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My employer offers insurance, but I think it’s too expensive. Can I apply for a subsidy to help me buy my own insurance?

Exchanges weren't meant to replace employer-sponsored coverage; they were designed for folks who are self-employed, unemployed, or work for a company that doesn’t offer health benefits. | Image: rocketclips / stock.adobe.com

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 health insurance 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.

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Anonymous
Anonymous
7 months ago

“Since you have benefits at work, your employer is already subsidizing your insurance.” This is a blanket statement that is not necessarily true. A lot of companies these days offer plans where they only pay a small portion for employees and pay NOTHING for spouses or dependents. Then they add high deductibles on top of that and like us, you calculate your out of pocket for the year and realize you’ve spent the same if not MORE than your premiums out out-of-pocket because things like labs/diagnostics, or out-of-network providers covered at a lower percentage (which is frequent in rural areas where you have to leave town to get the care you require – for me it’s my annual post-op appointment 90 miles away in the city where the surgery was done where I have to pay over $600 OOP because he’s not in the local BCBS network). So not all employer-based insurance is subsidized. We’re paying full premiums for me and with the pandemic now, are considering dropping coverage because we’ve literally gotten nothing from the plan beyond discounted prescriptions. After a doctor-recommended breast ultrasound cost me $400+ and even the most basic thyroid lab costs $100 per test (that they require you re-take in 3 months if they change your dose), we’ve had to make the decisions to stop care because my coverage as a spouse is not subsidized and we’re literally getting nothing for the premiums we pay.

Louise Norris
Louise Norris
6 months ago
Reply to  Anonymous

Sorry if that sentence wasn’t clear — it was in reply to the original question, in which the person’s *own employer* offers coverage (as opposed to being a spouse or dependent on someone else’s plan).
The scenario you’re describing, in which the employer pays no portion of the premiums for a spouse and/or dependents and yet subsidies still aren’t available for them, is called the “family glitch.” It’s described further up in this article, and more information is available here: https://www.healthinsurance.org/obamacare/no-family-left-behind-by-obamacare/
I’m sorry your coverage is proving to be inadequate. Although it’s likely that your spouse (the employee) is receiving coverage that’s considered affordable and provides minimum value, you’ll want to double-check that to make sure that you’re definitely not eligible for subsidies in the individual market. This is the form that the employer can complete for that purpose: https://www.healthcare.gov/downloads/employer-coverage-tool.pdf

Anonymous
Anonymous
6 months ago
Reply to  Anonymous

Very true. At my firm, staff members get fairy well subsidized care, staff attorneys get less subsidies, and partner attorneys get zero subsidies. Full price family plan with a $17K deductible = $1900 a month.

Fakeblond
Fakeblond
1 month ago
Reply to  Anonymous

No, It’s not true at all. And it really ticks me off. We cant’ spend half of my husband’s wages on insurance that covers nothing. I have several medical issues, and it is expensive. And then free healthcare is being given to illegals! Screw Obama. SMH.

Louise Norris
Editor
1 month ago
Reply to  Fakeblond

Not sure what part you think isn’t true? But one additional point: Undocumented immigrants are not eligible for premium subsidies, and cannot enroll in marketplace coverage at all, even if they’re willing to pay full-price premiums. They are also not eligible for Medicaid, with very few exceptions (in most cases, even legally present immigrants are not eligible for Medicaid until they’ve been in the US for at least five years).

Ryan C
Ryan C
6 months ago

My employer’s insurance is considered to meet the minimum value, even though it doesn’t. It is a no network plan where they agree to only pay up to what Medicare will pay. In return, I am stuck with balance billing because no doctor or hospital within 100 miles of me will accept my insurance as payment in full. I believe my employer weighed the cost of getting insurance versus the penalty and paid for whichever was cheapest.
I shopped around for an operation I need, and the cheapest is still 80% of my yearly pay plus having to pay for premiums that are 9% of my pay. Shopping on the marketplace, I was at least able to get insurance and a price that’s just 35% of my yearly pay with premiums. If I could get subsidies that would drop to about 10%.

Mary
Mary
2 months ago

Thank you for this article! With this job I will end up paying more than $12k annually for family premium. My question is, if I decide to decline my employer’s health insurance because the family premium is too expensive and I decide to pay full price for private because it’s cheaper, am I getting a tax penalty?

Louise Norris
Editor
2 months ago
Reply to  Mary

There’s no tax penalty involved in that, but you would be missing out on the tax break that goes along with employer-sponsored health insurance. When you’re enrolled in an employer’s plan, the premiums are (in almost all cases) paid pre-tax. That means you don’t pay income taxes on the portion that your employer pays on your behalf, and you also don’t pay income taxes (or Medicare/Social Security taxes) on the portion of the premiums that you pay yourself.
When you buy your own health insurance and have to pay full price, you can only deduct your premiums if you’re self-employed (not the case for you) or if you itemize your deductions and your total medical expenses, including premiums, amount to more than 7.5% of your income. In that case, you can deduct the medical expenses above that threshold. Here’s more about how that all works: https://www.healthinsurance.org/faqs/can-i-deduct-my-exchange-premiums-when-i-file-taxes-next-year/

Abby
Abby
2 months ago

I work in an office with 6 employees that is open 32 hours a week. My previous employer, who sold his practice, offered a $200 stipend to use towards a marketplace plan. My new employer now offers insurance and wants to use the stipend to pay “his portion” of premiums.
If I go on the office plan my premium would be $1000/month premium verses $476. My question, how many hours are considered full/part time in order to qualify for marketplace plans? I read somewhere 30 hours or less per week but cannot confirm? If that is correct the smart thing for me is to work 2 hours less per week.

Louise Norris
Editor
1 month ago
Reply to  Abby

It doesn’t matter as far as the marketplace is concerned. The employer mandate requires large employers (50+ employees) to offer coverage to all full-time employees, and full-time is defined as 30+ hours per week. But a business of just six employees is not required to offer coverage, so none of that applies in this case.
The crux of it will be whether or not your premiums (for just yourself, not including the cost of adding any family members to your plan) amount to more than 9.83% of your household income this year. If they do, then you’d be eligible for a premium subsidy in the marketplace. If they do not, you wouldn’t.
And if your own premiums meet that affordability test (ie, no more than 9.83% of your household income), that would, unfortunately, prevent anyone else in your family from qualifying for a premium subsidy too, assuming they’re eligible to be covered under the employer’s plan. This is known as the “family glitch,” explained in more detail here: https://www.healthinsurance.org/obamacare/no-family-left-behind-by-obamacare/

Anon
Anon
2 months ago

Does a person qualify for full tax credits on the ACA if their employeer offers health insurance but contributes no money towards the preiums?

Louise Norris
Editor
1 month ago
Reply to  Anon

It depends on the actual cost of the health coverage relative to the employee’s household income.
Employer-sponsored coverage is considered affordable (and thus disqualifies a person from receiving premium subsidies in the marketplace) if the employee’s cost for employee-only coverage is no more than 9.83% of the employee’s household income in 2021. Unfortunately, the “family glitch” means that the employee’s family members are also ineligible for premium subsidies if the employee’s coverage is considered affordable (assuming the family members are eligible for coverage under the employer’s plan, even if the employer does not pay anything towards the cost of their coverage. Here’s more about that: https://www.healthinsurance.org/obamacare/no-family-left-behind-by-obamacare/

Sharon P
Sharon P
1 month ago

Does employer heath insurance have to offer surgical in all their plans. I found out today that even a byopsy is surgical and stitches and an endoscopy. Is surgical considered essential? TIA

Louise Norris
Editor
1 month ago
Reply to  Sharon P

If it’s a large group plan (in most states, that means more than 50 employees), it’s not required to cover essential health benefits other than preventive care. Instead, large group plans are just required to provide minimum value (in order to avoid an employer mandate penalty), which is defined as covering at least 60% of average costs and providing “substantial” coverage for inpatient and physician services: https://www.healthinsurance.org/special-enrollment-guide/an-sep-if-your-employer-plan-doesnt-measure-up/#MV

out of state employer
out of state employer
20 days ago

OK so if an employer I contract with offers health insurance but they are in a different state than me and there are no in network providers? The employer is 1500 miles away all network doctors are in that state so I effectively cannot use the insurance where I live. Based in my income level I would qualify for substancial subsidies on the exchange but the existence of health insurance, although expensive and worthless, through my employer has me concerned I would have to pay this back at the end of the year.

Louise Norris
Editor
20 days ago

If you’re a contractor (as opposed to an employee), are you certain that an offer of coverage has been made to you? It’s unusual for employers to offer coverage to contractors, and also unusual for an employer to offer localized coverage to an out-of-state employee.
But assuming that is the case, you could reach out to the marketplace in your state to see if they’ll approve a subsidy for you. This is the employer coverage tool that’s used by HealthCare.gov: https://www.healthcare.gov/downloads/employer-coverage-tool.pdf Technically, the only requirement for adequate employer-sponsored coverage is that it’s affordable and provides minimum value (cover at least 60% of average costs and provide “substantial” coverage for inpatient and physician services). There’s not a specified network adequacy component to minimum value, but I wonder if you might be able to appeal that on the grounds that the plan would not provide “substantial” coverage for inpatient and physician services in your area, nor would it cover at least 60% of average costs for someone in your area.

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