The Affordable Care Act (ACA) offers assistance to individuals and families that aims to lower premiums and out-of-pocket expenses for ACA Marketplace plans. These subsidies make comprehensive coverage more accessible to those with lower and moderate incomes.
Maximizing these benefits starts with understanding the eligibility criteria. In this article we’ll guide you on calculating your subsidy amount based on your situation.
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 a silver plan in their area. Ensuring that the benchmark plan cost remains affordable is 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%-250% of the federal poverty level.
Eligibility for Subsidies
In order to qualify for the mentioned subsidies you must meet the following criteria:
Household income should fall within 100%-400% of the poverty level. (Can exceed 138% in states that expanded Medicaid).
Must not have access to affordable health insurance meeting minimum standards through an employer or government program like Medicaid.
Must be enrolled in a Health Insurance Marketplace plan.
- You should be a U.S. Citizen, or lawfully present immigrant.
It’s worth mentioning that the American Rescue Plan Act (ARPA) and the Inflation Reduction Act (IRA) have broadened subsidy eligibility by eliminating the limit of 400% of poverty-level income. Now, subsidies are determined based on ensuring that the cost of the silver plan does not exceed 8.5% of your household’s Modified Adjusted Gross Income (MAGI).
How to Calculate Your Health Insurance Subsidy Step-by-Step
Calculate your household size: Remember to include yourself, your spouse, and any tax dependents even if they don’t require coverage.
Estimate your Modified Adjusted Gross Income (MAGI): MAGI is usually similar to your adjusted income (AGI) on your tax return, with some adjustments.
Take into account all sources of income: This includes wages, salaries, tips, interest, dividends, capital gains, retirement distributions, and other forms of income.
Consult the Federal Poverty Level guidelines: Refer to the year’s federal poverty level thresholds to determine where your MAGI stands as a percentage of the poverty level. These guidelines are updated annually. Vary depending on household size.
Use the ACA subsidy calculator: Use the calculator included in this guide. You’ll need to input your household size, income, zip code, and the ages of those who need coverage.
By understanding these results, you can make an informed decision about which health plan best fits your needs and budget, taking full advantage of the available subsidies.
How to determine household size
Determining household size is crucial when assessing your ACA subsidy eligibility. Make sure to include yourself, your spouse, and any tax dependents (regardless of their need for health coverage) in this calculation. The subsidy amount is determined based on your household’s modified adjusted income (MAGI). For instance, if you’re submitting your taxes jointly with your spouse and have two kids whom you list as dependents your household would consist of four individuals. This larger household size would lead to an income threshold for qualifying for subsidies compared to a single-person household.
Estimating Modified Adjusted Gross Income (MAGI)
Your modified adjusted gross income (MAGI) is the number used to determine your eligibility for subsidies and the amount you may receive. MAGI typically aligns closely with your adjusted income (AGI) on your tax return with adjustments.
To estimate your MAGI take into account all sources of income such as;
Earnings from work, salaries, and tips
Interest and dividends
Profits from selling assets
Distributions from retirement accounts (e.g., 401(k) or IRA withdrawals)
Social Security payments
Income from self-employment
You should also consider any deductions that could decrease your MAGI like contributions to a health savings account (HSA) or contributions to retirement plans before taxes are deducted.
Federal Poverty Level Guidelines
The Federal Poverty Level (FPL) serves as the base criteria for determining subsidy eligibility and the level of assistance you might qualify for. The FPL is revised annually and varies depending on the size of your household.
In 2023 the Federal Poverty Level (FPL) was $14,580, for a single-person household and $30,000 for a family of four. These numbers play a role in determining eligibility based on income thresholds.
How can you use the ACA subsidy calculator?
You can utilize a user calculator to get an idea of your savings. To get started input details about your household like;
Number of individuals in your household
Ages of those needing coverage
Estimated Modified Adjusted Gross Income (MAGI) for the coverage year
Your zip code
Based on this information the calculator will assess your eligibility for the premium tax credit and cost-sharing reductions. It will also provide an estimate of the assistance you might qualify for.
Calculate Your Subsidy
Unfortunately, you don’t qualify for an
Advance Premium Tax Credit (APTC)
at this time.
Interpreting the Results
Once you’ve entered your information, the ACA subsidy calculator will provide you with detailed estimates of your potential savings:
Monthly premium tax credit: This is the amount that will be applied directly to your monthly health insurance premium, lowering what you owe each month.
Cost-sharing reductions: If you qualify, this will show the additional savings you’ll receive on deductibles, copays, coinsurance, and out-of-pocket maximums for silver-level Marketplace plans.
Total cost of the benchmark silver plan in your area: This is the full, unsubsidized premium for the second-lowest-cost silver plan, which serves as the basis for calculating your tax credit.
Your expected contribution towards the premium: This is the percentage of your income that you’ll be expected to pay for the benchmark silver plan, which should not exceed 8.5% under the current rules.
Applying for and Managing Subsidies
To check your subsidy eligibility call Enhance Health to speak to a licensed agent. During this call, our licensed agent will submit your application to see if you qualify for assistance.
If you are eligible for the tax credit you can opt to have it directly reduce your insurance premiums, lowering your out-of-pocket costs. Alternatively, you have the option to pay the premium for the year and claim the credit when you file your taxes.
It’s crucial to inform the Marketplace of any changes in your household size or income as these factors can impact your eligibility for subsidies and the amount you receive. Keeping tabs on your subsidy assistance and reconciling it come tax time can help ensure that you get the level of support.
Conclusion
Navigating the complexities of ACA subsidies may seem overwhelming. Having an understanding of eligibility criteria and following a step-by-step process to calculate potential savings can simplify things. This approach also guarantees that you access the aid that can make health coverage more affordable and accessible. Armed with information and available resources you can confidently make decisions about your healthcare coverage and optimize the benefits offered by ACA subsidy programs.
