- The subsidies are tax credits – but you don’t have to wait until tax season.
- The subsidy amounts fluctuate from one year to the next, due to changes in the cost of the benchmark plan in each area.
- Average subsidy-eligible enrollees get most of their premiums covered.
- Premium subsidies don’t apply to supplemental coverage.
- Cost-sharing reductions are a different type of ACA subsidy.
If you’re worried about the cost of health insurance premiums in the exchanges, it might help to know that – thanks to the law’s generous subsidies — your premiums could end up a lot lower than you expect.
Yet about two-thirds of uninsured Americans haven’t checked recently to see if they’re eligible for financial assistance with their health insurance costs. A few more quick facts about Obamacare subsidies:
- The subsidies are tax credits, which means you can opt to pay full price for your coverage (purchased through the exchange in your state) each month, and then get your tax credit when you file your tax return. But unlike other tax credits, the subsidies can be taken throughout the year, paid directly to your health insurer to offset the cost of your coverage.
- Premium subsidies are generally available if your projected household income (an ACA-specific calculation) doesn’t exceed 400% of the prior year’s poverty level (so for 2021 coverage, the 2020 poverty level numbers are used). For a single individual buying coverage for 2021, that amounts to an income of up to $51,040. And for a family of four, it’s $104,800.
- On the lower end, subsidies are available in most states if your income is at least 139 percent of the poverty level, with Medicaid available below that. But in the states that haven’t yet expanded Medicaid, premium subsidies are available if your income is at least equal to the poverty level. Unfortunately, Medicaid isn’t available below that level in those states, unless the applicant is eligible based on strict pre-ACA eligibility guidelines (ie, the states that have rejected Medicaid expansion have created a coverage gap).
- Premium subsidies aren’t available to people who are impacted by the family glitch.
- Premium subsidy amounts fluctuate from one year to another, based on changes in the cost of the benchmark plan in each area. Premium subsidies continue to be much higher in most of the country than they were in 2017, due to the way the cost of cost-sharing reductions (CSR) has been added to silver plan premiums in most states. But for 2019, 2020, and again for 2021, premiums have decreased in some areas and new insurers have entered some markets with lower prices, resulting in smaller benchmark premiums. When benchmark premiums decrease, either due to the introduction of new plans or a reduction in prices for existing plans, premium subsidy amounts will decline. But if the benchmark premium increases, premium subsidies will also increase. So the changes in premium subsidy amounts for 2021 will vary from one place to another, depending on how premiums and insurer participation change in that area. The takeaway point is that every enrollee needs to carefully shop during open enrollment to see if a different plan might present a better value for 2021 after accounting for any adjustments in subsidy amounts.
- The subsidies cover the majority of the premiums for people who are subsidy-eligible. 86 percent of the people who were enrolled in exchange plans nationwide as of early 2020 were receiving premium subsidies. And the subsidies covered an average of 85 percent of their premium costs. The average subsidy amount in 2020 is $492/month, which covers the large majority of the average $576/month premium (note that both of these amounts are lower than they were in 2019).
- Premium subsidies don’t apply to supplemental coverage, including accident supplements, adult dental/visions plans (or pediatric dental/vision plans that are sold separately from metal coverage, as opposed to being embedded in the medical plan), critical illness plans, or stand-alone prescription drug insurance (but there are free prescription drug discount plans available). Subsidies also cannot be used to purchase short-term health insurance.
- Subsidies can lower your premium significantly, but the ACA also provides subsidies that can reduce your out-of-pocket costs when you need to use your coverage. And even though the Trump administration stopped reimbursing insurers for the cost of those cost-sharing subsidies, the benefits are still available to eligible enrollees (50 percent of the people with coverage through the exchanges nationwide are receiving cost-sharing subsidies in 2020). The workaround that states and insurers developed to account for the lack of federal funding is what drove the larger premium subsidies in 2018 and 2019. And in many areas, these disproportionately large subsidies are still available for 2021.
It pays to calculate your subsidy!