Obamacare, also known as the Affordable Care Act (ACA) was put into effect in 2010 as a healthcare reform law. Its main objectives were to enhance the accessibility, affordability, and quality of healthcare coverage for Americans. Moreover, the ACA is recognized for providing subsidies and financial aid to make health insurance more attainable.
What exactly are health insurance subsidies?
Health insurance subsidies are government programs that offer assistance to help individuals and families afford their health coverage expenses. These subsidies include tax credits, cost-sharing reductions, and other discounts that can lower premiums and out-of-pocket costs related to health plans.
These subsidies aim to ensure that essential healthcare remains affordable for those with low and middle income levels. By reducing part of the premium and cost-sharing obligations, subsidies bridge the gap between what people can pay and the actual expenses of health insurance.
What are the different types of ACA subsidies?
The primary types of ACA subsidies are:
Premium Tax Credit: The premium tax credit, also called the Advance Premium Tax Credit (APTC), is a tax refund that can help cover an individual’s health insurance costs. Eligibility is determined by the household’s projected income for the year and the price of the silver plan in their location. This ensures that the benchmark plan’s cost remains affordable based on a percentage of the household’s income.
Cost Sharing Reduction (CSR): These are subsidies that reduce out-of-pocket expenses for individuals and families. They apply to deductibles, copayments, coinsurance, and the maximum out-of-pocket limit for silver-level Marketplace plans. To qualify for CSRs an individual must enroll in a silver plan and have a household income between 100% and 250% of the federal poverty level.
Who is eligible for the premium tax credit?
To be eligible for the premium tax credit an individual must meet the following criteria:
Maintain a household income that falls within 100% and 400% of the poverty level (or above 138% in states with expanded Medicaid).
Not qualify for types of healthcare coverage like employer-provided insurance or government programs such as Medicaid.
Sign up for a Marketplace Health Insurance plan.
Hold U.S. Citizenship, nationality, or immigrant status.
Exclusions from the premium tax credit
There are instances where the premium tax credit may not apply even if an individual meets the eligibility criteria:
The credit cannot be used to cover essential health benefits (EHBs) within the plan premium.
In some situations the tax credit amount might be eliminated if excess advance payments were received during the year.
Who is eligible for cost-sharing reductions?
Cost-sharing reductions are offered to individuals and families with household incomes ranging from 100% to 250% of the federal poverty level who select a silver-level Marketplace plan. Like the premium tax credit, Cost Sharing Reductions (CSRs) are only offered to individuals who do not have access to qualifying healthcare coverage.
Metallic Levels and Premium Tax Credits
Different metal levels such as Bronze, Silver, Gold, and Platinum play a role in determining the sharing of healthcare costs between a health insurance plan and the policyholder when choosing a plan through the Marketplace.
The premium tax credit is linked to the cost of the lowest-cost silver plan in the Marketplace. This plan acts as a reference point for calculating the credit amount, which can then be applied to any metal-level plan chosen by an individual. The plan that is actually selected, however, may impact the value of the credit.
Income Thresholds and Subsidy Eligibility
Before 2021, individuals and families with household incomes ranging from 100% to 400% of the poverty level were typically eligible for the tax credit. However, with expansions in subsidy eligibility under both the American Rescue Plan Act (ARPA) passed in 2021 and the Inflation Reduction Act (IRA) passed in 2022 there is now no income limit for qualifying for premium tax credits.
In other words, the credit you receive is determined by making sure that the cost of the silver plan doesn’t go over 8.5% of your household’s modified adjusted gross income (MAGI). This means that people and families with incomes less than the 400% poverty level cutoff might now be eligible for subsidies if their premiums would otherwise be too expensive.
How do you get your tax credit?
Although some sources claim that subsidy recipients will receive a lump sum of cash or a check, this is simply not true. There are two ways individuals can receive the tax credit:
Advance Premium Tax Credit (APTC): This option lets the tax credit go directly to the health insurance company which reduces what you pay out of pocket for premiums.
Claiming the Credit at Tax Time: Alternatively you can pay the premium each month, and then claim the tax credit when you file your annual taxes.
No matter which way you choose, when you file your taxes the amount of tax credit is adjusted based on your income for that coverage year.
Conclusion
Health insurance subsidies offered under the Affordable Care Act play a role in making comprehensive coverage more attainable and affordable for millions of Americans.
By covering some of the premiums and costs that individuals and families have to pay, these subsidies make it easier for people to access healthcare without facing a strain.
Knowing about the kinds of subsidies, who qualifies for them, and how to request & receive help can simplify the process of dealing with health insurance. With the laws offering increased subsidy options more individuals are now eligible for this financial assistance.
