Q. My income is about $50,000 and I have one child. We get health insurance through my job, but the coverage isn’t very good. Can I enroll in an exchange plan instead, and get a subsidy to help pay for it?
A. Just about anyone can enroll in an exchange plan. But eligibility for a subsidy depends on how much your group plan costs and the quality of the coverage. Based on income alone, you’d be eligible for a subsidy. (The upper income limit for subsidies for a household of two is about $68,960 for 2021 coverage.) But regardless of your income, you’re not eligible for a subsidy if you have access to an employer-sponsored plan that is “affordable” and meets “minimum value” requirements.
“Affordable” means that the premium you pay for just your portion of the family’s coverage has to be less than 9.83 percent of your household income in 2021 (this percentage is indexed annually). This can be a significant issue for employees who pay a lot to add dependents to their plan.
Even if the total amount you pay for coverage for yourself and your child is more than 9.83 percent of your income in 2021, if your own portion of the premium is less than 9.83 percent of your income, your coverage is considered “affordable.” If your portion is more than 9.83 percent of your income, you’d be eligible for a subsidy in the exchange.
[Note that “your portion” refers to the amount that’s payroll deducted from your wages; it does not count the portion of your premium that your employer pays on your behalf. Most employers pay a substantial chunk of their employees’ premiums, but the amount that they pay towards coverage for spouses and dependents varies considerably from one employer to another.]
Minimum value test
“Minimum value” means that the plan pays for at least 60 percent of covered services, and provides “substantial coverage” for inpatient and physician services. All new (since 2014) plans in the small-group market have to meet this threshold, since compliance with metal levels and essential health benefits would automatically make a plan compliant with the minimum value requirements. But in the large-group market there aren’t as many restrictions. If your group plan doesn’t meet minimum-value requirements, you’d be able to apply for a plan in the exchange and qualify for a subsidy.
But most employer-sponsored plans do conform to the minimum-value rules. Large employers have to pay penalties if they offer plans that don’t meet the minimum value requirements and have employees who opt for a subsidized exchange plan instead. So there’s an incentive for employers to make sure that their plans do meet minimum value rules.
Subsidy eligibility also depends on the cost of the benchmark plan relative to your income
If your plan changes mid-year such that it either becomes unaffordable or stops providing minimum value, you’ll have access to a special enrollment period during which you can enroll in a plan through the exchange, potentially with a subsidy assuming you’re still eligible based on income.
But even if your employer’s plan isn’t adequate, eligibility for premium subsidies also depends on how much you’d have to pay for the benchmark plan without a subsidy. If that amount is already considered affordable, you wouldn’t qualify for a subsidy. This is fairly rare, but it does sometimes happen if the applicant is fairly young and living in an area where health insurance is fairly inexpensive.
CHIP is often an option for middle-class children
A quick word about CHIP (the Children’s Health Insurance Program) and Medicaid: Income limits for kids to qualify for coverage under Medicaid or CHIP are different in each state, but they can be quite a bit higher than the income limits for adults to qualify for Medicaid. A household of two with an income of $50,000 is at about 287 percent of the poverty level in 2021, which would make the child eligible for CHIP in 12 states and the District of Columbia. If adding your kids to your employer’s plan feels unaffordable for your family, be sure to check with your state to see if your kids might be eligible for Medicaid or CHIP instead.
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.