ACA Subsidies – Two Ways to Lower Your Insurance Costs

Sarah Sullivan
July 2nd, 2021 July 2nd, 2021 |
Read time: 8 minutes

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Quote and enroll in an ACA health plan during annual open enrollment or a special enrollment period if you qualify.

If you’ve recently shopped for Affordable Care Act (ACA)-qualifying major medical insurance you may have noticed that plans can be pricey. In fact, for ACA Marketplace benchmark coverage in 2021, the average unsubsidized U.S. monthly premium is approximately $452 for a 40-year old.[1]

The good news is there are two ways to make ACA health plans more affordable if you qualify: federal subsidies in the form of premium tax credits and/or extra savings with cost-sharing reductions.

The remainder of this article discusses how to determine your subsidy eligibility, how to obtain subsidies you qualify for, and a detailed explanation of premium tax credits and cost-sharing reductions.

To quickly determine your eligibility for ACA subsidies, use an ACA subsidy calculator.

ACA Subsidy Calculator

Qualifying for ACA Subsidies

Eligibility for both premium tax credits and cost sharing reductions is largely determined by household income as a percentage of the Federal Poverty Level (% FPL), as shown in the table below.

2021 ACA Subsidy and Medicaid Eligibility

Percent FPL Subsidy or Program Eligibility
Above 400% FPL[2] For plan year 2021, eligible for expanded income-based premium tax credits if you enroll in any metal level plan from the ACA Marketplace
100 to 400% FPL[3] Eligible for income-based premium tax credits if you enroll in any metal level plan from the ACA Marketplace
100 to 250% FPL[4] Eligible for cost-sharing reductions if you enroll in a Silver level health plan from the ACA Marketplace
Below 138% FPL[5] In a state that expanded Medicaid, you qualify for Medicaid based on income alone
Below 100% FPL[6] In a state that did not expand Medicaid, you likely won’t qualify for Marketplace savings or income-based Medicaid

Learn more about income limits to qualify for ACA subsidies and Medicaid.

Additional ACA subsidy eligibility criteria include the following:

  • You must enroll in your plan from the Federal ACA Marketplace or your state-based Exchange
  • You cannot be claimed as a dependent by another person
  • You cannot have access to affordable employer-based coverage either through your own job or a spouse’s
  • You cannot have access to health benefits through another government-sponsored program like Medicare, Medicaid or TRICARE
  • You must file your taxes jointly if married
  • You must be a U.S. citizen/legal resident or lawfully present immigrant.[7]

Use the ACA Subsidy Calculator to see if your income makes you eligible for premium or out-of-pocket savings.

ACA Subsidy Calculator

The 2021 COVID Relief Bill Expands Eligibility and Increases Premium Subsidies

Because of the 2021 COVID Relief Bill, from April 1, 2021, through December 31, 2022, more people than ever qualify for ACA premium tax credits.[8]

  • 8 million middle-income households are eligible for premium tax credits for the first time[9]
  • 3.4 million lower-income households are eligible for $0 premium Silver plans with additional cost-sharing reductions that bring their deductibles down to $177 on average[10]

Learn more about the COVID Relief Bill, including how it temporarily increases ACA subsidies up to a $0-premium plan for those between 100 and 150% FPL, and expands access to many households over 400% FPL for the first time.[11]

See if you’re subsidy-eligible.

ACA Subsidy Calculator

Next Steps Depending on Your Eligibility Status

If you’re not eligible because your income is too low, you may have options like Medicaid. Learn more about coverage options if your annual income is too low to qualify for ACA subsidies.

If you’re not eligible because your income is too high but you’re still worried about premium costs, you may still be able to find lower-premium ACA plan options by expanding your search away from federal or state Exchanges and shopping directly from insurance carriers.

If you live in a state without a tax penalty for going without qualifying coverage, a non-ACA qualifying plan like short-term medical insurance may be a better option than going completely uninsured. Learn more about coverage options if your annual income is too high to qualify for ACA subsidies.

If you’re eligible for subsidies to help offset premium or out-of-pocket costs, an ACA plan may be your best option for comprehensive, affordable coverage. Keep reading to find out how subsidies help, see if you can obtain coverage now, find your ACA Marketplace or visit HealthCare.gov.

All About Premium Tax Credits

The first type of government financial assistance available is a tax credit based on your estimated income in the tax year that you pay your premiums.

If you are eligible to receive premium tax credits, you can use those credits for a plan in any of the Marketplace’s metal categories (bronze, silver, gold, or platinum). Learn more about the ACA metal levels and find out which one is right for you.

You have two choices for taking your credits:

  • in advance or
  • when you file taxes.

Let’s take a closer look at each option.

How to Get Advance Premium Tax Credits

If you choose to take all or some of your credits in advance based on your estimated annual income, the government sends the premium credits to the insurance company on your behalf. This enables you to pay a lower premium amount each month of that tax year.[12]

It’s important to understand that even though you receive credits throughout the year based on your estimated income, the final calculation for your credits is determined by your actual income when you file your tax return.[13]

For tax years other than 2020, if your actual income was greater than your estimated income, you are responsible for repaying part or all of the advance credit.[14] If you’ve taken less advance premium tax credit than you actually qualify for, you’ll see the difference as a refund on your federal tax returns.[15]

The amount you are responsible to pay for excess advance premium credit payments may be limited if your household income is less than 400% of the federal poverty level (FPL).[16] If your household income is 400% or more of the FPL, you are responsible for repaying all of your excess advance premium tax credit payments for tax years other than 2020.[17]

Excess Advance Premium Tax Credits Suspended for 2020
The one exception to the excess advance premium tax credit (APTC) repayment requirement was for the 2020 tax year, which extended a one-year repayment “forgiveness” as part of the 2021 COVID Relief Bill.[18]

For more information and guidance on 2020 tax returns and APTCs see the IRS 2020 Premium Tax Credit Fact Sheet.

Receiving Credits on Your Federal Tax Return

Your other option is to claim the entire amount of your premium tax credits when you file your taxes. This credit can help lower the amount of taxes you owe or increase your refund.[19]

Keep in mind that if you choose not to take your premium tax credits in advance, you’ll be responsible for paying the full premium for your coverage each month.

Please note, the materials available at this website are for informational purposes only and not for the purpose of providing legal or tax advice. You should contact your attorney or tax professional to obtain advice with respect to any particular issue or problem.

Cost Sharing Reductions

The second form of financial assistance the government offers to eligible Marketplace plan enrollees is a cost sharing reduction subsidy (CSR), sometimes called “extra savings.”[20]

Unlike the premium tax credit which reduces your monthly premium payment, cost sharing reductions lower the amount you pay when you need medical care. Your insurance plan provider may choose to apply your CSR to any of the following plan features:[21]

To get the extra savings of CSRs, you must meet the following requirements:[22]

  • Enroll in a Silver plan on the federal or your state’s ACA Marketplace
  • Have an income level between 100% and 250% FPL and meet all other criteria for receiving a premium tax credit

How Cost Sharing Reductions Save You Money

Cost sharing reductions paired with a Silver level plan reduce the percentage of costs you pay out of pocket when you use covered healthcare services. How?

Silver plans have an actuarial value of 70%. That means the percentage of total average costs for covered benefits that a Silver plan will cover[23] is 70%, which leaves the person enrolled in the plan responsible for the remaining 30% through paying their deductible, coinsurance, and copayments.[24]

When cost sharing reductions are applied, the actuarial value of a Silver plan increases to 73%, 87% or 94% depending on the enrollee’s income eligibility.

2021 Maximum Annual Limitation on Cost-Sharing[25]

Income (% of FPL) Silver Plan Actuarial Value 2021 OOP Max for Individual 2021 OOP Max for Family
Under 100% 70% $8,550 $17,100
100 – 150% 94% $2,850 $5,700
150 – 200% 87% $2,850 $5,700
200 – 250% 73% $6,800 $13,600
Over 250% 70% $8,550 $17,100

And the federal government sets a maximum annual limit on cost-sharing based on your income level. For example, according to the table above, if you qualify at 153% FPL you won’t pay more than $2,850 total for covered healthcare services, which increases the actuarial value of your Silver plan from a 70/30 cost-sharing ratio to 87/13.

Applying CSRs to Your Plan

When you enroll in a Silver plan, your CSRs will be automatically applied.[26] Unlike premium tax credits, you may not receive the CSRs directly.

Summary + Next Steps

ACA subsidies can be confusing, but for most people, the thing that matters most is whether or not they can access affordable health insurance.

If you’re eligible for federal premium tax credits, and perhaps even cost sharing reductions, you may find an ACA-compliant health insurance plan to be very affordable. Get your eligibility status by using an ACA Calculator or visiting HealthCare.gov for subsidy and enrollment tools.

If you don’t qualify for subsidies, you may still have options for affordable, comprehensive coverage with private market major medical insurance.

Alternatively, temporary non-ACA coverage like short-term health insurance may be an option for some people to help with the costs that arise from an unexpected illness or injury.

Call 888-855-6837 to speak to a licensed agent who can help you understand your options.

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Originally Published On March 19th, 2015
Independence American Insurance Company and/or Madison National Life Insurance Company, Inc. may underwrite the products referenced on this website. Legal Disclaimers.

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