsidies are not available outside of the Marketplace) . Outside of open enrollment, eligible Americans can still enroll if they have a qualifying life event.
the american bailout plan (arp), which provides significant, albeit temporary, improvements to the aca, was signed into law by president biden in march 2021. and the inflation reduction (ira) act, which biden signed into law in August 2022, it extends some of these improvements until 2025.
the arp and the ira include several provisions that make health insurance and health care more accessible and affordable.
from 2021 through 2025, the arp and irs increase the size of premium tax credits and eliminate the upper income limit for eligibility for subsidies.
(There were some additional provisions in the arp that were temporary and haven’t been extended: By 2021, it ensured that people receiving unemployment compensation could enroll in a silver plan with $0 premiums and robust cost-sharing reductions. and for plan/tax year 2020, made sure people who would have otherwise had to pay excess premium subsidies to the irs didn’t have to.
ACA health insurance premium subsidies, also known as premium tax credits, are typically adjusted each year to keep up with premiums. (Is that how it works). but for 2021 through 2025, the subsidies are much stronger than they usually are. there is no “subsidy abyss” for this five-year period. Instead, no one who buys coverage through the Marketplace has to pay more than 8.5% of their household income (a specific calculation from ACA) for the benchmark plan. and people with lower incomes are expected to pay a lower than normal percentage of their income for the benchmark plan, as low as $0 for people with incomes not to exceed 150% of the poverty level.
In addition to additional subsidies under the ARP and IRA, the amounts of the subsidies were already considerably higher than before 2018. This has been the case since the trump administration stopped funding cost-sharing reductions (csr , a different type of subsidy here) in the fall of 2017.
to cover the cost, insurers in most states now add the cost of csr to silver plan premiums. that makes silver plans disproportionately expensive, and since premium subsidies are based on the cost of the benchmark silver plan, it also makes premium subsidies disproportionately large.
Premium subsidies can be used to offset premiums for any metal level plan on the exchange. Because the subsidies are so large, some members can get $0 Bronze Premium Plans or $0 Gold Premium Plans. According to an analysis by the Kaiser Family Foundation, 4.5 million uninsured Americans were eligible for free bronze plans by 2021, and that was before the US bailout substantially increased the size of premium subsidies. , resulting in even more people qualifying for premium-free plans. plans.
As of early 2022, there were 14.5 million people enrolled in plans through exchanges nationwide, with the vast majority (89%) receiving premium subsidies. For those enrollees, premium subsidies covered most of their premiums: For people enrolled through healthcare.gov (used in 33 states), the average full price premium at the beginning of 2022 was $594/month, but the average premium after the subsidy was only $111/month.
In short, subsidies are an important part of the “Affordable” Care Act. With each successive open enrollment period, awareness of the law’s premium tax credits (subsidies) has continued to grow. But many Americans may still be wondering, “Am I eligible for a premium subsidy, and if so, what should I expect?” This is particularly true through 2025, as the US bailout and inflation reduction law make coverage much more affordable for millions of people.
But in addition to income, there are other factors that determine eligibility for premium subsidies. let’s take a look at what they are:
access to affordable employer-sponsored coverage
If your employer offers coverage that is considered affordable and provides minimal value, you are not eligible to receive a subsidy on the exchange. Family failure has caused some families to be ineligible for subsidies due to the way affordability of employer-sponsored health plans is calculated, but the IRS hopes to have a solution by 2023.
If your employer offers affordable coverage that provides minimal value, you’re already receiving a subsidy from your employer in the form of pre-tax health insurance benefits and an employer contribution to your premiums. Exchanges offer subsidized health insurance benefits to the self-employed, the unemployed, and employees who work for a company that does not offer affordable health benefits.
Keep in mind that some employers offer coverage that isn’t affordable or doesn’t provide a minimum value (by doing this, they can avoid the potentially larger penalty they would pay if they didn’t offer coverage at all). These plans, while technically considered minimum essential coverage, can be quite scarce, and to clarify, employers are subject to a penalty if they offer these plans and their employers opt for a subsidized plan on the exchange. If your employer offers a plan that doesn’t meet affordability rules and/or minimum value rules, you have access to premium subsidies on the exchange if you’re eligible based on income, immigration status, etc.
access to medicaid or chip
In addition, premium subsidies are not available to people who qualify for Medicaid or CHIP, since Medicaid and CHIP (the children’s health insurance program) generally provide even more financial assistance than premium subsidies.
It is important to understand that eligibility for the chip extends to much higher incomes than eligibility for Medicaid. Children in magi households at 200% of the federal poverty level (fpl) are eligible for the chip in almost every state, and there are several states where chip eligibility extends above 300% of the poverty level.
If your children are chip eligible, they are not eligible for premium subsidies. That means the subsidy amount you’ll see when you sign up is only for the adults in your household, since the children will be on chip instead.
age: nothing more than a number
There is no upper age limit for subsidy eligibility. But most people become eligible for premium-free Medicare Part A when they turn 65. in that case, they lose their eligibility for premium subsidies.
but if you’re not eligible for premium-free medicare part a because you don’t have enough work history in the united states, you can continue to buy coverage on the exchange and continue to receive premium subsidies if your income makes you eligible. (see question a6 in this cms guide.)
the medicaid coverage gap
Premium subsidies are not available to people with incomes below the poverty level (with the exception of recent immigrants, as described below). This is because when the law was written, it was expected that all people living in poverty would be eligible for Medicaid. But two years after the law was enacted, the Supreme Court ruled that states could not be forced to expand Medicaid, and some states have yet to expand coverage.
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This results in a coverage gap for people with incomes below the poverty level in those states. In most cases, they are not eligible for Medicaid because they are in states with strict Medicaid eligibility guidelines. but they are also not eligible for premium subsidies. As of 2022, this applies to people in 11 states.
premium benefits are not available to people who are not in the us. uu. legally, although they are available to immigrants living legally in the us. uu. in other words, you don’t have to be American. citizen to obtain premium subsidies. in fact, premium subsidies are available to recent immigrants with incomes below the poverty level, although they are not available to the general population with incomes below the poverty level.
That’s because Medicaid isn’t available to recent immigrants until they’ve been in the US. uu. for at least five years. when the aca was written, the expectation was that medicaid would expand in all states to cover people living in poverty.
but lawmakers knew recent immigrants would not be eligible for medicaid, even with expanded eligibility guidelines. so they were careful to clarify that these people could receive premium subsidies on the exchange. (Their goal was to make affordable coverage accessible to all lawfully present US residents, one way or another.)
The income limit for subsidy eligibility does not apply from 2021 to 2025
premium subsidies are not normally available to people with incomes (aca specific magi) above 400% fpl, although as noted above that is not the case for 2021 until 2025, due to the US bailout and the reduction of inflation. act.
When the ACA was written, the expectation was that coverage would be affordable without subsidies at that income level. But as premiums have grown, there are some areas of the country where coverage can easily exceed 25% of household income for a family just over 400% of the poverty level. (For 2021 coverage, before the US bailout eliminated the upper income limit for subsidy eligibility, it was $51,040 for a single person and $104,800 for a family of four.)
The number of people with coverage outside the marketplace (and unsubsidized coverage in general, including people who buy full-price plans in the marketplace) has dropped dramatically in recent years in many areas. this is not surprising given the sharp premium increases in 2017 and 2018, which made coverage unaffordable for some people who earn too much to qualify for the subsidies (although rates stabilized in 2019 and 2020, they are still too high to afford). be affordable in many areas when a household’s income is just above the subsidy eligibility limit).
It is important to understand that contributions to a health savings account (HSA) and/or pre-tax retirement plans will reduce your income for subsidy eligibility purposes. this remains true from 2021 to 2025; Although there is no subsidy limit for those years, it is still possible to reduce your ACA-specific MAG (and therefore qualify for a more significant subsidy) by making pre-tax retirement plan contributions or HSA contributions.
Even with the ARP and IRA in place, there will be no subsidies for people making millions of dollars, as health insurance premiums won’t even come close to 8.5% of their income. but people with incomes well above 400% of the poverty level now qualify for subsidies in some areas.
ACA subsidies are based on the cost of silver plans
Now that we know who is eligible, let’s take a look at how the subsidies actually work. Subsidies are tax credits that are available to help low- and middle-income people pay for health insurance when they don’t have access to affordable employer-sponsored coverage or government-sponsored coverage (Medicaid or Medicare). most eligible members take these tax credits in advance, paid directly to their health insurance company each month to offset the amount due in premiums.
But you can also pay full price all year for a plan through the exchange and then claim your subsidy as a lump sum when you file your taxes. the subsidy reconciliation is completed when you file taxes, using form 8962. if the subsidy you receive during the year is too high, you will pay some or all of it back when you file taxes (note that for 2020 only, individuals do not had to repay excess premium subsidies – this was a provision in the US bailout). If it was too low, or you didn’t receive any advance subsidies during the year, you’ll get the balance of the tax credit when your return is processed.
as discussed above, premium allowances are available to exchange affiliates based on their specific aca magi. people enrolled in off-exchange plans are not eligible for subsidies, regardless of income.
In states that have expanded Medicaid under ACA law, Medicaid is available to members with incomes up to 138% of the poverty level, and subsidies are not available below that threshold.
Although there is no upper income limit for subsidy availability from 2021 through 2025, it is important to understand that in other years, the upper income limit for subsidy eligibility is higher in Alaska and Hawaii than the rest from the country. That’s because Alaska and Hawaii have higher poverty levels, meaning 400% of the poverty level is a higher amount of money in those states. and even while the arp/ira rules are in place, two people with equal incomes, one in alaska or hawaii and one in the continental united states, will find that their income puts them at a different percentage of the federal poverty level, which is used to determine the percentage of income you have to pay for your coverage.
Note that some people with MAG below 400% of the poverty level do not receive subsidies simply because the cost of unsubsidized coverage in their area is below the threshold set by the ACA. this is still true in some cases, even with the arp/ira in place, but it is even less common now than it was before subsidies were improved under those laws.
Subsidies are tied to the cost of the second cheapest silver plan in your area (ie, the benchmark plan). The architects of the Affordable Care Act (ACA) wanted to make sure that people who must buy their own insurance can afford that benchmark silver plan, even in regions where health care is extremely expensive. therefore, knowing the benchmark plan price in your region is key to calculating the size of your subsidy.
The benchmark may be a different plan from year to year as insurers adjust their prices, but it is always the second lowest cost silver plan in a given area. And as the cost of the benchmark plan changes, so does the size of the premium subsidy, to keep pace with the cost of the benchmark plan. if the reference rate rises, subsidies increase. but if the reference rate falls, premium subsidies will decrease. this has happened quite frequently recently, especially in areas where new insurers join the exchange.
By 2022, many new insurers joined exchanges across the country. this article is a detailed description of how that can affect premium subsidies, and this article provides several examples of how a change in plan can offset the effects of lower subsidy amounts.
By 2023, we’re seeing a mix of new insurers in some areas and insurer exits in other areas. any time there are changes like this, it can affect which plan ranks first and how much people will receive in subsidies. therefore, it’s always important to actively search during open enrollment to find the plan that represents the best value.
The enrollment software will automatically calculate your grant, but many enrollees are curious about how their grant amount is determined, so here are the details:
It is important to understand, however, that because the cost of cost-sharing reductions has been added to the silver plan rates in many states, you may be able to find gold plans in your area that are less expensive than silver plans. silver. And if you’re eligible for cost-sharing reductions, you basically get a free upgrade to your coverage, as long as you choose a silver plan. shop carefully!
how to calculate your subsidy here in four easy steps
The size of your subsidy is based on how your household income (ACA-specific magi) compares to the previous year’s poverty level and the benchmark silver plan price in your region.
To calculate your grant size for 2022:
1) Use this table to find out where your income falls in relation to the federal poverty level. You’ll see your projected income for 2022, but you’ll compare it to the 2021 federal poverty level, which is what the numbers in this table represent. (Since 2022 open enrollment takes place before 2022 poverty level numbers are available, these numbers will be used for all plans with 2022 effective dates.) As noted above, the numbers are highest in Alaska and Hawaii.
Normally, income above 400% of the poverty level would make a household ineligible for premium subsidies. but from 2021 through 2025, premium subsidies are available above that level if needed to keep the cost of the baseline plan to no more than 8.5% of the household’s specific magi.
In most states, if your income is no more than 138% of the poverty level, you will be eligible for Medicaid. the other delineations are for determining the percentage of revenue you are expected to pay for the referral plan on the exchange, as described in the next step.
2) Find out how much you’re expected to contribute to the cost of your insurance under the Affordable Care Act by looking at Table 2. The expected contribution typically adjusts slightly each year. percentages listed below are for 2021 through 2025 and are specific to section 9661 of the U.S. bailout (the IRS had previously issued a normal contribution percentage table for 2021, but it is no longer relevant; all expected contributions have been adjusted downwards). as a result of the arp, and these same percentages will continue to be used until 2025, by virtue of the inflation reduction law).
The subsidy will offset the difference between the amount an individual is expected to contribute (based on income) and the actual cost of the second lowest cost silver plan in the area.
3) Determine how much a benchmark silver plan costs in the area where you live. You can scroll through the available quotes on your state exchange and see what the second lowest cost silver plan premium would be for you and your family, or you can call the exchange.
it is important to note that the benchmark plan changes from year to year: carrier a may have the second lowest cost silver plan one year, but due to fluctuations in premiums, carrier b may occupy that place the following year. here is an example of how this works.
4) See table 2. Subtract the amount you are expected to contribute (based on your income) from your baseline silver plan cost. For example, let’s say your silver plan costs $3,000 a year and you’re expected to contribute $1,000. you will receive a $2,000 grant.
sample calculations for 2022 under US bailout adjustments to aca grant amounts
This spreadsheet shows various scenarios (different ages, income levels and locations) with post-subsidy reference prices and lower cost plans under the US bailout in 2021. and you can see the corresponding amounts without the arp , to see how much more affordable arp coverage has made starting in 2021.
Let’s work through a specific example, so you can see exactly how it works (we’re rounding numbers here to make it easier to follow; exact dollar amounts would be slightly different):
rick is 27 years old and lives in birmingham, alabama (zip code 35213). according to healthcare.gov, the benchmark plan for rick has a full price premium of $433 per month in 2022.
if rick earns $25,760 (that’s 200% fpl, based on 2021 fpl figures), he’s expected to contribute 2% of his income, or $515 in 2022, to the cost of the baseline plan (0 .02 x $25,760 = approximately $515), with a subsidy covering the rest of the premium. That works out to about $42 a month in premiums Rick would have to pay if he buys the referral plan.
It is important to understand that without the US bailout, Rick would have been expected to pay 6.52% of his earnings for the benchmark plan in 2021 and a similar percentage in 2022. This would have amounted to $1664 in 2021 which rick would have had to pay the baseline plan, and something like that in 2022. so the us bailout is increasing rick’s subsidy amount by about $1,149 in 2022, or about $96/month (the subsidy has to grow by about $1,149 for the year to reduce Rick’s expected contribution from 6.52% of his income to just 2% of his income).
To calculate your subsidy, simply subtract $515 (the amount you earn over the course of 2022) from $5,592 (the total cost of the baseline plan over the course of 2022). your subsidy will be approximately $5,692 per year. that means the exchange will send about $391/mo to his insurer, and rick will have to pay the other $43/mo.
Of course, that’s assuming you choose the referral plan; if you buy a less expensive plan, you will pay less, and if you buy a more expensive plan, you will pay more. the $391/month subsidy will remain the same no matter which plan you purchase, unless you enroll in one of the eight plans available to you that have full-price premiums less than $391/month. in that case, the subsidy will cover the full price and your monthly premium will be $0, but you will not be able to claim the excess subsidy.
(Note that you can also calculate your expected contribution percentage if your income falls somewhere in the middle of one of the ranges shown in Table 2. Here’s how it works.)
rick’s cousin alice, age 27, earns the same as rick, but lives in little rock, arkansas (zip code 72201), where the pre-subsidy cost of the benchmark plan is significantly lower. After her subsidy, she will pay the same amount as Rick for the referral plan (because they earn the same income), but her subsidy won’t have to be as large. Alice’s baseline plan has a full-price premium of $317 per month in 2022, according to healthcare.gov’s plan comparison tool.
If Alice also earns $25,760 (200% FPL), the government would expect her to spend 2% of her income on the benchmark plan, just like her premium in Alabama. (remember, the expected contribution is tied to income (magi), not the underlying cost of the plan), so she would also have to pay $515 of her own money (about $43/month) to buy the reference plan in your area. But since the full price of Alice’s baseline plan would only be $3,807 over the course of 2022, your subsidy would only need to be $3,300 (or about $275/month).
since rick and alice earn the same amount, they pay the same in post-subsidy costs for the baseline plan: about $515 per year. this is based on their mages, not their age, health, or location. But Rick’s subsidy has to be higher than Alice’s, because the unsubsidized cost of his plan is much higher, due to his location.
if rick and alice were younger, the silver plan would be less expensive and their benefits would be smaller. if they were older, the silver plan would be more expensive and their subsidies would be higher.
The idea behind the subsidies is to level the playing field and bring average premiums to a middle ground for everyone with the same general income level (magi). therefore, with the same income level, an older person will receive a higher subsidy than a younger person, but ultimately both will pay the same price for the reference plan.
Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinion pieces and educational articles on the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by the media covering health reform and by other health insurance experts.