Q. My income is $44,000, which is just about 350 percent of poverty level. I thought that subsidies were available for anyone with incomes up to 400 percent of poverty level, but the subsidy calculators I’ve used tell me that I don’t qualify for a subsidy. Why is this?
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A. It’s true that an income up to 400 percent of federal poverty level (FPL) makes you eligible for subsidies. But there’s another part of the equation: The premium of the second-lowest cost Silver plan in your exchange as a percentage of your income.
If your income doesn’t exceed 400 percent of FPL and the premium for the second-lowest cost Silver plan in your exchange is more than a designated percentage of your income, you may qualify for a subsidy that will bring the net premium down to the percentage of your income allowed by the ACA rules.
The ACA caps after-subsidy premiums for the second-lowest cost Silver plan (benchmark plan) at the following percentages of modified adjusted gross income (MAGI), based on the percentage of FPL that the applicant’s household earns (updated for 2020):
- 100 to 133% of FPL: premium capped at 2.06% of MAGI
- 133 to 150% of FPL: premium capped at 3.09 to 4.12% of MAGI
- 150 to 200% of FPL: premium capped at 4.12 to 6.49% of MAGI
- 200 to 250% of FPL: premium capped at 6.49 to 8.29% of MAGI
- 250 to 300% of FPL: premium capped at 8.29 to 9.78% of MAGI
- 300 to 400% of FPL: premium capped at 9.78% of MAGI
With an income of about 350 percent of FPL, if the second-lowest cost Silver plan available to you has a premium that does not exceed 9.78 percent of your income in 2020, you would not qualify for a subsidy.
The same scenario is quite common with young people. Rates are based on age, so premiums for younger applicants are often low enough – with no subsidy at all – that they do not exceed the percentage of income caps on the higher end of the subsidy eligibility range.
Subsidies fluctuate significantly from one exchange to another and even among regions within a state, since there is wide variation in the price of the second-lowest cost Silver plan from one area to another.
As an example, consider eight people, all of whom have a $41,000 per year MAGI, or about 330 percent of FPL. Two live in Denver, Colorado, two live in Pagosa Springs, Colorado, two live in Madison, Wisconsin, and two live in Cheyenne, Wyoming. Their estimated subsidies in 2020 (based on data from Connect for Health Colorado and Healthcare.gov) are as follows:
- Denver 21-year-old: no subsidy
- Denver 60-year-old: $417/month subsidy
- Pagosa 21-year-old: $4/month subsidy
- Pagosa 60-year-old: $584/month subsidy
- Madison 21-year-old: no subsidy
- Madison 60-year-old: $540/month subsidy
- Cheyenne 21-year-old: $301/month subsidy
- Cheyenne 60-year-old: $1,389/month subsidy
All eight people have the same MAGI (which is well under 400 percent of the poverty level) but their subsidy amounts are based on their cost to purchase health insurance as a percentage of their income. Without subsidies, their premiums would vary tremendously based on geography and the higher rates that are charged for older applicants. But subsidies smooth out the differences and bring their net premiums to the same level (since they all have the same MAGI, and the purpose of the ACA’s premium subsidies is to make the after-subsidy cost of coverage — for the benchmark silver plan — the same for people at the same income level, regardless of where they live or how old they are).
After subsidies, the second-lowest cost Silver plan for each of these individuals would be no more than 9.78 percent of their 2020 income (here’s how you calculate the percentage if you’re in one of the lower income brackets, where there’s a range instead of a set percentage). For the 21-year-olds in Denver and Madison, the unsubsidized premium for the second-lowest cost Silver plan is already below that level. So no subsidy is necessary – coverage is already considered affordable for them based on the ACA’s guidelines. For the 21-year-old in Pagosa Springs, the full-price cost of the benchmark plan is just slightly above 9.78 percent of their income, so they only need a $4/month subsidy to bring their price down to that level. On the other hand, the 60-year-old — in all four areas, but especially in Cheyenne — is facing much larger unsubsidized premiums. So the subsidy amounts have to be a lot larger to get their after-subsidy rates down to 9.78 percent of their income.
Applying this to your own situation — is a subsidy necessary to make your coverage affordable?
Although the above examples apply to specific ages and areas, you can do the same calculation for any age or zip code. You can also just use our subsidy calculator, but if you want to verify that it’s correct, here’s what you need to do:
- Go on the exchange in your state (HealthCare.gov or the state-run exchange, depending on the state) and get quotes using the browsing tool, without putting in any income information (you can get quotes without creating an account).
- Look for the second-lowest-cost silver plan. In most cases, you’ll be able to filter the results to only show silver plans, and just look for the second-lowest-cost option (in most cases, they’ll be listed in order of cost, from lowest to highest, so you can just look for the second silver plan that shows up).
- Take the cost of that plan, and multiply it by 12 to see the annual premium.
- Divide that annual premium by your annual income, and then multiply by 100 so it looks like a normal percentage (ie, if you end up with 0.0126 you’ll multiply by 100 to get 12.6 percent). That’s the percentage of your income that you’d have to pay for the benchmark silver plan without a subsidy.
- Now look at the chart above that shows the percentage of income that people in each income range have to pay for affordable coverage (if you’re in the middle of a range, you can do some math if you want to, or you can just estimate something in the middle).
- If the percentage of income you have to pay for the benchmark plan is above the percentage shown on the chart, you’ll get a subsidy (assuming you’re otherwise eligible — ie, you don’t have access to coverage from an employer, etc.). If it’s less than the percentage shown on the chart, you won’t get a subsidy.
- Now you can run the quote again, this time putting in your income. It will show you a subsidy if you’re eligible for one, but now you’ll understand why the subsidy applies — or, if you don’t get a subsidy, why not.
Although individual market premiums have been fairly stable in 2019 and 2020, they grew substantially from 2016 through 2018 in most areas. This means it’s less common than it used to be for people under 400 percent of the poverty level to be ineligible for subsidies. Because overall prices are higher than they were in the early days of ACA-compliant plans, many people who didn’t qualify for subsidies in prior years will find that they do qualify now, since the subsidies are designed to keep net premiums from exceeding a set threshold.
But subsidies vary considerably from one year to the next, depending on how benchmark plan prices change in a given area. Price reductions — driven by reinsurance in many areas in recent years — will drive premium subsidies down, sometimes resulting in higher after-subsidy premiums for people in areas where overall rates have declined.
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 opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.