Applying for ACA coverage? Know the ropes (between income levels).

In case you missed it during a frenzied election season, the annual open enrollment period for ACA marketplace plans (which are  ACA-compliant health coverage) in 2023 kicked off on November 1. You may also have missed that last year, the American Rescue Plan Act made coverage in private plans sold in the ACA marketplace far more affordable than it used to be, and that the improved premium subsidies will continue at least through 2025, thanks to the Inflation Reduction Act passed in August 2022.

If you’re a citizen or legally present noncitizen, are under 65, can’t get health coverage through your employer or your spouse’s employer, and are not on disability Medicare, you really should check out what’s available to you in the ACA exchanges. HealthCare.gov, the federal exchange that serves 33 states, reports that four out of five people who enroll can find a plan for $10 per month or less (though many will choose a plan that costs more).

Your income matters when it comes to health plan selection

While you may be pleasantly surprised by what the ACA exchanges have to offer, it’s best not to be too surprised. That is, it’s important to go in with some awareness of what you’re likely to get at different income levels.

The most basic rule is, the higher your income, the more you’ll pay for coverage, ranging from zero in the lowest income brackets (for Medicaid or free private-plan coverage) to 8.5% of household income for a benchmark Silver plan if your income is well above average.

Before you shop, it’s good to absorb two rules of the road:

1. Small differences in projected income can have a large impact on available benefits.
2. The income you report is an estimate for the coming year – and so for many people, there’s some built-in wiggle room.

The poet Robert Frost said that writing poetry without rhyming was like playing tennis without a net. Applying for ACA coverage without knowing the income levels at which benefits change is like playing tennis without any lines. And when you don’t see the lines, it’s easy to hit the ball out.

Rule 1: Know some key income break points

In the ACA application, your estimate of your gross (before-tax) household income for the coming year will place you in one of several income brackets, defined as a percentage of the federal poverty level (FPL). (The ACA application slightly modifies the “Adjusted Gross Income” you see on your annual tax form.) How much you’ll pay – and in some cases, the kind of coverage available to you – depends on what bracket you’re in. Let’s look at some key “break points” where benefits shift.

100% FPL – the minimum income required to qualify for private plan coverage in 11 states

• $13,590 per year for a single person
• $18,310 for a two-person household,
• $23,030 for a family of three
• $27,750 for a family of four

It’s a cruel reality that in 11 states* – Alabama, Florida, Georgia, Kansas, Mississippi, North Carolina, South Carolina, South Dakota, Tennessee, Texas, and Wyoming – most adults who estimate household income below the 100% FPL threshold get no help from the government in obtaining health coverage.

As first drafted, the ACA made Medicaid available to most adults with an income below 138% FPL. In 2012, however, the Supreme Court ruled that the federal government couldn’t force states to expand Medicaid eligibility in that way. The states listed above have refused to date to go along, and in those states, most adults with incomes below 100% FPL get no help paying for any kind of coverage. (In the November election, South Dakota voted by referendum to adopt the expansion, and Medicaid enrollment under the ACA eligibility rules will begin there in July 2024.)

In a drafting inconsistency that turned out to be lucky, the ACA pegged the minimum income for subsidy eligibility in the marketplace at 100% FPL rather than 138% FPL. So, in states that have not expanded Medicaid, having an income of at least 100% FPL moves you out of the “no help” territory.

As discussed in more detail below, a low income is often an uncertain income, and applicants in the “nonexpansion” states with income likely to be anywhere near the 100% FPL threshold should leave no stone unturned to get a good-faith estimate of next year’s income over the eligibility threshold. Knowing the threshold is the key first step – especially since marketplace coverage with low out-of-pocket costs is available for free to applicants with income in the 100-150% FPL range.

138% FPL – the upper income threshold for Medicaid in most states

• $1,563 per month for a single person
• $2,106 for a two-person household
• $2,648 for a family of three
• $3,191 for a family of four

In the 38 states** that have enacted the ACA’s Medicaid expansion, most citizens and legally present noncitizens*** with income below 138% FPL qualify for Medicaid. That makes them ineligible for marketplace coverage.

Medicaid eligibility is determined on a monthly basis, which means (in expansion states) that if your income drops suddenly – after a job loss, for example – and isn’t likely to recover soon, you become eligible.

For most people near this income level, Medicaid is a good option, as there’s almost never a premium (a few states charge a small one at the top of the income bracket) and out-of-pocket costs range from zero to minimal.

Some people with income near the Medicaid eligibility threshold may prefer marketplace coverage, however – which, in some markets at least, allows for a wider choice of doctors and hospitals. While out-of-pocket costs are higher in the marketplace’s private plans than in Medicaid, they are comparatively low in Silver plans at low incomes, thanks to a secondary subsidy called cost sharing reduction (CSR) that attaches to Silver plans for lower income enrollees (more on CSR below). And the two cheapest Silver plans in each region are free to enrollees with income up to 150% FPL.

Since marketplace eligibility and subsidy level is calculated on an annual income basis, an applicant who’s suffered a sudden loss of income may qualify for Medicaid by citing current monthly income – or for marketplace coverage by estimating annual income. The HealthCare.gov application enables the latter when current monthly income is low (or high), providing a section in which you can estimate total annual income and/or a total for the coming year that may be different from income in the current year.

There is one particular case in which an applicant might want to stay out of Medicaid. In more than 20 expansion states, any Medicaid enrollee who is over age 55 is potentially subject to Medicaid Estate Recovery upon their death. If the deceased enrollee owns any significant assets, the state may seek to recover from their estate the value of the services that Medicaid covered, or, if the state contracted with a Medicaid managed care organization, all of the money that the state paid to that organization to administer the person’s coverage.

Once again, knowledge of a key income threshold may in some cases give cause to steer toward one side or the other of it.

200% FPL – the maximum income at which strong Cost Sharing Reduction (CSR) enriches benefits.

• $27,180 per year for a single person
• $36,620 for a family of two
• $46,060 for a family of three
• $55,500 for a family of four

(Note that these income limits are applicable for 2023 coverage; they rise annually.) At incomes up to 200% FPL, cost sharing reduction – which attaches only to Silver plans – raises the value of a Silver plan to a roughly Platinum level (a bit above Platinum at income up to 150% FPL, a bit below at 150-200% FPL). Above the 200% FPL threshold, the value of CSR drops off sharply, and it’s not available at all at incomes above 250% FPL.

At incomes below 200% FPL, CSR makes a big difference in the out-of-pocket costs you’re exposed to. In 2022, deductibles in CSR-enhanced plans average just $146 for people with income up to 150% FPL, and $756 for those with incomes in the 150-200% FPL range. That’s well below the average deductible for Gold plans ($1,600) and in a different universe from Bronze plans ($7,051).

Perhaps more to the point for our “know your thresholds” mantra, Silver plan deductibles take a major jump at the 200% FPL threshold, to an average of $3,215 for enrollees with income in the 200-250% FPL range.

Equally important is the annual cap on maximum out-of-pocket (MOOP) costs that attaches to plans at different metal levels – and, for Silver plans, at different income levels. Up to 200% FPL, the highest allowable MOOP for Silver plans in 2023 is $3,000. In 2022, MOOP in Silver plans averages $1,208 at incomes up to 150% FPL and $2,591 in the 150-200% FPL range. Again, there’s a big jump at the 200% FPL threshold, to an average of $6,436 at the weakest CSR level.

The median MOOP in 2022 for Gold plans is $7,500, according to the Commonwealth Fund, and $8,500 for Silver with no CSR (close to this year’s maximum allowable, $8,700). Bronze MOOP is comparable to Silver.

Bottom line: Affordable marketplace coverage is far more comprehensive for a single person estimating an income of $27,000 per year – a little under 200% FPL – than for the same person estimating an income of $28,000. The strong CSR available at incomes up to 200% FPL is really valuable.

Rule 2: How income estimates affect eligibility

During the ACA’s annual open enrollment period (Nov. 1 – Jan. 15 in HealthCare.gov states), benefits for the coming year are based on an estimate of future gross (pre-tax) income, modified in some cases by deductions. Those who qualify for a special enrollment period outside of open enrollment also estimate their income for the year in progress.

The estimate may be straightforward adults with one stable job and a fixed salary. For others, including most low-income people, the estimate may involve considerable uncertainty – and therefore allow for wiggle room. That’s the case if you’re paid by the hour, and/or rely in large part on tips, or work more than one job, or are partly or wholly self-employed.

If you underestimate your income and take your full subsidy, in the form of an advance premium tax credit (APTC) used to pay your premiums as they are billed (you can opt to take only a portion of it in advance for this purpose), you will owe the difference between the APTC you received and the APTC to which you prove to have been entitled at tax time in the year following (early 2024 for 2023 coverage). CSR will not be clawed back after the fact. The exchange may reduce your APTC and CSR going forward, however, if outside data sources – such as a regular paycheck – indicate that your income is higher than estimated.

What if you’re hovering near the 100% FPL threshold in a nonexpansion state, or near the 138% FPL threshold in an expansion state and you don’t want Medicaid? There is no downside to a good-faith estimate that errs on the optimistic side. If you live alone and estimate your 2023 gross income at $14,000 (a little over 100% FPL), and eventually, your tax return shows it to have been, say, $12,000, your subsidies will not be clawed back (unless the estimate is made with “intentional or reckless disregard for the facts”).

And while you may be asked as part of the application process to document your income, your estimate will not be disallowed if outside data sources indicate that your real income is lower than estimated. See this post for more tips on making sure that you’re fully accounting for all allowable income sources.

Your income estimate must be made in good faith. But if you have good cause to be genuinely uncertain how much you earn, you are fully within your rights to use your knowledge of the ACA’s income break points to your advantage.

* * *

* One nonexpansion state – Wisconsin – offers Medicaid to adults with income up to 100% FPL, as opposed to the 138% FPL threshold in expansion states. Wisconsin therefore has no “coverage gap” – those who lack affordable access to other insurance are eligible either for Medicaid (up to 100% FPL) or subsidized marketplace coverage (over 100% FPL).

** Alaska and Hawaii have different FPLs, viewable on pages 3-6 here.

*** Washington, D.C. extends Medicaid eligibility to 215% FPL. New York and Minnesota run Basic Health Programs – Medicaid-like low-cost programs – for residents with income in the 138-200% FPL range, as well as for legally present noncitizens who are time-barred from Medicaid eligibility. Connecticut extends Medicaid eligibility to parents with incomes up to 160% FPL.

**** Legally present noncitizens who have been in the U.S. for less than five years are ineligible for Medicaid, but eligible for free Silver marketplace coverage if their income is in the 0-150% FPL range.

Andrew Sprung is a freelance writer who blogs about politics and healthcare policy at xpostfactoid. His articles about the Affordable Care Act have appeared in publications including The American Prospect, Health Affairs, The Atlantic, and The New Republic. He is the winner of the National Institute of Health Care Management’s 2016 Digital Media Award. He holds a Ph.D. in English literature from the University of Rochester.