Q. My employer offers insurance, but I think it’s too expensive. Can I apply for a subsidy to help me buy my own insurance?
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A. Probably not, but it’s possible, especially for your family members. If your employer’s insurance is considered affordable and provides minimum value (ie, is comprehensive), you are not eligible for a government subsidy to help buy a policy in the exchanges. But if your employer’s policy doesn’t meet the definition of affordable, you — or possibly your family members — might be eligible for a subsidy to offset the cost of a plan through the exchange/Marketplace. We’ll get into the details of that below.
If you’re not subsidy-eligible, you could still buy a health insurance plan in the exchange. But you’d have to pay full price for it, so it is unlikely that you would get better and less expensive coverage in the exchange. And it’s also important to note that the plan your employer offers will almost certainly let you pay your share of the premiums on a pre-tax basis, while that’s much less likely if you buy your own plan.
To be clear, there’s nothing preventing you from declining your employer’s insurance and buying an individual-market plan, on or off-exchange. But in most cases, you won’t be eligible for a subsidy in the exchange, which means you’d be paying full price for an individual-market plan. The plan your employer offers is funded partly by your employer, and you’ll lose that benefit if you opt for an individual market plan.
You’ll also likely lose the benefit of paying for premiums on a pre-tax basis. (You can deduct total medical expenses, including self-purchased health insurance, that exceed 7.5% of your income, but only if you itemize your deductions. Self-employed people can deduct the full cost of self-purchased health insurance, but not if they’re eligible for coverage under an employer-sponsored plan, regardless of the cost.)
If you do want to enroll in an individual market plan, the open enrollment period to buy coverage runs from November 1 to January 15 in most states, although some states have different deadlines. Outside of the open enrollment period, you’ll need to qualify for a special enrollment period in order to sign up for individual/family coverage.
How are affordability and minimum value determined?
In 2023, an employer’s policy is considered affordable if the employee’s portion of the premiums is less than 9.12% of their 2023 household income (this will decrease to 8.39% in 2024). Household income is Modified Adjusted Gross Income as defined by the ACA.
This calculation used to apply only to the cost of the employee’s coverage, but the affordability determination was then applied to the entire family, even if the cost to cover the whole family was well above the affordability threshold. That’s no longer the case as of 2023, due to regulations that fixed the “family glitch.” So it’s possible that the employee’s coverage could be considered affordable but family coverage is not. In that case, the family members could potentially be eligible for a subsidy in the Marketplace.
Your coverage is deemed to provide “minimum value” if it pays for at least 60% of covered benefits for the average population (ie, is comparable to a Bronze plan in the individual or small group market) and provides “substantial” coverage for inpatient and physician care.
The employer-sponsored insurance offered at most large companies fits these definitions of providing “minimum value” and being “affordable.” Even prior to 2014, the vast majority of large companies already provided comprehensive health insurance, often covering most of the ten essential benefits that the ACA now requires of individual and small-group plans (large-group plans are not required to provide coverage for essential health benefits, but most do).
How does household income factor into whether the family qualifies for a subsidy?
Even if your employer’s coverage isn’t considered affordable (unlikely for the employee, but more likely for family members), subsidy eligibility in the Marketplace will also depend on your household income. In order to qualify for a subsidy, the cost of the second-lowest-cost Silver plan in the Marketplace would have to be more than a certain percentage of your household income.
There’s normally an income limit equal to 400% of the federal poverty level, above which Marketplace subsidies are not available. But the American Rescue Plan and Inflation Reduction Act have eliminated that income cap through 2025. Households that are otherwise eligible for a premium subsidy can get one regardless of income, if the benchmark plan would cost more than 8.5% of the household’s income.
Should my family members have different health plans?
If you’re covering your whole family on your employer’s plan, it’s worth finding out how much it would be to insure just yourself under your employer’s plan. If your employer subsidizes the cost of premiums for employees but not for dependents and spouses, it’s possible that the cost to cover your whole family would be lower if you split the family onto two plans, using an individual market plan for your family members and your employer-sponsored plan for yourself.
This is especially true in 2023 and future years, since the government fixed the family glitch and family members in this situation might find that they’re eligible for subsidies in the Marketplace. But as noted above, you’d almost certainly need to compare the after-tax cost of the employer-sponsored plan with the post-tax cost of the individual market plan.
Be sure to also consider provider networks and drug formularies, as well as the out-of-pocket costs on both options before you make a decision. And keep in mind that family deductibles and family out-of-pocket maximums only apply to all family members on a single plan; if your family is on two plans, each plan would have its own out-of-pocket limit.
The Marketplace isn’t meant to replace employer-sponsored coverage
The exchange/Marketplace was designed for folks who are self-employed, unemployed, or work for a company that doesn’t offer health benefits. Prior to the ACA’s premium subsidies, which are only available through the exchange, these individuals had no choice but to pay the full cost of their health insurance premiums themselves.
Now that the exchanges are in place, people who would otherwise have had to pay full price for their own coverage can get relief in the form of premium subsidies, depending on their household income. They can also get cost-sharing subsidies, if their income doesn’t exceed 250% of the poverty level. And adults under the age of 65 whose household income is between zero and 138% of the poverty level are eligible for Medicaid if they’re in one of the states that have expanded Medicaid.
Since you have benefits at work, your employer is already subsidizing your insurance. On average employers that offer health insurance pay 83% of the cost of employees’ coverage and 73% of premiums for family coverage, asking workers to pay just 17% or 27%, respectively. But it varies considerably from one employer to another, however, and smaller firms are more likely to require employees to pay a significant portion of the cost to add family members to the plan.
It is true that co-pays and deductibles have been rising, but that is because the underlying cost of health care has been climbing as hospital charges, specialists’ fees, and prices for drugs and medical devices rise. Your employer is likely still paying a significant share of the cost of your health insurance, and you’re receiving that as a pre-tax benefit.
And again, the pre-tax aspect of employer-sponsored coverage is a particularly important point. People who buy individual market health insurance can only deduct their premiums if they’re self-employed (and don’t have access to employer-sponsored insurance, which would eliminate the people we’re describing in this article) or if their total medical costs (including premiums) amount to more than 7.5% of their income, with only the portion above that level being eligible for the tax deduction.
But employer-sponsored health benefits are nearly always provided on a pre-tax basis: The portion that the employer pays is not included in the employee’s income, and the portion that the employee pays is taken out of their check pre-tax. The ACA’s premium tax credit for individual market enrollees helps to level this playing field a bit.
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.