Q. Our family of three has an income of $60,000 (around 300 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 our family doesn’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 net 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 2016):
- 100 to 133% of FPL: premium capped at 2.03% of MAGI
- 133 to 150% of FPL: premium capped at 3.05 to 4.07% of MAGI
- 150 to 200% of FPL: premium capped at 4.07 to 6.41% of MAGI
- 200 to 250% of FPL: premium capped at 6.41 to 8.18% of MAGI
- 250 to 300% of FPL: premium capped at 8.18 to 9.66% of MAGI
- 300 to 400% of FPL: premium capped at 9.66% of MAGI
With an income at 300 percent of FPL, if the second-lowest cost Silver plan available to you has a premium that does not exceed 9.66 percent of your income, 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 six people, all of whom have a $30,000 per year MAGI, or about 257 percent of FPL. Two live in Denver, Colorado, two live in Pagosa Springs, Colorado, and two live in Madison, Wisconsin. Their estimated subsidies in 2015 (based on data from Connect for Health Colorado and Healthcare.gov) are as follows:
- Denver 21-year-old: no subsidy
- Denver 60-year-old: $242/month subsidy
- Pagosa 21-year-old: $75/month subsidy
- Pagosa 60-year-old: $558/month subsidy
- Madison 21-year-old: no subsidy
- Madison 60-year-old: $590/month subsidy
All six people have the same MAGI, but their subsidies 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 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).
After subsidies, the second-lowest cost Silver plan for each of these individuals would be no more than 8.37 percent of their 2015 income. For the 21-year-olds in Madison and Denver, the unsubsidized premium for the second-lowest cost Silver plan is only about 7.8-8.1 percent of income. So no subsidy is necessary – the plans are already considered affordable for them based on the ACA’s guidelines.
More enrollees will qualify for subsidies in 2016 however. Nationwide, unsubsidized premiums are increasing by an average of about 12 to 14 percent in 2016. Subsidies will increase to keep up with the overall higher rates, and some people who didn’t qualify for subsidies in 2014 and 2015 will find that they do qualify in 2016, since the subsidies are designed to keep net premiums from exceeding a set threshold.
As always, it will be vitally important for existing enrollees to shop around during open enrollment. The national average rate increase is 12 to 14 percent, but the actual rate changes on each plan vary tremendously – decreasing in some areas, and increasing by up to 50 percent in other areas. And since subsidies are linked to the benchmark plan in each area, the subsidy could also be changing, in addition to whatever rate change a particular plan is experiencing. Shop around!