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?
A: Probably not. If your employer’s insurance is “affordable” and provides “minimum value” (ie, is comprehensive), you are not eligible for a government subsidy to help buy a policy in the exchanges. You could still buy a plan in the exchange, but you’d have to pay full price for it, so it is extremely unlikely that you would get better and less expensive coverage in the exchange.
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.
In 2021, a policy is considered “affordable” if individual coverage (for just you – not including your family – costs less than 9.83 percent of your household income in 2021). Household income is Modified Adjusted Gross Income as defined by the ACA.
It’s important to note that the affordability test for employer-sponsored coverage applies only to the amount you’d have to pay to insure just yourself under your employer’s plan. If that amount is less than 9.83 percent of your 2021 income, you’re not eligible for a premium subsidy in the exchange, and neither are your family members if they’re allowed to enroll in your employer’s plan, regardless of how much it would cost to actually enroll them in your employer’s plan. This is known as the ACA’s “family glitch,” and although some lawmakers — and countless consumer advocates — have proposed fixes, it’s still an issue for upwards of two million Americans.
Your coverage is deemed to provide “minimum value” if it pays for 60 percent of covered benefits for the average population (ie, is comparable to a Bronze plan in the individual or small group market).
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).
Income caps for subsidy eligibility
It’s unusual for an employer-sponsored plan to be considered unaffordable or to fail to provide minimum value (cover at least 60 percent of average costs). And large group plans that fail to meet these standards are subject to the ACA’s employer mandate penalty. But as noted above, the family glitch means that some plans that are considered affordable are not actually affordable for family members.
But even if you’re eligible for a subsidy based on the coverage provided by your employer, you still have to qualify based on your household income (Modified Adjusted Gross Income, which is ACA-specific). If your income is above 400 percent of the poverty level, or if exchange plans in your area meet the definition of affordable at your income level even without subsidies, you would not be eligible for a subsidy.
Split family onto two 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.
As noted above, your family members would not qualify for subsidies in the exchange (assuming your own coverage from your employer isn’t more than 9.83 percent of your household income in 2021), so you’d be comparing full-price exchange (or off-exchange) plans with the cost to cover your family on your employer’s plan.
Be sure to also consider 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.
Exchanges aren’t meant to replace employer-sponsored coverage
The exchanges were 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 folks 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 if their household income doesn’t exceed 400 percent of the poverty level. They can also get cost-sharing subsidies, if their income doesn’t exceed 250 percent of the poverty level. And if their income is between zero and 138 percent of the poverty level, they’re 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 percent of the cost of employees’ coverage and nearly 74 percent of premiums for family coverage, asking workers to pay just 17 or 26 percent, respectively (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; as noted above, the family glitch means that family members aren’t eligible for premium subsidies even if the employer covers none of the family members’ premium costs).
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.
The pre-tax aspect of employer-sponsored coverage is a particularly important point, as people who buy individual market health insurance can only deduct their premiums if they’re self-employed or if their total medical costs (including premiums) amount to more than 7.5 percent of their income (10 percent as of 2021), 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.