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Obamacare’s ‘subsidy cliff’ eliminated through 2025

The subsidy cliff has been temporarily eliminated (through 2025), saving some enrollees thousands of dollars per year

The American Rescue Plan and Inflation Reduction Act have temporarily eliminated the ACA's subsidy cliff.

For the first several years after the health insurance marketplaces/exchanges debuted for 2014 coverage, the premium subsidy (premium tax credit) eligibility range was capped at household incomes of 400% of the federal poverty level (FPL). People with incomes above 400% of FPL were on their own when it came to paying for health insurance.

But that ended as of 2021, thanks to the American Rescue Plan’s provision that eliminates the “subsidy cliff.” And although that provision was schedule to expire at the end of 2022, the Inflation Reduction Act (IRA) extends it through 2025. So the subsidy cliff has been eliminated for the time being. (Congress would have to act again in order to prevent the subsidy cliff from returning in 2026.)

Obamacare subsidy calculator *

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For most taxpayers, your MAGI is close to AGI (Line 11 of your Form 1040 in 2021 and 2022).

* This tool provides ACA premium subsidy estimates based on your household income. healthinsurance.org does not collect or store any personal information from individuals using our subsidy calculator.

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The initial assumption, when the ACA was being drafted in the late aughts, was that when incomes are above 400% of the poverty level, health insurance would be affordable (as a percentage of household income) without the need for a subsidy. But that did not prove to be the case in many areas of the country, particularly for older enrollees. Fortunately, this problem has been remedied, at least for the next few years.

American Rescue Plan: No subsidy cliff in 2021 or 2022

Section 9661 of the American Rescue Plan (ARP) simply caps marketplace health insurance premiums (for the benchmark plan) at no more than 8.5% of household income. This applies to people with household incomes of 400% of the poverty level or higher; for people with lower incomes, the normal percentage of income that has to be paid for the benchmark premium has been reduced across the board. This provision was initially applicable for 2021 and 2022, but the Inflation Reduction Act has extended it through 2025.

If your household income is more than 400% of the poverty level and the benchmark plan’s premium would already be no more than 8.5% of your income, you won’t qualify for a premium subsidy (ie, the ARP/IRA won’t change anything about your situation). This is more likely to be the case for younger enrollees in areas of the country where health insurance is less costly than average.

But if the full-price cost of the benchmark plan would be more than 8.5% of your income, you’re eligible for a premium subsidy (assuming you’re otherwise eligible, meaning that you’re lawfully present in the U.S. and not eligible for Medicaid, premium-free Medicare Part A, or employer-sponsored coverage that’s considered affordable and provides minimum value). So for some people, especially older enrollees in areas of the country where health insurance is particularly costly, subsidy eligibility now extends well above 400% of the poverty level. That will continue to be the case through 2025.

The subsidy cliff: What it is, who was affected, and how the ARP has improved affordability

Before the American Rescue Plan (ARP) was enacted, subsidies were available in the continental United States for a single person with an income of up to $51,040. For a household of two, the income limit was $68,960, and for a household of four, it was $104,800 (Alaska and Hawaii had higher limits, as the poverty level is higher there).

(Note that these numbers were for 2021 coverage, and were based on the 2020 poverty level; the prior year’s numbers are used to determine subsidy amounts because open enrollment takes place before the coming year’s poverty level numbers are published. Also, note that household income means an ACA-specific calculation of modified adjusted gross income.)

An example: Prior to the American Rescue Plan (older enrollees, expensive area)

Consider a couple, ages 60 and 63, living in Charleston, West Virginia. We’ll consider their pre-ARP coverage options if they earn $68,900, versus an income of $69,000, and then we’ll take a look at how the ARP dramatically changed the picture.

For 2021 coverage for this couple, there were 17 plan options available through the health insurance exchange (HealthCare.gov is the exchange in West Virginia). Prior to the American Rescue Plan, if their projected household income for 2021 was $68,900, the subsidies were structured so that they kept this couple’s premiums for the benchmark plan to no more than 9.83% of their income in 2021. That’s $6,773 for the year, or $564/month. The full-price cost of the benchmark plan in their area was a whopping $3,273 for this couple, so their premium subsidy would have been $2,709/month — a grand total of more than $32,500 in subsidies over the course of the year. And the lowest-cost plan available to them would have been just $297/month in after-subsidy premiums. (In a moment, we’ll take a look at how much lower their premiums are under the ARP, even at this income level that already made them eligible for subsidies under the normal rules.)

But if their 2021 income had been $69,000 — just $100 higher — they would not have qualified for a premium subsidy at all pre-ARP. In that case, the cheapest health plan they could get was $3,006 per month in premiums in 2021, amounting to more than $36,000 for the year. That’s more than half of their annual income, for the lowest-priced plan available to them (it has a deductible of $7,700 per person, and a family out-of-pocket maximum of $17,100). The other 16 available plans have premiums that ranged upward from there, reaching as high as $4,438/month.

So for this couple, an income increase of just $100 would have resulted in the loss of more than $32,000 in premium tax credits, and almost certainly made health insurance unaffordable — very few people can afford to spend more than half their income on health insurance premiums.

This potentially huge jump in premiums when a household’s income went above 400% of the poverty level is referred to as the subsidy cliff. It’s described as a cliff because it was a sharp and sudden spike. For people with income that doesn’t exceed 400% of the poverty level, the subsidies are designed in a way that results in gradual increases in after-subsidy premiums as income increases. But before the ARP was enacted, if income exceeded 400% of the poverty level, the subsidies ended abruptly. And if the subsidies were particularly large (as is the case for the West Virginia couple in this example), the results were particularly harsh.

The American Rescue Plan’s impact (extended through 2025 by the Inflation Reduction Act)

Now let’s take a look at how the American Rescue Plan changes things for this couple. If they earned $68,900 in 2021, that’s a little over 399% of the poverty level. We’ll round to 400%, which means they had to pay 8.5% of their income for benchmark premium — as opposed to 9.83% under the pre-ARP rules (note that if they had a lower household income, the ARP’s sliding scale would have them pay as little as 0% of their income for the benchmark plan; it ranges from 0% to 8.5%, depending on income).

So they would only have to pay $5,857 in annual premiums for the benchmark plan, or $488 per month (as opposed to having to pay $564/month for the benchmark plan under pre-ARP rules). That would increase their premium subsidy by $76 per month, and the subsidy can be applied to any metal-level plan available in their area. So the cheapest plan’s premium dropped to $221/month, instead of $297/month under the previous rules.

This is obviously beneficial, but the ARP has a much more significant impact if this couple was otherwise hit by the subsidy cliff. If their income was $69,000 in 2021, they were not subsidy-eligible at all pre-ARP. But under the ARP, they only have to pay 8.5% of their income for the benchmark plan. That amounted to $5,866 in annual premiums in 2021, or $489 per month. So with the ARP in place, that made them eligible for a premium subsidy of $2,784/month (as opposed to $0/month under the pre-ARP rules), and the cheapest available plan would have cost them just $222/month.

As you can see, under the ARP, this couple’s 2021 premium subsidy only dropped by $1/month when their annual income increased by $100. This is a much more reasonable approach, and it results in a smooth curve where subsidies eventually disappear, but not suddenly and not leaving people with health insurance premiums that amount to a substantial portion of their income.

Because this couple is older and in an area where health insurance is much more expensive than average, they would have had to earn an income of $462,000 in 2021 in order to become ineligible for subsidies under the ARP. That’s because the benchmark plan in their area has a full-price premium of $39,276, and you need a very high income for that to be no more than 8.5% of it.

For 2022, assuming their income continued to be $69,000, they qualify for a subsidy of $3,101 per month. (We’ve kept their ages at 60 and 63 to help make the apples-to-apples comparison easier; in reality, their increasing age would result in larger premiums and correspondingly larger subsidies. The larger subsidy for 2022 is due to overall rate increases and the fact that West Virginia’s insurers are adding the cost of cost-sharing reductions only to Silver plans for 2022.)

Subsidy cliff less burdensome for younger enrollees, but ARP still beneficial

If the couple in Charleston were younger – say 30 and 33 – but had the same $68,900 household income in 2021, they would have qualified for a premium tax credit of $784/month prior to the American Rescue Plan. This would have brought down the prices on the available plans to a range of $454/month to $1,043/month. If their income was just $100 higher, at $69,000, they didn’t qualify for a premium tax credit. In that case, the premiums for the available plans would have ranged from $1,238/month to $1,827/month.

Although the subsidy cliff wasn’t as harsh for younger enrollees — since their full-price premiums are lower — this couple would have still missed out on $9,408 in annual premium subsidies just because their income increased by $100. Both couples faced a “subsidy cliff” but it was a much more substantial cliff for the older couple.

Under the ARP, the younger couple also saw a reduction in their premiums regardless of which income level they have, but it was much more pronounced if their income was just over 400% of the poverty level. At an income of $68,900 in 2021 (which put them at more than 399% of the poverty level, so we’ll round up and say they have to pay 8.5% of their income for the benchmark plan), they had to pay the same $488 in monthly premiums for the benchmark plan as the older couple, and their subsidy would increase to $860/month — an increase of $76/month (the same as the older couple, since they have the same income).

And at an income of $69,000, the younger couple would have to spend $489/month for the benchmark plan, reducing their subsidy by just one dollar per month, to $859/month. Just like the older couple, the younger couple would see a gradual decrease in subsidy amounts as their income increased.

But subsidies for the younger couple under the ARP would cease by the time their income reached a little more than $190,000 (as opposed to more than $462,000 for the older couple), because the full-price cost of the benchmark plan for the younger couple is $16,176… still substantial, but the 8.5% of income threshold would be reached at a much lower income level than it would be for the older couple with a benchmark plan price of more than $39,000.

For 2022, the larger subsidies in West Virginia (due to the ARP’s subsidy structure in addition to the state’s approach to premiums for 2022) benefit the younger couple as well. With an income of $69,000 (and ages still 30 and 33), their subsidy would have increased to $993/month in 2022, resulting in plans priced as low at $233/month (as opposed to the lowest-cost plan being $1,238 with that income before the American Rescue Plan eliminated the subsidy cliff).

Location, location, location

We used West Virginia as the example here because individual/family health insurance premiums in West Virginia are much higher than the national average. As you can see in this comparison sheet, people in some areas with income a little above 400% of the poverty level saw little or no difference in their premiums under the ARP, because the benchmark plan was already priced at a level that was considered affordable under the new rules (ie, no more than 8.5% of household income).

If the couples in our example above were living in Bismark, North Dakota, they would have still faced a subsidy cliff at an income of $69,000 in 2021 prior to the ARP, but it would have been much less harsh: The older couple would have missed out on about $16,000 in premium subsidies over the course of the year, and the younger couple would have missed out on about $2,600 in premium subsidies (in both cases, that’s in comparison with the situation they’d be in if their income were just slightly lower, at $68,900; in both cases, they now qualify for lower-cost coverage under the ARP).

West Virginia is a good example of a place where the subsidy cliff is particularly harsh, because full-price premiums there are so much higher than average. But as we can see from the North Dakota example — where premiums are much lower than average — the subsidy cliff has been a problem nationwide, particularly for older enrollees.

ARP fix has been a welcome relief, and lawmakers prioritized extending it

The subsidy cliff is part of the ACA, but the ARP eliminated it for 2021 and 2022. The ARP also eliminated excess subsidy repayments for the 2020 plan year, meaning that people whose 2020 income ended up being over 400% of the poverty level — and who were facing the prospect of having to pay back the entire subsidy to the IRS — did not have to repay any subsidies that were paid on their behalf in 2020 (based on an initially projected income that was subsidy-eligible).

But additional legislation had to be enacted to prevent the subsidy cliff from coming back in 2023. That proved to be a challenging process, beginning with the Build Back Better Act — which passed the House in late 2021 but stalled in the Senate. But the Inflation Reduction Act, which was signed into law in August 2022, extends the ARP’s subsidy enhancements through 2025. This means the subsidy cliff will not return until 2026, and the subsidies will continue to be larger than they were prior to the ARP.


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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Edward
Edward
1 year ago

This article came up first when I Googled “Obamacare cliff” so I hope others will find it and will read up on what I discovered…

Users of HRBlock’s self-directed tax software, BEWARE: the program does NOT adequately understand or deal with the implications of the ObamaCare “cliff”. 

The problem for me was that they did not catch the fact that my numbers were straddling the cliff or that one of the choices it offered to me (on a completely unrelated topic) could make a $10000 difference for me.  In fact, it chose the WRONG option by default and never mentioned the possibility that a different option would be better for me.  Making matters worse, once it chose the default option during its “interview process”, it was very difficult to find the screen to reset to a different choice.

What was the particular option, you ask? I am paying for my kid’s college tuition and have the choice of taking one of 2 tax credits, or a third choice, a tax deduction. HRBlock defaults to the tax credit but, in may case, (and if you are close to the “Cliff”), the deduction could be much better for you.

Clearly, an oversight on their part, so beware. They (and probably other tax packages) probably don’t really worry about the Cliff, as so few people can be effected by it and it’s not worth their time to build it into their software,

(Another trick that HRBlock missed that would have help get me below the line: Traditional IRA contributions.)

Louise Norris
Editor
1 year ago
Reply to  Edward

Glad you were able to get it sorted out in the end. We have an article all about how things like Traditional IRA contributions and HSA contributions (or any other “above the line” deduction) can help to get a person into the subsidy-eligible income range if they’d otherwise be a little above it: https://www.healthinsurance.org/faqs/with-my-income-im-barely-over-the-eligibility-limit-for-a-premium-subsidy-is-there-anything-i-can-do-to-lower-my-income-so-i-become-eligible/

Bill
Bill
1 year ago

Will the 2021 and 2022 APTC repayment limits (currently at $2700 for married filing jointly) apply only to those under 400% FPL (as it works today) OR will the the repayment limits apply regardless of your MAGI, even if over 400% FPL?

Louise Norris
Editor
1 year ago
Reply to  Bill

The American Rescue Plan does not specifically address that issue. I would expect the IRS to address it in the regulations they’re working on related to the ARP: https://www.irs.gov/newsroom/irs-statement-american-rescue-plan-act-of-2021

JE Matthews
JE Matthews
1 year ago

I signed up for marketplace coverage on 3/19. I panicked about having to claim the subsidy as additional income at the end of the year and canceled the coverage on 3/20. The effective date was to be 4/1/21. Will I still have to claim the subsidy and pay taxes on it for the whole year even though the coverage literally never started. When I canceled it said the effective date would be 5/1.

Louise Norris
Editor
1 year ago
Reply to  JE Matthews

If your coverage was never in force, there won’t be any subsidy reconciliation at the end of the year. However, premium subsidies are not added to your taxable income, if that’s your concern?

If you do qualify for a subsidy (premium tax credit) and choose to have it paid to your insurer each month (instead of waiting to claim the whole amount on your tax return), you do have to square up with the IRS at the end of the year (this is what most people do — very few people pay full price and wait to claim the whole amount on their tax return). Here’s how that works: https://www.healthinsurance.org/faqs/what-happens-if-my-income-changes-and-my-premium-subsidy-is-too-big-will-i-have-to-repay-it/

Basically, once the years is over, you and the IRS know exactly how much you earned, as opposed to just looking at an estimated projection. So they can tell if the subsidy you received was too big, too small, or just right. If it was too big, you have to repay some or all of it. If it was too small, they’ll give you the additional amount when you file your taxes. And if it was just right, nothing changes. (For 2020 only, the IRS is not making people repay any excess premium subsidies).

If you think you’re eligible for a subsidy, especially under the enhanced subsidy structure created by the American Rescue Plan, it’s a good idea to enroll before the current COVID-related enrollment window closes (May 15 in most states). Here’s more about the extra subsidies that are available for this year and next year: https://www.healthinsurance.org/blog/2021/03/05/how-the-american-rescue-plan-act-would-boost-marketplace-premium-subsidies/

Mary Beth Hebert
1 year ago

This is a great article and very helpful, but I’m trying to find a way to accomplish this: “And you’ll also have the option to return to the marketplace later in the year and activate your subsidies to be paid to your insurer in real-time, . . .” Any progress on this front, yet? I’ve checked at healthcare.gov and it doesn’t even have the FAQ left if you have an account. Thank you!

Louise Norris
Editor
1 year ago

HealthCare.gov will debut the new subsidy eligibility rules on April 1. They’ve explained the process here, in terms of what enrollees need to do to start claiming the new subsidy amounts: https://www.cms.gov/newsroom/fact-sheets/extended-access-opportunity-enroll-more-affordable-coverage-through-healthcaregov

David DeRosa
David DeRosa
1 year ago

So, one good thing did come out of the American Rescue Plan… But to be clear, when it say it’s lifted for 2021 and 2021 does that mean IN 2021 for tax year 2020??

Louise Norris
Editor
1 year ago
Reply to  David DeRosa

For the 2020 tax/plan year (taxes filed in 2021), people do not have to repay any excess advance premium tax credits, regardless of the reason they would otherwise have had to do so: https://www.healthinsurance.org/blog/how-the-covid-relief-law-will-rescue-marketplace-plan-buyers/

The subsidy cliff has been eliminated for the 2021 and 2022 plan/tax years. Those subsidies will be reconciled on tax returns that are filed in 2022 and 2023.

Greg
Greg
1 year ago

Great article! I have a unique situation this year 2021. My normal income is just below the 400% poverty level so I’ve been receiving a subsidy. However, recently I had a very very large capital gain payout that was unexpected (a company takeover). I assume I’ll have to payback the subsidies, but anything else, like a penalty? What income will the subsidy be based on? Thanks.

Louise Norris
Editor
1 year ago
Reply to  Greg

Congratulations on the windfall! You’re correct that you’ll likely have to pay back any subsidy that was paid on your behalf this year. Although there’s no income cap for subsidy eligibility in 2021, a subsidy is not available if the unsubsidized cost of the benchmark plan would be no more than 8.5% of your household income. It sounds like that will probably be the case for you, which means you’ll need to repay the subsidy when you file your 2021 taxes.

But there’s no additional penalty.

For reference, here’s how ACA-specific MAGI is calculated: https://www.healthinsurance.org/glossary/modified-adjusted-gross-income-magi/ Although your advance premium tax credit is based on your projected MAGI for the year, your actual tax credit (calculated on your tax return) is based on your actual MAGI, after the year is over. Then the difference is reconciled, if necessary.

Mark Broeckelman
Mark Broeckelman
1 year ago

I have just discovered (through this article and other research) that the ARP likely would impact me. But I purchased my current insurance in December 2020 directly from Kaiser Permanente for 2021, not the federal or state marketplace. I did so because at that time I did not qualify for any subsidy. Now it appears I do (or did) qualify with the ARP changes. Is there any way that I now can qualify for the premium tax credit for 2021, or did I miss a sign up window? If so, what do I need to do?

Louise Norris
Editor
1 year ago

Unfortunately, there is no way to go back and claim the premium tax credit for a month when you had non-marketplace coverage. If you currently have a qualifying life event, you could switch to the marketplace version of your plan for December. And there are a few states where a COVID-related special enrollment period is still underway (CA and DC are the only ones with Kaiser, however). If you happen to be in one of those states, you may be able to switch to the marketplace version of your plan for December, and claim the premium tax credit for one month in 2021.

But even if that’s not possible, be sure to switch to the marketplace for 2022 coverage. That enrollment window is currently underway, and there continues to be no income cap for premium tax credit eligibility in 2022. Here’s my guide to open enrollment: https://www.healthinsurance.org/open-enrollment/

T Smith
T Smith
1 year ago

Is the APTC repayment limit for 2021 tax year the same for 2022 plan year? $2,700 for a couple under 400% FPL?

Louise Norris
Editor
1 year ago
Reply to  T Smith

We won’t know that until sometime in late 2022. The IRS just put out the draft version of the 2021 Form 8962 last week: https://www.irs.gov/pub/irs-dft/i8962–dft.pdf It still has the same $2,700 cap for a couple with income under 400% FPL. But those forms are yet final for the 2021 tax year.

Mark Malaspina
Mark Malaspina
11 months ago

Thank you for a thorough and understandable explanation of a complicated subject. Currently I have a non-marketplace private policy with Anthem that includes my wife and me. She has no available coverage through her employer. My question: If my wife gets her own 2022 marketplace policy, does the affordability of my workplace policy for me individually apply to her ability to claim a subsidy? We currently file our 1040 jointly. Depending upon 2022 income, it’s likely that individual coverage premium for me through work would be “affordable” but joint coverage through work that includes my spouse would not be affordable.

Mark Malaspina
Mark Malaspina
11 months ago

Following up on my question, it appears I’m in the “family glitch” situation. The benchmark for affordability is an individual work-based policy, even if a spouse (or child) has no other available coverage.

Louise Norris
Editor
11 months ago
Reply to  Mark Malaspina

Unfortunately, that’s correct. Here’s more about the family glitch: https://www.healthinsurance.org/obamacare/no-family-left-behind-by-obamacare/ Although the American Rescue Plan made coverage more affordable, it did not address the family glitch. The Build Back Better Act would lower the affordability threshold for employer-sponsored coverage to 8.5% of household income, but it would not fix the family glitch. So the affordability determination would still just be based on the employee’s coverage, yet it would continue to affect subsidy eligibility for any family members who are eligible to enroll in the employer’s plan.

Walt
Walt
11 months ago

For 2021, my wife was on Covered CA, for 6 months, after which she went on Medicare(I was already on Medicare in 2021).The Family Size should refer to the two of us, correct(although only one is enrolled in ACA)? For some reason the, confirmation letter back in April. seems to show a calculation based on 1 person, if you look at the income used and the plan placement. Second, if one is only on the plan for half a year, do they just prorate for 50% of the annual MAGI when it’s calculated on your tax return?
Thank you.

Louise Norris
Editor
11 months ago
Reply to  Walt

This will all get sorted out when you file your 2021 tax return, and we recommend that you consult with a tax advisor to be certain you’ve got it correct. But in terms of what you should expect:

The IRS will use a household of two, which means the poverty level they’ll be using (to determine what percentage of the poverty level you earned) will be $17,240 (that’s for a household of 2 in 2020; the 2020 numbers are used for 2021 subsidies).

They’ll compare the cost of just your wife’s coverage with your total household income to determine her subsidy amount. They’ll still use the total annual income even though she only had coverage for half the year. In terms of the calculation, you’ll determine the total annual subsidy and then take 1/12 of that to see what the monthly subsidy amount is. Then she’s eligible for that monthly amount for the months she had coverage.

This is the form that’s used to reconcile the premium tax credit on your tax return: https://www.irs.gov/pub/irs-pdf/f8962.pdf

Sa C
Sa C
10 months ago

I am at the other end of the ACA eligibility window – is there any help for me? I’m a professional living in a state that did not expand Medicaid. I left my job voluntarily in August 2020 over COVID safety concerns (so I was ineligible for unemployment), and didn’t find substantial work again until June 2021. I slowly cobbled together 3 part-time jobs, none with insurance. I knew it would be tough, so in open enrollment for 2021, I had guesstimated my 2021 income would be $13,000 [just above FPL = $12,880 for a single person], and then accepted subsidies of $600/month on an ACA Silver plan, paying what I could above that amount. The terribe news is … I didn’t make enough in 2021. My AGI is less than $12,880, and I am afraid I have no recourse, but will have to somehow pay back $7200 out of that. Please tell me that I am wrong! That the help isn’t just for the higher earners, but for those of us really down in a hole.

Louise Norris
Editor
9 months ago
Reply to  Sa C

You should be fine. The short story is that as long as you provided a good faith income projection that was as accurate as possible when you enrolled, you do not have to repay subsidies if your income ends up below the poverty level. This article explains more details: https://www.healthinsurance.org/faqs/if-my-income-is-less-than-expected-this-year-i-might-be-eligible-for-medicaid-what-can-i-do-during-open-enrollment-to-cover-my-bases/

Craig Cheek
Craig Cheek
9 months ago

It appears to me that you only covered half of the subject. What happens to those taxpayers who are in the 200% of the poverty level range? At the same time the ARP was helping “cliff dwellers” it was screwing those barely above the poverty level by replacing the IRS’ Applicable Figure Table with one of their own. Isn’t this going to be a huge tax increase for those on Obamacare who are between 150% and 400%?

Louise Norris
Editor
9 months ago
Reply to  Craig Cheek

No, it’s actually the opposite of that. The ARP’s applicable percentages are all lower than the percentages that were being used pre-ARP: https://www.healthinsurance.org/faqs/is-the-irs-saying-ill-have-to-pay-more-for-my-health-insurance-next-year/ The ARP not only made subsidies available for people above 400% of the poverty level, it also increased the size of subsidies for people with income below 400% of the poverty level. Subsidies got larger for those individuals as of 2021, and continue to be larger this year, thanks to the new applicable percentages that the ARP implemented. Here’s more about this: https://www.healthinsurance.org/blog/how-the-american-rescue-plan-act-would-boost-marketplace-premium-subsidies/ (whether this will be extended into 2023 and beyond is still up to Congress).

Earl Alderson
Earl Alderson
9 months ago

Now that it looks like the Build Back Better plan will not happen. Do you think the ACA cliff will return for 2023?

Louise Norris
Editor
9 months ago
Reply to  Earl Alderson

We just don’t know at this point. Eliminating the ACA’s subsidy cliff does have some level of bipartisan support, and it was one of the provisions that Sen. Manchin agreed to in his own pared-down version of the BBB. My guess is that Congress will figure out a way to continue the enhanced premium subsidies past the end of 2022, but it is still very much up in the air.

Melissa
Melissa
8 months ago

Any word on whether the IRS will cap APTC repayments for those with incomes at 400% FPL and above in 2021? 

As self-employed folks, our MAGI fluctuates $15K to 30K each year. It’s hard to estimate our income, but we took less than full subsidy each month in 2021 and are deducting the SEP max, off-market health insurance premiums for our grad school child, and 1/2 SE tax. So we might be under 400% of FPL. Waiting on final draft return.

This year we’re trying to file our 2021 taxes by April deadline because of ID theft/fraudulent return last year after filing via October extension. How will our APTC repayment amount be treated if the IRS doesn’t issue an update on repayment caps/income levels until late 2022 (per your earlier comments)? If we are over 400% FPL, then will we owe the full subsidy amount taken? Or just the excess if we are still within close range/only slightly over the correct (adjusted) subsidy amount based on final MAGI?

Louise Norris
Editor
8 months ago
Reply to  Melissa

Hi Melissa,

My earlier comment was referring to the possibility of an extension of the American Rescue Plan subsidy enhancements that eliminated the “subsidy cliff” that normally exists at 400% of the poverty level. I’m optimistic that will happen, which would mean that people with income above 400% of the poverty level could continue to receive subsidies if the benchmark plan would otherwise be more than 8.5% of their household income (but of course, we don’t know how this will work out until Congress takes action on it).

But capping excess subsidy repayments is a different issue altogether. The American Rescue Plan eliminated all excess subsidy repayments for 2020 only. But it did not change anything about excess subsidy repayments for 2021 or future years. There was some uncertainty throughout 2021 in terms of whether the IRS might adjust their rules for excess subsidy repayments given the fact that subsidies were newly available to people with income above 400% of the poverty level. But they finalized the 2021 instructions for Form 8962 in late 2021, and they did not include a cap on excess subsidy repayments for households with income above 400% FPL: https://www.irs.gov/pub/irs-pdf/i8962.pdf (see Table 5 on page 16).

So if your income for 2021 was over 400% of the poverty level AND you received a larger premium subsidy than you were actually supposed to get, you’d have to repay all of the EXCESS subsidy. That’s also how it works for 2022. But that doesn’t mean you’d have to pay back the full subsidy amount. For 2021 and 2022 (and possibly future years), subsidies are available above 400% of the poverty level. But if the subsidy that’s paid on your behalf throughout the year ends up being more than it’s supposed to be and your income is over 400% of the poverty level (based on your actual income at the end of the year), you have to repay all of the excess (as opposed to households with income below 400% of the poverty level, who may or may not have to repay all of the excess, depending on whether the excess is more or less than the repayment caps).

Melissa
Melissa
8 months ago
Reply to  Louise Norris

Thanks for clarifying. Very helpful!

Greg
Greg
7 months ago
Reply to  Louise Norris

Quick question with ref to the above question and answer. So if you are over the 400% of poverty level in 2021 with a family of 2. Would you pay all subsidies back or pay a total of 8.5% of your adjusted gross income for the year 2021? Also yes we were signed up for Obama care for the entire 2021 year from the beginning. Finally as of today-do you know when congress will vote on this or if they have at this time vote for the extension of the American Rescue Plan?

Louise Norris
Editor
7 months ago
Reply to  Greg

For 2021 and 2022, you would not have to pay back all subsidies if you end up over 400% of the poverty level (as opposed to previous years, when all subsidies would have to be paid back if you ended up over 400% FPL, since no subsidies were available at that income level).
Instead, for 2021 and 2022, you would only have to pay back EXCESS subsidies, meaning whatever is over the amount that you should have received. The amount that you should have received is calculated based on keeping the cost of the second-lowest-cost Silver plan at no more than 8.5% of your income for the year.
So for example, if you received $5,000 in subsidies but it turns out (based on your actual income) that you should only have received $4,000 in subsidies, you’d have to repay that extra $1,000. But not the entire $5,000 (as would have been the case in previous years).
There is not currently a timeframe or details for a bill to extend ARP subsidies. The Build Back Better Act would have done that, and the House passed it last fall. But it did not advance in the Senate. Here’s a recent article we published about this: https://www.healthinsurance.org/blog/what-will-happen-if-arps-insurance-subsidies-expire/

Dan
Dan
7 months ago

My wife and I were pushed over the cliff in 2019. We were both over 60 and retired. We had to get health care from the market place in 2019 because neither of us were working.

There was only one choice, Ambetter, in Missouri and our family premium was $25,000 before the credit and we paid $2500 in monthly premiums. I had high medical expenses in 2018 and 2019 and I finally got SSDI in 2021. But in 2019 I took out about $1000 more than the 400% limit to pay off medical debts.

As a result we were sattled with a $22,000 IRS tax liability on an AGI of about $45, 000. Is there any relief for us? We’re making a $350 monthly payment to the IRS for ever. Basically a car payment with no car.

I hired a tax relief firm but, because we have a few assets and our modest home is paid for, the IRS will get its money from us one way or another. The only thing that’s changed is the American Rescue Plan.

Louise Norris
Editor
7 months ago
Reply to  Dan

Dan,
I’m sorry you’re in this situation. If you’ve already worked with a tax relief firm, I can’t think of any other avenue besides making the payments until the debt is paid off. Your situation is a perfect example of why the American Rescue Plan’s subsidy enhancements were so desperately needed, and why it’s so important that Congress extend them past the end of this year.

Randy
Randy
5 months ago

Great article and discussion, thanks! Wife and I are in NC, age 59, retired 1/1/22, and signed up for Obamacare effective 1/1/22. We’d estimated annual income of $60,000 for 2022, which qualified us for premium credits of about $1,450/month or $17,400/year, and signed up for an ACA plan that utilizes all of that credit. Now, in a month or so, we may get unexpected income from capital gain of about $100,000. 1) would this qualify as a life event to allow us to change or cancel this ACA coverage in mid-year 2022; and 2a) if yes to #1, will we have to repay excess premium credits up to the date of policy change; or 2b) if no to #1, will we have to repay excess premium credits for the entire year? If our 2022 MAGI ends up at $160,000, then 8.5% of that is $13,600, and it seems to me that under 2b above we’d have to repay excess credits of $3,800 ($17,400 credits less the $13,600)?

Louise Norris
Editor
5 months ago
Reply to  Randy

Hi Randy,

1.) This would not count as a qualifying event to switch plans, because you’d still be eligible for premium tax credits even with the $160,000 income. If your income increased enough to make you ineligible for any premium tax credit, then yes, you would have a qualifying event: https://www.healthinsurance.org/special-enrollment-guide/a-change-in-subsidy-eligibility-changes-your-options/#ineligible

You do have the option to cancel your coverage at any time (unlike employer-sponsored coverage, which can generally only be cancelled during open enrollment or with a qualifying event). But that’s not recommended, as you wouldn’t be able to re-enroll until open enrollment, meaning you’d have to go without coverage for the rest of the year.

2.) I just ran a sample quote using a Wake County zip code (it varies by area, but that should be pretty close, as it was showing a premium tax credit of $1,442 with your current income, which is very similar to what you have). It indicated that if your income grows to $160,000, your total premium subsidy would drop to $664/month. That would be applicable to the entire year, not just the months after the additional income comes in.

In a nutshell, you’re currently on track to receive $17,400 in premium tax credits this year. But with an income of $160k, you’d only actually be eligible for a total of roughly $8,000. So if you continue to get the $1,450 tax credit each month for the rest of the year, you’d have to repay about $9,400 in excess premium tax credits (the repayment caps wouldn’t apply in your case, since they’re only applicable if household income doesn’t exceed 400% of the poverty level; with an income of $160k, you’d have to repay the entire excess premium tax credit).

But you can notify the marketplace of your new income and they’ll adjust your premium tax credit in real-time, so that it’s not overpaid for the rest of the year. (You should also be able to ask them to reduce it even further, to offset some of the higher premium tax credit that you received earlier in the year, and reduce the amount that you’ll have to repay on your tax return.)

To clarify one last point, it’s true that 8.5% of $160k is $13,600. But that’s the amount that you’d be expected to pay for the benchmark plan in your area, not the amount of subsidy for which you’re eligible. The subsidy amount is calculated by subtracting the amount you’re expected to pay from the actual amount of the benchmark plan in your area.

Rachel T
Rachel T
4 months ago

I’d just like to comment that for those at or near the subsidy cliff, or those whose income was higher than expected, you have until April 15 to put money into an IRA or 401k that will essentially be paying you instead of the IRS. Have your accountant figure how much you would need to put in to reduce your income and get it below 400% FPL. You will no longer be required to pay the full price for your insurance plan if you can get below that level. It will mean thousands of dollars save, in some cases, by doing so.

Louise Norris
Editor
4 months ago
Reply to  Rachel T

We have an article about this here: https://www.healthinsurance.org/faqs/with-my-income-im-barely-over-the-eligibility-limit-for-a-premium-subsidy-is-there-anything-i-can-do-to-lower-my-income-so-i-become-eligible/
There is no subsidy cliff for 2021 or 2022. But if the American Rescue Plan subsidy enhancements aren’t extended for 2023 and future years, the subsidy cliff would return in 2023 (for tax returns filed in early 2024).
You generally have to make contributions to a 401k during the tax year, so the deadline is December 31. But IRA contributions and HSA contributions (both of which will reduce your ACA-specific MAGI) can be made up until the tax filing deadline (around April 15). You can only contribute to an HSA if you had HSA-qualified health coverage (and no other coverage) during the tax year. And pre-tax IRA contributions are limited (depending on your income) if you also had a retirement plan through your work during the year. So there are some details to sort out with a tax advisor if you’re going this route. But definitely, these pre-tax savings vehicles can result in a lower ACA-specific MAGI and thus a larger premium tax credit.

Diane
Diane
3 months ago

Thank you for the article. Question: I turned 60 this year. If I won’t have income to show for 2022, how will this affect me for 2022 healthcare subsidies that I am receiving, and will I be able to qualify for HCA subsidies for 2023? Also, I’m not sure my subsidy is reflecting the additional amount due to the COVID-19 relief bill. I called the exchange, they don’t know. How can I find out?

Louise Norris
Editor
3 months ago
Reply to  Diane

If you have no income at all for the year, you are not subsidy-eligible unless you’re a recent immigrant (and thus ineligible for Medicaid due to immigration rules). To be eligible for subsidies, you must have an income of at least the poverty level, or more than 138% of the poverty level if you’re in a state that has expanded Medicaid. Here’s more about qualifying for subsidies: https://www.healthinsurance.org/obamacare/will-you-receive-an-aca-premium-subsidy/

Did you project an income for 2022 and are now realizing that you won’t have an income? If that’s the case and a subsidy is being paid on your behalf, it’s based on the projected income. You will need to reconcile your subsidy amount with the IRS when you file your tax return next spring. But if your income ends up under the poverty level, they will not make you repay your subsidy as long as you didn’t provide incorrect information to the marketplace when you enrolled (ie, your income projection had to have been in good faith, based on the best available information you had when you enrolled; you can’t just make up a number). Here’s more about this: https://www.healthinsurance.org/faqs/if-my-income-is-less-than-expected-this-year-i-might-be-eligible-for-medicaid-what-can-i-do-during-open-enrollment-to-cover-my-bases/

For 2023, if you’re not going to have any income, you will not be eligible for subsidies. But depending on where you live, you’ll likely be eligible for Medicaid instead. In all but 11 states, non-elderly adults with zero-income are eligible for Medicaid.

The extra subsidy amounts due to the American Rescue Plan are incorporated into the subsidy amount that people are receiving in 2022. That bill was enacted in the spring of 2021, so for the 2021 plan year, there was some catching-up to do, since the larger subsidies were retroactive to January 1, 2021. But for this year, the larger subsidies were baked in when people enrolled. But again, your subsidy amount is based on the income you projected for 2022, and it sounds like that may have changed since you enrolled.

Mary Van Haren
Mary Van Haren
2 months ago

This was a helpful article. I will be retiring 12/31/22 at the age of 61 and will have to go on the ‘open market’. Having had employer healthcare all my life this is a little daunting. I can get COBRA but not sure it’s the best choice considering I’m pretty healthy, COBRA is $1,500 a month and I will be spending up to half the year out of country or traveling in the USA. My income in 2023 will be at least $80,000 (depend on how much I withdraw from my investments). Still a lot to understand but looks like with ARP I can estimate paying 8.5% of my income although I’m still not sure what kind of health care coverage that buys. Mostly I just want coverage if something catastrophic happens.

Louise Norris
Editor
2 months ago
Reply to  Mary Van Haren

Mary,
Congratulations on your retirement and travel plans! Here are a few things to keep in mind as you sort out your health coverage for the next few years:

  • It’s a good idea to find a local health insurance broker who can help you compare the various options available in your area. You can use the “find local help” tool on the Marketplace to find someone who is licensed in your state and certified by the Marketplace: https://localhelp.healthcare.gov/ (that’s for states that use the federally-run Marketplace; if your state runs its own, you’ll be directed there instead)
  • If you’re going to be traveling extensively, be aware that most plans you buy on your own (through the Marketplace or directly from an insurer) are going to have pretty localized provider networks; usually in-state only. So if you travel outside your home area, you will probably only have coverage for emergencies. And for times when you’re traveling outside the U.S., you’re probably going to want to also purchase travel insurance: https://www.healthinsurance.org/glossary/travel-insurance/
  • If you buy a plan through the Marketplace, you’ll pay 8.5% of your income for the benchmark plan. That’s the second-lowest-cost Silver plan, so it will be designed to cover roughly 70% of the average costs for a standard population (a lot more if you need extensive medical care, but a lot less if you need only a little care during the year; on a per-person basis, the percentage of costs that a plan pays will vary a lot).
  • If you buy a less-expensive plan (usually Bronze), you’ll pay less than 8.5% of your income, but if you buy a more expensive plan, you’ll pay more. Sorting through these details is where a broker can be really helpful. You won’t pay for their services, as the cost of the coverage will be the same regardless of whether you buy it on your own or have assistance.
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