Does the IRS change how much I’ll have to pay for my health insurance each year?

Q. I've seen that the percentage of income I have to pay for my health insurance seems to change each year, based on IRS guidance. Does this change the actual amount that I pay for my coverage each year?

A. From 2015 through 2020, the IRS made an annual change — usually quite small — to the percentage of income that you have to pay for self-purchased (individual/family) health coverage. Those percentages were reset and locked in place from 2021 through 2025, due to the American Rescue Plan (ARP) and the Inflation Reduction Act (IRA).

But the IRS has again begun indexing the percentages starting with the 2026 plan year,¹ on the assumption that the ARP/IRA subsidy enhancements will expire at the end of 2025. And as explained below, the indexing methodology has changed for the 2026 plan year, further increasing the percentage of income that people have to pay for their coverage.

But there's a lot more to net premiums than just the percentage of income that the IRS says you have to pay for the benchmark plan. It also depends on:

• how your income changes relative to the federal poverty level (FPL, which changes every year),
• how your health plan's premium changes,
• whether the cost of the benchmark plan changes (insurers joining or leaving the marketplace can have a big effect on this),
• whether you make a change to your coverage during open enrollment,
• and the fact that you continue to get older each year.

Let's take a look at how it all works, both in terms of the normal rules and the temporary changes under the American Rescue Plan and Inflation Reduction Act.

The ACA has a lot of moving parts. Various aspects of the regulations have to be updated annually, including the affordability rules. Initially, the IRS laid out guidelines detailing the percentage of tax filers' income that they would be expected to contribute towards their own premiums. This is referred to as the "applicable percentage." (For premium subsidy purposes, income means an ACA-specific version of modified adjusted gross income, and subsidy eligibility is based on how that income compares with the prior year's FPL.)

(Note that although there is usually an income cap of 400% of the poverty level in order to qualify for premium subsidies, that has been temporarily removed through 2025 under the ARP and IRA. Through 2025, nobody purchasing coverage in the marketplace has to pay more than 8.5% of their income for the benchmark plan, regardless of their income level.)

How the applicable percentages have changed over time

The IRS adjusted the applicable percentage each year from 2015 through 2021, although the American Rescue Plan resulted in a mid-year adjustment for 2021 and eliminated the need for an adjustment for 2022. And the Inflation Reduction Act kept the same 2021/2022 applicable percentage numbers in place through 2025. Here's a summary of how the applicable percentage has changed over time:

• 2015: A small increase (Revenue Procedure 2014-37)
• 2016: A small increase (Revenue Procedure 2014-62)
• 2017: A small increase (Revenue Procedure 2016-24)
• 2018: A small decrease (Revenue Procedure 2017-36) So people with the same income paid slightly less for their coverage.
• 2019: An increase to a record high (Revenue Procedure 2018-34)
• 2020: Another decrease (Revenue Procedure 2019-29)
• 2021: Initially an increase (Revenue Procedure 2020-36) and then a significant decrease as a result of the American Rescue Plan.
• 2021 through 2025: Under the ARP, and extended by the IRA, the applicable percentage numbers will remain fixed through 2025.² They vary from 0% to 8.5%, depending on income, and are detailed below.³
• 2026: A significant increase (Revenue Procedure 2025-25) This includes new adjustment methodology that was finalized by the Trump administration in 2025, further increasing the applicable percentages.

Applicable percentages will increase sharply for 2026

Under the ARP/IRA, the applicable percentages have ranged from 0% to 8.5%, depending on income. These limits have been in place from 2021 through 2025, without any annual indexing. But for 2026, the applicable percentages range from 2.1% to 9.96%,¹ which is the highest they have ever been. And for enrollees with household income above 400% of FPL, premium subsidies will no longer be available, regardless of the cost of coverage as a percentage of household income. In other words, the "subsidy cliff" will return in 2026, unless Congress takes action to avert this.

Here's the percent of household income that Marketplace enrollees will have to pay for the benchmark Silver plan in 2026, after subsidies are applied:

• Income less than 133% of FPL = 2.1% of income
• At least 133% but less than 150% of FPL = 3.14% to 4.19% of income
• At least 150% but less than 200% of FPL  = 4.19% to 6.6% of income
• At least 200% but less than 250% of FPL = 6.6% to 8.44% of income
• At least 250% but less than 300% of FPL = 8.44% to 9.96% of income
• At least 300% but not more than 400% of FPL = 9.96% of income
• Above 400% of FPL = No subsidy available

So a person earning 250% of FPL in 2025 has to pay 6% of their household income for the benchmark Silver plan, whereas they'll pay 8.44% of their household income for the benchmark plan in 2026. This increase in the applicable percentages is the reason subsidies will be smaller across the board in 2026. And for those with household income above 400% FPL, subsidies will disappear altogether at the end of 2025.

But the FPL for 2025⁴ (which will be used to calculate 2026 subsidy amounts) is higher than the FPL for 2024,⁵ which was used to calculate 2025 subsidy amounts. So you would have to get a raise to remain at the same percentage of the poverty level from one year to the next.

If you don't get a raise for 2026, your income as a percentage of the poverty level will be lower in 2026 than it was in 2025. So a person who earns the same amount in 2025 and 2026 will have two factors that work in opposite directions: Their income as a percentage of FPL will be lower in 2026, but the applicable percentages are higher across the board in 2026.

Applicable percentages increased for 2021, but the ARP then sharply reduced them

When 2021 began, the applicable percentages were higher than they had been in 2020, meaning that at each income level, people would have to pay a slightly larger percentage of their income for the benchmark plan. But Section 9661 of the American Rescue Plan made some very significant reductions to the applicable percentage table for 2021 and 2022. And the Inflation Reduction Act maintained those lower levels through 2025.

The applicable percentages for 2021 were initially posted in Revenue Procedure 2020-36, requiring subsidy-eligible enrollees to pay between 2.07% and 9.83% of their income for the benchmark plan, with no limit on how high premiums could be if a household's income was over 400% of the poverty level. But the American Rescue plan reduced this range for both 2021 and 2022, and the Inflation Reduction Act maintains the new lower levels through 2025. So the range until the end of 2025 is 0% to 8.5%, with no income cap for subsidy eligibility.

With income above 400% of the poverty level, a subsidy is not available if the benchmark plan would cost less than 8.5% of your income without a subsidy. So people with very high incomes will still not qualify for a subsidy, as the cost of their coverage would not exceed 8.5% of their income. But subsidy eligibility can now extend well above 400% of the poverty level for some enrollees, particularly those who are older and live in areas where health insurance is particularly expensive. Here are some examples of how the ARP enhanced premium subsidies.

For coverage effective anytime from 2021 through 2025, under the modified rules implemented by the American Rescue Plan and extended by the Inflation Reduction Act, subsidy-eligible enrollees who buy a plan in the exchange have to pay the following percentages of their income, after the subsidy is applied, for the benchmark plan:

• Income up to 150% of poverty = 0% (ie, the subsidy is enough to make the benchmark plan premium-free)
• 150% to 200% of poverty = 0% to 2%
• 200% to 250% of poverty  = 2% to 4%
• 250% to 300% of poverty = 4% to 6%
• 300% to 400% of poverty = 6% to 8.5%
• 400% of poverty or higher = 8.5%

Note that if your income is within one of the ranges (as opposed to being exactly at one of the ends of a given range), your applicable percentage will be somewhere between the upper and lower limits that apply to that range. The details of how this is calculated are described below.

All of these percentages were retroactive back to the start of 2021, and people who had marketplace coverage for all of 2021 were able to claim the additional subsidy for the first few months of 2021 when they filed their 2021 tax return (the additional subsidies debuted in the marketplace in the spring of 2021, so most enrollees received the additional subsidies in real-time for more than half of 2021).

Making sense of applicable percentages

Those numbers might make your eyes glaze over. But the following examples will show how they affect premiums from one year to the next. The first set of examples show how Bob's premiums changed from 2014 to 2026, if his income increased each year to keep pace with increases in the federal poverty level. Below that, you'll see what happens if Bob's income hasn't increased since 2014.

In both cases, we'll show how the American Rescue Plan reduced the amount that Bob has to pay for his health coverage, making coverage more affordable than it's been in any of the previous years. We'll also look at the impact of that enhanced assistance expiring at the end of 2025 (based on the assumption that the subsidy enhancements are allowed to sunset; these numbers will be different if Congress extends the subsidy enhancements past the end of 2025). Yes, there's math involved, but never fear — it's pretty straightforward.

Example: Bob's premium changes from 2014 to 2026, if he gets annual raises that keep his income at 200% of the poverty level

Bob lives in the continental US and his MAGI (modified adjusted gross income as calculated for the ACA's premium tax credits) is equal to 200% of poverty. In this example, we're going to assume he's received a pay raise each year that keeps his income at 200% of the poverty level.

In 2014, his applicable percentage was 6.3%. For 2018, it was 6.34%, for 2019, it was 6.54%, for 2020 it was 6.49%. For 2021, it was initially 6.52%, but the ARP reduced it to just 2%, and the IRA kept that in place through 2025. That means he only has to pay 2% of his income for the benchmark plan instead of 6.52%, and his subsidy amount will be larger to make up the difference. But for 2026, assuming Congress doesn't extend the ARP/IRA subsidy enhancements, Bob will have to pay 6.6% of his household income for the benchmark plan.

For subsidy purposes, poverty level determinations are based on the year during which open enrollment begins (so 2025 FPL numbers, which were published in January 2025, are used for the open enrollment period that begins in the fall of 2025, for coverage effective in 2026).

2014: $1,448 in premiums, with an income of $22,980

If Bob was earning 200% of poverty level when he got his 2014 plan, his MAGI was $22,980 (based on the 2013 poverty level) and his applicable percentage (the amount he had to pay for the second-lowest-cost silver plan) was 6.3 percent. So he had to pay $1,448 in annual premiums in 2014 ($22,980 x 0.063). His subsidy paid the rest of the premium, assuming he selected the second-lowest-cost silver plan (ie, the benchmark plan).

2018: $1,529 in premiums, with an income of $24,120

But for 2018, if Bob was still earning 200% of poverty level, his MAGI had increased to $24,120, since the poverty level has increased. His applicable percentage was 6.34%, which equaled $1,529 in annual premiums ($24,120 x 0.0634). That's about $81 more in annual premiums than he had to pay in 2014. But in order to maintain his percentage of poverty level at 200%, he was earning $1,140 additional dollars per year.

So while his net premium had increased, his income was also increasing (and note that this is comparing his premiums in 2014 with his premiums in 2018; if we just look at 2017 versus 2018, the slight decrease in the applicable percentage for 2018 nearly exactly offsets the increase in the poverty level, making his net premium just about exactly the same in 2018 as it was in 2017).

2019: $1,588 in premiums, with an income of $24,280

For 2019, the applicable percentage increased again, and the poverty level also increased. (2018 poverty levels were higher than they were for 2017.) If Bob was still earning 200% of the poverty level when he signed up for 2019 coverage, it meant his income had grown to $24,280. He had to pay 6.54% of that for the second-lowest-cost Silver plan, which amounted to $1,588 in annual premiums ($24,280 x 0.0654). So Bob was paying $140 more in annual premiums in 2019 than he was paying in 2014 — but his income was $1,300 higher than it was in 2014, since we're assuming he's stayed at 200% of the poverty level.

2020: $1,621 in premiums, with an income of $24,980

For 2020, the applicable percentage decreased, but the poverty level continued to increase. To keep Bob at 200% of the poverty level, his income had to grow to $24,980 for 2020 (based on 2019 poverty level numbers, since that's what's used for the 2020 coverage year). He had to pay 6.49% of his income for the benchmark Silver plan, which amounted to $1,621 in annual net premiums. That's $33 more in annual premiums than he paid in 2018, and $173 more than he paid in 2014. But his income in 2019 was $2,000 higher than it was in 2014.

2021: Pre-ARP: $1,664 in premiums. Post-ARP: 510 in premiums, with an income of $25,520

For 2021 coverage, the poverty level is higher than it was for 2020 coverage. But although the applicable percentage was initially higher as well, it's been drastically reduced by the American Rescue Plan. In Bob's case, with an income of 200% of the poverty level, his new applicable percentage in 2021 is only 2%. For Bob's income to stay at 200% of the poverty level, it had to increase to $25,520 in 2021. But instead of having to pay $1,664 in after-subsidy premiums for the benchmark silver plan (the amount he would have paid under the normal applicable percentage for 2021), he only has to pay $510, which is 2% of his income.

This is a total annual savings of about $1,154 over what he was paying before the American Rescue Act, and it's also significantly lower than the amount he's had to pay for his coverage in any year since the ACA was implemented.

2022: $515 in premiums, with an income of $25,760

To remain at 200% of the poverty level, Bob's income grows to $25,760 for 2022. The applicable percentage is still 2% at that income level,  thanks to the American Rescue Plan. So Bob has to pay $515 in total premiums if he buys the benchmark plan in 2022.

Bob needed to be aware, however, that there was a significant influx of new insurers offering plans in the marketplaces for 2022, and a lot of fluctuation in the benchmark plans as a result. Bob may have had to switch plans in order to get the best value from his coverage in 2022.

2023: $544 in premiums, with an income of $27,180

To remain at 200% of the poverty level, Bob's income increases to $27,180 in 2023. The applicable percentage is still 2% at that income level (the Inflation Reduction Act has locked that in through 2025). So Bob will have to pay $544 in total premiums if he buys the benchmark plan in 2023.

2024: $583 in premiums, with an income of $29,160

Bob's income has to grow to $29,160 in 2024 to keep him at 200% of the 2023 poverty level. The applicable percentage is still 2% at that income level, so Bob will need to pay $583 in total premiums in 2024 if he buys the benchmark plan.

2025: $602 in premiums, with an income of $30,120

Bob's income has to grow to $30,120 in 2025 to keep him at 200% of the 2024 poverty level. The applicable percentage is still 2% at that income level, so Bob will need to pay $602 in total premiums in 2025 if he buys the benchmark plan.

2026: $2,066 in premiums, with an income of $31,300

Bob's income will have to grow to $31,300 in 2026 to keep him at 200% of the 2025 poverty level. But for 2026, the applicable percentage will grow significantly, to 6.6% of his income, assuming he's still at 200% of the poverty level. This means Bob will have to pay $2,066 in total premiums in 2026 if he buys the benchmark plan. The increase from $602 in 2025 to $2,066 in 2026 is due to the expiration of the ARP/IRA subsidy enhancements, since the lower applicable percentages will no longer be used.

What if Bob doesn't get a raise?

But what if he doesn’t get a raise, and his MAGI is still $22,980 in 2026? That means his income will be 147% of the 2025 poverty level, instead of 200%, so his applicable percentage will be less than the 6.6% that would have applied if his income had grown to keep pace with the increases in the poverty level ($22,980 divided by $15,650 is 1.47; that means Bob's income is 147% of the 2025 federal poverty level, which is used to calculate 2026 subsidy eligibility).

The calculation

The applicable percentage (figure) corresponding to each income amount (as a percentage of the federal poverty level) are shown in Figure 2 of the instructions for Form 8962. But if you want to see how those numbers are calculated, here's how it works:

To calculate applicable percentages for incomes that are somewhere within each range on the chart, you can use the formula that's explained in CFR 1.36B-3. (Scroll down to just underneath the applicable percentage chart, and look at example 2.) In the case of Bob, it looks like this:

Part 1

147 - 133 = 14
150 - 133 = 17

14/17 = 0.82

For this step, you start by looking to see what income range you're in. (Bob is in the 133% to 150% of poverty range.) Then you just figure out how far along the income range you are.  In this case, Bob's income is 82% of the way along the range that goes from 133% to 150% of poverty.¹

Part 2

4.19 - 3.14 = 1.05
1.05 x 0.82 = 0.86

3.14 + 0.86 = 4

The second part of the calculation is to look at the applicable percentage range for 2026 coverage that corresponds to Bob's income range (3.14% to 4.19% — meaning that the percentage of income he'll have to pay for the second-lowest-cost silver plan is somewhere between those two percentages).¹ And then you just figure out what number is 82% of the way along that applicable percentage range. In Bob's case, it's 4%.

His applicable percentage for 2026 is 4%. So his net premium, after his subsidy is applied, will be 4% of his income. That works out to be about $919 in annual premiums ($22,980 x 0.04 = $919.20). If the APR subsidy enhancements were to be extended into 2026, Bob's cost for the benchmark plan would be $0 in 2026. That's because his household income would have dropped to under 150% of FPL (as noted above, it will be 147% of FPL if he's still earning $22,980 in 2026). And as noted above, the ARP/IRA subsidy enhancements made the benchmark plan premium-free at that income.

Because Bob's income hasn't kept pace with the poverty level, the amount he has to pay in net premiums has declined over time, and would have reached $0 in 2026. But unless Congress acts to extend the subsidy enhancements, Bob's net premium for the benchmark plan will increase significantly in 2026.

Changes in how the applicable percentage is calculated

The general idea behind the adjustment to the applicable percentage table is to keep up with changes in premium growth as they relate to changes in income. If health care costs increase faster than income, we all have to pay a larger chunk of our income for health care. But if the economy does well and the ACA's efforts to curb healthcare spending are successful, it's also possible for the applicable percentage to decrease — as was the case for 2018 and 2020.

The formula for the adjustment to the applicable percentage is just premium growth since 2013 divided by income growth since 2013. However, the methodology for calculating each of those numbers has changed over time. And as noted above, the American Rescue Plan and Inflation Reduction Act fixed the applicable percentages at a set level from 2021 through 2025, with no indexing.

But here's how it worked before the American Rescue Plan:

Premium growth used to be based on average per-enrollee premiums for employer-sponsored plans, in terms of how much those premiums had changed since 2013. But for 2020, HHS finalized a methodology change that incorporated premium changes in the individual market, as well as premium changes for employer-sponsored plans.

This was widely expected to result in an increase in applicable percentages for 2020, but when the numbers were published in July 2019, the applicable percentages for 2020 were lower than they had been for 2019 (without the methodology change, applicable percentages would likely have decreased even more for 2020, as the estimation was that they would be 2.7% higher in 2020 with the new calculations that incorporate premium changes in the individual market).

But the new methodology was only used for two years. Starting with the 2022 plan year, HHS reverted to using the methodology that had been in use from 2015 through 2019, meaning that premium changes in the individual market were no longer taken into consideration. But that only lasted a few years. The second Trump administration finalized a rule change in 2025 that reverts to the methodology that was used in 2020 and 2021, once again incorporating the change in individual market premiums. This takes effect for the 2026 plan year, and has the effect of increasing applicable percentages (and maximum out-of-pocket limits, which are indexed based on the same methodology.⁶

Income growth was based on changes in GDP per capita for plan years 2014 through 2016, but HHS finalized a new formula that has been used to calculate income growth since 2017. The new formula calculates income growth based on per-capita personal income (PI) rather than per-capita GDP. The two methods would likely generate similar numbers, but HHS considers per-capita PI changes to be a more accurate reflection of how per-capita income changes from one year to the next.

The IRS also added a provision that allows for an additional adjustment for years after 2018 to reflect the premium growth rate relative to the growth in the consumer price index. (The additional adjustment is described in §36B(b)(3)(A)(ii)(II).) But the next section in that code — §36B(b)(3)(A)(ii)(III) — says that the additional adjustment is only needed if the total amount the government spent on premium subsidies and cost-sharing reductions in the previous year was more than 0.504% of the previous year's gross domestic product.

Since subsidies are also a function of the poverty level — which generally adjusts upward each year — there's a built-in factor that essentially ensures that people who are impacted by a higher applicable percentage are also enjoying at least a modest increase in income that outweighs the additional premiums.

Average benchmark premiums dropped in 2019, 2020, and 2021, resulting in smaller subsidies. But the ARP dramatically increased subsidies for 2021 and 2022, and the IRA extended that through 2025

Premium subsidy amounts are based on the relationship between an applicant's income and the federal poverty level, but they're also highly dependent on the premium that the applicant would have to pay for the benchmark plan. The formula described above is how subsidy amounts are determined in every state (keeping in mind that Alaska and Hawaii have different poverty level numbers).

But what if you don't buy the benchmark plan? Many areas have dozens of plans available for sale in the exchange, and only one of them is the benchmark plan. The specific plan can change from year to year, but it's always the second-lowest-cost silver plan. If you buy a plan that's not the benchmark plan and you're eligible for a subsidy, you still get the same subsidy amount that you'd have received if you had purchased the benchmark plan, but it's applied to the price of the plan you select instead. (If you buy a plan that costs less than your subsidy amount, you'll only get enough subsidy to cover the price of the plan.)

Nationwide, overall average premiums in the individual market increased slightly in 2019, decreased slightly in 2020, increased slightly in 2021, increased modestly for 2022, and increased more significantly — but still by a single-digit percentage — for 2023 and 2024⁷

But average benchmark premiums in states that use HealthCare.gov decreased from 2019 through 2022. The decrease in benchmark premiums happened in some areas because an existing insurer lowered their rates, but in other areas, it was because a new insurer joined the Marketplace and began offering lower-priced silver plans than the ones that were already available.

Average benchmark premiums then increased by 4% in 2023 and by another 4% in 2024.⁸

Premium subsidy amounts are based on the cost of the benchmark plan's premium in each area, so it wasn't surprising that premium subsidy amounts dropped in the years that benchmark premiums declined. Across all HealthCare.gov enrollees who wre receiving premium subsidies, the average subsidy amount was $550/month in 2018, dropped to $539/month in 2019, and dropped again, to about $492/month in 2020.

It had dropped again in 2021, to $486/month, but the American Rescue Plan boosted subsidies mid-year in 2021, resulting in more affordable coverage for most enrollees. For 2022, the average subsidy amount for subsidized HealthCare.gov enrollees was $524/month; the larger subsidy was due to the American Rescue Plan. For 2023, that average grew to $542/month.⁹ By 2025, it had grown to $550/month.¹⁰

For 2026, there will be two competing factors affecting average subsidy amounts: Assuming Congress doesn't extend the ARP/IRA subsidy enhancements, the applicable percentages will increase significantly, as described above. That will reduce subsidies. But overall average premiums are on track to increase significantly,¹¹ which will have the effect of increasing premium subsidies. But overall, premium subsidies will shrink considerably, and net premiums are expected to be substantially higher in 2026 than they were in 2025, likely by an average of about 75%.¹²

The best course of action is to actively shop for your coverage each year during open enrollment. Never let your plan automatically renew without checking first to make sure that it's still the best option. And if you become eligible for a special enrollment period mid-year due to a qualifying event, make sure you actively compare all of the plans available to you before deciding whether to keep your existing coverage or make a change.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written hundreds of opinions and educational pieces about the Affordable Care Act for healthinsurance.org.