What is a Subsidy?
Health insurance subsidies are a development of the Affordable Care Act to increase interest in shopping for coverage on the exchange.
In order to attract people to the health insurance marketplace, the government provides tax credits to lower prices.
If you earn up to 400 percent of federal poverty level, you may qualify for help paying your monthly premium, the cost of being insured.
If you earn up to 250 percent of poverty, you may receive assistance with out-of-pocket costs, making it less expensive to visit the doctor.
Affording the Insurance Requirement
Exchange plans help people get insured regardless of their health, and include a variety of covered benefits. Because health insurance is now a requirement, and many Americans wouldn’t be able to pay for insurance without help, subsidies provide a bridge to coverage.
People earning 100-138 percent of federal poverty, depending on the state, receive the largest tax credits. Subsidies reduce the cost of premiums and health care if you earn little enough.
Some states have not expanded Medicaid, yet the cutoff for exchanges and subsidies is typically 138 percent of federal poverty in all 50 states. This was established after the Supreme Court ruling in 2012.
If your income is below that amount and your state did not expand Medicaid, you can earn as little as 100 percent of poverty to receive financial assistance on the exchange. Any lower, and you will likely be unable to obtain coverage in your state.
Qualifying for Subsidies
In order to qualify for a subsidy, you must:
- Be a U.S. citizen or legal resident
- Earn between 100-400 percent of poverty
- Not be eligible for Medicaid in your state
- Not have access to an employer-sponsored health plan
- Not be eligible for Medicare, TRICARE, or any other public insurance programs
What Types of Assistance are Offered?
The monthly charge for staying insured, your premium, can be reduced with a subsidy if:
- You earn between 100-400% FPL
Cost Sharing Assistance
Cost sharing is what you pay when visiting a doctor or hospital. If the service you receive is covered by your health plan, you’ll pay a copay, coinsurance or deductible.
The cost of medical care may be discounted with a subsidy if:
- You earn between 100-250% FPL
Other Eligibility Facts:
People in states where Medicaid wasn’t expanded qualify for coverage starting at 100 percent of poverty, while states that increased access to Medicaid under health reform begin subsidy eligibility at 138 percent of poverty.
If you have coverage through the workplace, you are not eligible for a subsidy unless the group health plan does not cover at least 60 percent of medical costs after deductible, or if your share of the premium is more than 9.5 percent of your income.
What is the Federal Poverty Level?
The federal poverty guideline, often abbreviated as FPG or FPL, is used to determine eligibility for programs like Medicaid and tax credits awarded to people insured by marketplace plans. It changes each year, therefore changing eligibility for these programs slightly.
Premium Assistance Levels
Based on six different income groups, subsidies are calculated by how much you earn and a corresponding percentage of income. The lower your income, the less you will contribute to your health insurance premiums, and the greater your subsidy will be.
Assistance is estimated according to the least expensive silver plan in your area. The amount of your subsidy also depends on the cost of coverage where you live.
FYI: Premium subsidies can be used with any plan on the exchange, but cost sharing tax credits can only be applied to silver, gold and platinum plans.
The chart below illustrates how subsidies are calculated according to income level.
Estimate your potential tax credit.
Before you apply for a plan on the exchange, research the available companies, provider networks and your subsidy eligibility. If your income is too low for a subsidy, find out if you qualify for coverage in your state under Medicaid.
If your income is too high, you may as well purchase a plan on the traditional market.