Guide to ACA (Obamacare) Health Insurance Subsidies

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Updated: November 21, 2024

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An ACA (Affordable Care Act) health insurance subsidy is government-provided financial aid to lower the cost of health insurance for eligible individuals and families. It is available through the Health Insurance Marketplace. Subsidies come as premium tax credits to lower premiums and cost-sharing reductions to decrease out-of-pocket expenses.

Typically, you're eligible if your income is between 100% and 400% of the federal poverty level (FPL). However, due to recent policy changes, those with incomes above 400% FPL may qualify if the cost of a benchmark plan exceeds 8.5% of their household income.

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Health Insurance Subsidy Overview

A health insurance subsidy is a financial support mechanism introduced by the Affordable Care Act (ACA), commonly called Obamacare. These subsidies, provided by the government, aim to make health coverage more affordable for individuals and families. They are an integral part of the health care system, especially for those with limited financial means.

Eligibility for these subsidies is determined based on income and other factors, such as family size and the cost of health plans in your area.

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Keep in mind that subsidies are only available through the Health Insurance Marketplace, a platform established under the Affordable Care Act (ACA). Enrolling in a plan outside the Marketplace means you will not be eligible for ACA subsidies.

ACA Subsidy Types

The ACA provides two key types of subsidies to help individuals and families afford health insurance: premium tax credits, which reduce monthly premiums, and cost-sharing reductions (CSRs), which lower out-of-pocket costs for eligible enrollees.

  • Premium Tax Credits: Aimed at reducing monthly health insurance premiums, these credits are available to individuals and families with incomes between 100% and 400% of the federal poverty level (FPL). The amount of the credit varies depending on your income; as your income decreases, the credit increases, making insurance more affordable. When applying for health insurance through the Marketplace, you can choose to apply the credit to your monthly premiums, reducing your costs throughout the year, or you can claim it on your tax return as a lump sum.

  • Cost-Sharing Reductions (CSRs): Cost-sharing reductions (CSRs) reduce what you pay out-of-pocket for health care services — including deductibles, copays and co-insurance. Such reductions are generally available to Marketplace enrollees on Silver plans with incomes from 100% to 250% of the federal poverty level. CSRs make health care services more affordable by lowering the amount you pay when you receive care.

Together, these subsidies provide individuals and families access to more options for affordable medical insurance.

Who Qualifies for ACA Health Insurance Subsidies

Who qualifies for an ACA health insurance subsidy is primarily determined by income, residency status and access to other affordable insurance. Subsidies might also be influenced by the age of enrollees and regional insurance market costs.

Household Income or Unaffordable Insurance Premiums

Your household income is a central factor. To qualify, only those earning between 100% and 400% of the federal poverty level (FPL) were initially eligible for subsidies.

However, with recent legislative changes under the ARP (American Rescue Plan) and the Inflation Reduction Act, people with higher incomes may also qualify if their health insurance costs exceed a certain percentage of their income.

How the ARP and Inflation Reduction Act Impact Subsidies

 

Under the American Rescue Plan (ARP), people with household incomes above 400% of the federal poverty level can now qualify for premium tax credits if the cost of the benchmark plan (the second-lowest-cost Silver plan) exceeds 8.5% of their household income. This cap applies to both individual and family coverage.

Additionally, the ARP reduces the amount people with all income levels must pay for their health insurance premiums before getting tax credits. For example, those earning between 100% and 150% of the federal poverty line could be eligible for a zero-premium benchmark Silver plan, a benefit extended to individual and family coverage options.

If your earnings are 500% of the FPL but you lack access to other affordable health insurance, you also could benefit from certain Marketplace plan cost-sharing reductions, typically reserved for lower-income brackets.

These changes, initially for 2021 and 2022, have been extended through 2025 with the Inflation Reduction Act.

Note that insurance subsidies in states that have expanded Medicaid effectively start above 138% FPL, as Medicaid covers lower income levels. In states that have not expanded Medicaid, the lower income threshold for subsidy eligibility starts at 100% of the federal poverty level (FPL).

The FPL is updated annually to reflect inflation adjustments. This level varies based on household size and is higher in Alaska and Hawaii. The table below demonstrates the 100% FPL for 2024.

Family/Household Size
Poverty Guideline 2024

1

$15,060

2

$20,440

3

$25,820

4

$31,200

5

$36,580

Dependency Status

If someone else claims you as a dependent on their tax return, you cannot receive subsidies on your own. In such cases, the household income of the person claiming you as a dependent is considered for subsidy eligibility.

Residency and Citizenship

Subsidies are available to U.S. citizens, nationals and lawfully present immigrants. There are specific guidelines for immigrants, so it is important to check your eligibility based on your residency status.

When You Are Not Eligible for ACA Subsidies

You are not eligible for ACA subsidies if you have access to affordable health insurance through an employer or government program, are incarcerated or are not lawfully present in the U.S.

  1. 1
    Access to Affordable Employer-Sponsored Insurance

    You may not be eligible for the tax credit if you have access to an affordable employer-sponsored health plan. For 2024, a plan is deemed affordable if your share of the premium for the lowest-cost, self-only plan is less than 8.39% of your household income. Additionally, the plan must meet the minimum value standard, meaning it covers at least 60% of the total allowed cost of benefits.

  2. 2
    Eligibility for Government Programs

    Being eligible for other government-provided health programs like Medicare, Medicaid or CHIP disqualifies you from receiving ACA subsidies.

  3. 3
    Tax Filing Status

    If you are married and choose to file your taxes separately (except in specific situations like domestic abuse or spousal abandonment), you cannot receive ACA subsidies.

  4. 4
    Incarceration or Residency Status

    You are ineligible for ACA subsidies if you are incarcerated or not lawfully present in the United States.

  5. 5
    Not Enrolled Through the Marketplace

    Subsidies are only available for plans purchased through the Health Insurance Marketplace. If you buy insurance outside this platform, you won't receive ACA subsidies.

  6. 6
    Special Considerations for States Without Medicaid Expansion

    In states that haven’t expanded Medicaid under the ACA, individuals who earn less than 100% of the FPL might not qualify for subsidies or Medicaid, creating a coverage gap.

How to Calculate ACA Health Insurance Subsidies

To calculate ACA (Obamacare) health insurance subsidies, you need to understand your income in relation to the federal poverty level (FPL) and how this impacts the cost of a benchmark Silver plan in your area.

1. Determine Your Household Income

Your ACA subsidy is determined by your Modified Adjusted Gross Income (MAGI) — your adjusted gross income along with non-taxable Social Security benefits, interest and foreign income. Estimate your household income for the year you're seeking coverage.

2. Assess Your Income Compared to FPL

The FPL is a measure of income issued annually by the Department of Health and Human Services. Your subsidy eligibility depends on your income as a percentage of the FPL. For 2025 coverage, use your projected 2025 income and compare it with the 2024 FPL figures (as mentioned above). Different income brackets have different implications for subsidy amounts.

3. Maximum Contribution Based on Income

Based on your income, the ACA limits the maximum percentage of your income that should go towards health insurance. This percentage scales with income. For instance, those with lower incomes might pay a very small percentage, potentially qualifying for zero-premium plans, while those with higher incomes could pay up to 8.5% of their income. These percentages are defined under Section 9661 of the American Rescue Plan and are applicable through 2025, as per the Inflation Reduction Act.
Income as % of Federal Poverty Level (FPL)
Expected Contribution to Health Insurance

Up to 150%

0% (Zero-premium for benchmark plan)

150%–200%

0% to 2% of your income

200%–250%

2% to 4% of your income

250%–300%

4% to 6% of your income

300%–350%

6% to 8.5% of your income

4. Determine the Cost of the Benchmark Silver Plan

The subsidy amount is partly determined by the cost of the second-lowest-cost Silver plan in your area. This benchmark plan’s premium acts as a reference for calculating subsidies. The specific plan that qualifies as the benchmark can change annually due to market fluctuations. For accurate information on plan costs, consult the state or federal exchange websites or contact Healthcare.gov at 800-318-2596. If your state has its own health care marketplace, check its website for contact details.

5. Calculating the Subsidy

Subtract the amount you are expected to contribute (based on your income level and the relevant percentage) from the cost of the benchmark Silver plan. The remainder is the subsidy for which you are eligible. For example, if the benchmark plan costs $300 per month and your expected contribution is $100 per month, your subsidy would be $200 per month.

6. Applying the Subsidy

This subsidy can be applied to any plan available in the Marketplace, not just the benchmark Silver plan. If you choose a less expensive plan, your out-of-pocket cost could be lower. If you select a more expensive plan, you will need to pay the difference.

7. Adjustments Based on Actual Income

It's important to provide accurate income estimates. If your actual income for the year differs from your estimate, your subsidy amount might be adjusted the following tax season, either requiring repayment or providing additional credit.

You can also use the Healthcare.gov calculator to calculate your subsidy.

How to Apply for ACA Health Insurance Subsidies

A clear understanding of the enrollment process and eligibility criteria will make your application for health insurance subsidies more straightforward. When you fill out a Marketplace application, you will provide income information. The Marketplace then determines if you qualify for a premium tax credit or cost-sharing reductions and how much aid you're eligible for. You can enroll in a plan of your choice accordingly.

  1. 1
    Compile Household Information

    Create a list of everyone in your household who needs coverage, including those not enrolling in insurance and information on health insurance availability through employment for each household member. You will need the legal names and birthdates of all household members needing coverage. Social Security numbers (or document numbers for legal immigrants) for all applicants will also be necessary.

  2. 2
    Prepare Income Information

    Estimate the total household income for the year you’re applying, incorporating all income sources for your household. Have your most recent tax return at hand to confirm income estimates.

  3. 3
    Detail Current Health Coverage

    Collect information on current health coverage from any source, such as employer-provided plans, Medicare, Medicaid, CHIP or military insurance. Also, details on any available job-related health insurance, regardless of enrollment.

  4. 4
    Identify Enrollment Periods

    Understand the difference between the open enrollment period, typically at the end of the year, and special enrollment periods, which are available due to qualifying life events like marriage, change in residence, change in income, birth or loss of other insurance.

  5. 5
    Access the Health Insurance Marketplace

    Visit Healthcare.gov, or if your state has its own marketplace, use the respective state website. First-time users should create an account while returning users can log in.

  6. 6
    Complete the Application

    Complete the application form accurately with personal, financial and household information. This data determines your eligibility for subsidies.

  7. 7
    Review Eligibility Results

    After submitting the application, you’ll receive an eligibility determination, which includes the subsidy amount you qualify for.

  8. 8
    Select and Enroll in a Health Plan

    Browse through the available health plans. The subsidy amount will be shown alongside each plan, indicating how much your premium will be reduced. Choose the plan that best fits your needs. You can complete enrollment online, and the subsidy will be applied directly to your premium. Be sure to complete this step during the open enrollment period or a special enrollment period if you qualify.

  9. 9
    Confirm and Finalize Enrollment

    Complete your enrollment by verifying the details and confirming your plan choice

  10. 10
    Regularly Update Your Information

    Post-enrollment, it’s important to report any changes in income or family size to the Marketplace, as this can affect your subsidy.

FAQ About ACA Health Insurance Subsidies

MoneyGeek has compiled a list of frequently asked questions to help you understand how to apply for and receive ACA health insurance subsidies.

How do you get the money from ACA subsidies?

What happens if you overestimate your income for Obamacare?

What happens if you underestimate your income for Obamacare?

Can you get ACA subsidies if your employer offers health benefits?

Are people with Medicaid or CHIP eligible for premium subsidies?

What age is too old for a premium subsidy?

How do you find out how much your subsidy will be?

About Mark Fitzpatrick

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Mark Fitzpatrick is a Licensed Property and Casualty Insurance Producer and MoneyGeek's Head of Insurance. He has analyzed the insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. He has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.

Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.

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