Q. My income is $44,000, which is just about 344% of poverty level. I thought that subsidies were available for anyone with incomes up to 400% of poverty level, but the subsidy calculators I’ve used tell me that I don’t qualify for a subsidy. Why is this?
A. Before we get into the normal rules for this, it’s worth noting that you might be newly-eligible for subsidies as a result of the American Rescue Plan (ARP). For 2021 and 2022, this new law has changed the way subsidy eligibility is calculated, making subsidies larger and available to more people, including younger people who didn’t previously qualify for subsidies despite having an income below 400% of the poverty level. Here are some additional examples of how the new subsidy structure works.
The new subsidy amounts are expected to be available on HealthCare.gov as of April 1 (although they’re retroactive to January 2021 for people who have been enrolled in a marketplace plan all year and are otherwise eligible for subsidies), and the state-run marketplaces are working to get them built into their subsidy calculators as quickly as possible. But the Kaiser Family Foundation has a subsidy calculator you can use between now and then, and we’ve explained how the math works in case you want to calculate your own subsidy amounts.
Unless additional legislation is enacted to extend the American Rescue Act’s subsidy provisions, the enhanced subsidies will disappear at the end of 2022. So we’ll show some examples here to illustrate why (especially before the American Rescue Plan) people sometimes see that they’re not subsidy-eligible despite having an income of under 400% of the poverty level.
Under normal rules (ie, without the ARP), it’s true that an income up to 400% 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% 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 (with the ARP in place for 2021 and 2022, subsidy eligibility is not capped at 400% of the poverty level; instead, people at or above that income level are subsidy-eligible if the benchmark plan would otherwise cost more than 8.5% of their income).
The ACA caps after-subsidy premiums for the second-lowest cost Silver health insurance plan (benchmark plan) at set percentages of modified adjusted gross income (MAGI), based on the percentage of FPL that the applicant’s household earns. Under the ACA, these percentages ranged from 2% to 9.5%, depending on income, and the IRS indexes them each year. For 2021, they initially ranged from 2.07% to 9.83% of income, but Section 9661 of the American Rescue Plan adjusted all of the percentages downward, resetting the amount people have to pay for the benchmark plan to a range of 0% to 8.5% of income.
- MAGI up to 150% of poverty = 0% of MAGI (ie, the subsidy is enough to make the benchmark plan premium-free)
- 150% to 200% of poverty = 0% to 2% of MAGI
- 200% to 250% of poverty = 2% to 4% of MAGI
- 250% to 300% of poverty = 4% to 6% of MAGI
- 300% to 400% of poverty = 6% to 8.5% of MAGI
- 400% of poverty or higher = 8.5% of MAGI
With an income of about 344% of FPL, if the second-lowest cost Silver plan available to you has a premium that does not exceed 7.1% of your ACA-specific MAGI in 2021, you would not qualify for a subsidy (here’s how the math works in terms of that 7.1%). Before the ARP changed the rules, you would not have qualified for a subsidy if the cost of the benchmark plan didn’t exceed 9.83% of your 2021 MAGI, so the ARP makes subsidies more widely available to people with incomes that would previously have made them subsidy-ineligible.
Premiums 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. But again, the ARP has changed this in many circumstances, since it requires people to pay a smaller percentage of their income for the benchmark plan, and provides subsidies to make up the difference. This results in some young people becoming eligible for subsidies even though they didn’t previously qualify.
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 you can see in this comparison sheet, a 25-year-old in Albuquerque would not have qualified for a premium subsidy in 2021 (under pre-ARP rules) with an income of $40,000. But with the ARP in place, they qualify for a subsidy of $36/month.
But because premiums are higher in other areas, that same 25-year-old earning $40,000 would already have qualified for a subsidy in Jackson, Mississippi or Cheyenne, Wyoming, but the subsidies are larger under the ARP.
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 (note that the exchange will automatically do these calculations for you, and the ARP’s adjustments should be built into all of the exchange websites by May 2021).
- 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 you’re looking for a rough idea of your subsidy eligibility).
- 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, aren’t eligible for Medicare or Medicaid, are lawfully present in the U.S., 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 since 2019, 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 — and that’s especially true for 2021 and 2022, due to the ARP.
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.