Have you shopped recently for major medical insurance? If so, you may have noticed that plans can be pricey. In fact, for marketplace benchmark coverage in 2019, the average monthly premium is approximately $477 for a 40-year old.1
The good news is that if you’re considering buying a plan on the federal marketplace or your state’s exchange, you may be among the majority of Americans eligible to receive federal subsidies and/or tax credits to help reduce your premium costs.
Want to learn more about subsidies and find out if you might be eligible to receive them? Keep reading for details.
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Two Types of Subsidies Available
If you are eligible, you may receive premium tax credits and/or cost-sharing reductions (CSRs). These are the two forms of financial assistance the federal government has created to help reduce costs for Obamacare plans – also known as Affordable Care Act (ACA)-compliant coverage – purchased on the marketplace exchange.
In general, to be eligible for an ACA subsidy, you must:
- Enroll in a marketplace plan for at least one of the months of the year in which you’re not eligible for affordable coverage through an employer-sponsored (group) plan or government-subsidized health plan such as Medicare or Medicaid
- Purchase your plan on the federal (or your state’s) marketplace.
- Have household income within 100 – 400% of the federal poverty level (FPL) for your family size. Subsidies for 2019 coverage are based on 2018 FPL guidelines. Learn more about how the FPL is established each year.4
Premium tax credits
The first type of government financial assistance 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.
Taking Credits in Advance
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.5
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.6
So if your actual income was greater than your estimated income, you are responsible for repaying part or all of the advance credit.
According to the Internal Revenue Service, however, if your household income is 400% or more of the federal poverty line, you are responsible for repaying all of your excess advance premium tax credit payments.8
Filing for Credits with Your Taxes
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.9
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 (CSRs)
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.”10
CSRs help lower the amount you pay each time you need medical care. Your insurance plan provider may choose to apply your CSR to any of the following plan features:11
How CSRs Work
To get the extra savings of CSRs, you must meet the following requirements:12
- Enroll in a Silver plan on the federal or your state’s marketplace
- Have an income level between 150% and 250% of the federal poverty level (FPL), and meet all other criteria for receiving a premium tax credit
Silver plans usually have an actuarial value of 70%, which means the plan pays approximately 70% of all covered costs each year, and enrollees are responsible for the remaining 30%.13
But with CSRs, a Silver plan could pay a higher percentage of your covered costs, reducing the amount your financial responsibility.
The federal government sets a maximum annual limit on cost-sharing based on your income level. For 2019, the maximum OOP spending limits for enrollees eligible to receive CSRs is shown below.
Maximum Annual Limitation on Cost-Sharing (Henry J. Kaiser Family Foundation)15
|Income (% of FPL)||Silver Plan Actuarial Value||2019 OOP Max for Individual||2019 OOP Max for Family|
|Under 100% or over 250%||70%||$7,900||$15,800|
|100 – 150%||94%||$2,600||$5,200|
|150 – 200%||87%||$2,600||$5,200|
|200 – 250%||73%||$6,300||$12,600|
While the federal government establishes an OOP maximum, it provides no guidance to how insurers further adjust deductible, copayment and coinsurance amounts to meet the actuarial value guidelines.
This means that although all insurers will set the same OOP maximum limit based on income, insurers can choose how to establish cost-sharing structures to arrive at the average actuarial value of 70%.
The bottom line is that not all Silver plans are the same. Plans vary in costs, benefits and network providers so be sure to carefully consider differences in the Silver plan options available to you when choosing to enroll in a marketplace plan.
Applying CSRs to Your Plan
When you enroll in a Silver plan, your CSRs will be automatically applied.16 Unlike premium tax credits, you may not receive the CSRs directly.
What if I’m not eligible for subsidies?
Depending on your income level, you have different choices for finding health insurance.
If your income is too low to qualify
Under the terms of the ACA, most states have expanded Medicaid eligibility to all adults under age 65 (including parents and adults without dependent children), with incomes below 138% of the FPL.17
As of 2019, 37 states (including DC) have chosen to expand Medicaid under the ACA, while 14 states have not adopted the expansion.18 If you believe you may be eligible to enroll in Medicaid, contact your state’s Medicaid program.
If your income is too high to qualify
You may be able to purchase a Catastrophic health plan through the federal or your state’s marketplace. Catastrophic plans have low monthly premiums and very high deductibles. The 2019 deductible for a marketplace catastrophic plan is $7,900.
This type of plan is designed to provide financial protection from the costs resulting from treatment of serious illnesses and injuries. Although it includes the same essential health benefits as other marketplace plans, covers some preventive services and at least three primary care visits with your doctor each year, you are responsible for most of your routine health care costs through the year.
You also must meet these eligibility requirements to purchase a Marketplace Catastrophic plan:19
- Be under age 30
- If you’re age 30 or over, you must have a hardship exemption or affordability exemption (if marketplace or employer-sponsored insurance is unaffordable for you). Submit a completed application and get an exemption certificate number before you can apply.
Other Major Medical Insurance Plan Options
If you are unable to find a plan on the federal or state exchange that meets your needs, you also may shop for ACA-compliant coverage in the private market using resources such as:
- Health insurance producers (i.e., agents and brokers)
- Health insurance carriers
- Private health insurance marketplace websites that sell ACA-compliant health plans and other forms of coverage
I just can’t afford major medical premiums
Have you researched coverage options on the marketplace and in the private market, and still don’t think you can afford the premiums?
One alternative to going without insurance coverage and paying all of your medical costs out of pocket is to consider a non-ACA option like short term health insurance.
Short Term Health Insurance
Also known as short term medical, this type of plan does not qualify as ACA-compliant insurance – plans are not guaranteed-issue and don’t cover the essential health benefits.
However, they can help provide temporary coverage if you become ill or injured. Depending on your state, you may keep short term health insurance for 30 to 364 days.
Advantages of Short Term Health Insurance
Typically, short term health insurance does not cover pre-existing conditions. However, this type of plan does offer certain advantages, including:
Coverage – for unexpected medical costs related to provider visits, hospital room and board, surgery and emergency room care
Flexibility – both in how long you may keep your policy, as well as choice in selecting a coverage start date. You may even begin coverage within 24 hours of being approved.
Affordability – because short term health insurance has less coverage than benefits provided by ACA-compliant plans, premiums may be lower than premiums for an ACA marketplace plan. Keep in mind that premiums for short term health insurance vary based on the benefits you choose.
Find out how much short term health coverage could cost you and compare policy options by getting a quote (it just takes a minute to see your results).
Summary + Next Steps
If you’re eligible for federal premium tax credits, and perhaps even cost-sharing reduction subsidies, you may find the cost for ACA-compliant health insurance to be very affordable.
But if you don’t qualify for subsidies, you still have other options, such as private market major medical insurance, or non-ACA coverage solutions such as short term health insurance.
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