What is the Health Insurance Subsidy and How Do I Qualify for It?

As long as Obamacare continues to exist, you can save money on health insurance coverage via premium tax credits if you meet certain criteria. Here's everything you need to know about these important subsidies.

dollar bill that says obamacare subsidy

Thanks to the Affordable Care Act, basically every American has to have health insurance.

People who decide not to buy or get coverage must pay a fee. Officially, this fee is an "individual shared responsibility payment," although it's also regularly referred to as the "individual mandate."

No matter what you call it, this penalty can hit your wallet hard. An uninsured household may need to pay as much as $2,085 for going a year without qualifying health coverage.

Americans who get health insurance through an employer are considered covered and don't have to worry about this fee. The same is true of those who have Medicare or Medicaid plans.

Everyone else, though, has to buy coverage through the federal or state marketplace, or through a private insurance company, agent, or broker. (To learn more about this second option, go to healthcare.gov.)

That's not always as easy as it seems. After all, even the plans sold via the above-mentioned federal- or state-run sites often cost a lot of money.

Something that softens the blow a bit is the subsidy the U.S. government offers to people so they're better able to afford health insurance.

Cost-Sharing Reductions and Premium Tax Credits

Actually, the government used to subsidize the cost of health plans tied to the Affordable Care Act (aka the ACA or Obamacare) in two ways, but President Trump recently put an end to one of them.

Up until mid-October, the government paid insurance companies to offer discounted plans that reduce how much low-income Americans spend on deductibles, copayments, and coinsurance.

That "cost-sharing reduction" subsidy's no longer an option for people looking to save money on health insurance. This doesn't mean they're now out of luck when it comes to such assistance, however. Those who need help paying for a plan and meet certain guidelines can still take advantage of premium tax credits.

These credits lower the amount you pay for health insurance sold through the federal or state marketplace. Or they do if you meet a few requirements. Specifically, whether or not you're eligible for a premium tax credit depends on:

  • your income
  • the size of your family
  • how much marketplace health insurance plans cost where you live

Choose Your Own Premium Tax Credit

One of the more interesting aspects of this subsidy is you can make use of it in a number of ways.

For example, you can use it to reduce or lower your monthly health insurance payment, or premium. (This probably explains why the government refers to it as the "advance premium tax credit.") Or you can wait and claim it when you go to file your tax return for the year you had Obamacare coverage.

If you choose the first option, the marketplace--the government, basically--takes things from there. It lets the insurance company know about your credit and reimburses them for it.

If you choose the second option, the marketplace reimburses you for the credit amount in one lump sum when you file your tax return for that year.

Doing something in-between is an option, too. In other words, you can direct the government to apply some of your credit to your health plan's premium and then receive the rest of it when you file your next tax return.

A Few Premium Tax Credit Warnings

Something to keep in mind no matter which option you choose here is you may have to repay some or all of your premium tax credit if your income changes during the year you have a marketplace insurance plan.

It's also possible the government will owe you money when all is said and done.

Why might you have to repay some or all of your subsidy? If you make more money than you thought you would, and if you have your tax credit reduce your monthly premium payments, you could wind up using more of your credit than you qualify for based on your final annual income. In that case, you'll have to repay the difference when you file your taxes the following year.

If you end up making less money than you thought you did, though, you may receive a refund as part of your next tax return.

By the way, other life changes can positively or negatively impact your premium tax credit amount, too. Two examples are if you get married or divorced during the year you have marketplace coverage. Having a baby or adopting a child are two more. Another is if you gain or lose access to health insurance through a job change or through a government program like Medicaid or Medicare.

Should you experience any of these changes after earning a premium tax credit for health insurance, let the marketplace know about it. Otherwise, you may be in for a surprise when tax time comes around again.

How Your Premium Tax Credit is Calculated

As mentioned earlier, whether or not you qualify for a health insurance premium tax credit depends on a few factors. The most important, though, is your estimated income.

Specifically, if you estimate your annual income for the year you need a marketplace plan to be somewhere between 100 percent and 400 percent of the federal poverty level, you should qualify for this subsidy.

Admittedly, "between 100 percent and 400 percent of the federal poverty level" doesn't mean much to most people. So, here are some actual figures--courtesy of verywell.com--to consider before you buy health coverage:

  • If you're an individual, your income has to be between $12,060 and $48,240.
  • For couples, your income must be between $16,240 and $64,960.
  • Family of four? Your income needs to be between $24,600 and $98,400.

Note: if you live in a state that has expanded Medicaid, expect the lower amount of these ranges to be a little higher. For instance, single people in those states have to make at least $16,763 a year to qualify for a premium tax credit. Couples need to make at least $22,823, while a family of four needs to make at least $33,194.

Now, don't assume that just because you make less than 400 percent of the federal poverty level you're a shoo-in for this sort of help. As bcbsm.com points out, premium tax credit eligibility is based on how much you make in a given year plus:

  • the cost of the second lowest-priced silver plan in your county
  • the size of your family and the age of family members

You don't need to be a math whiz to figure out whether or not you can access the premium tax credit. A couple of mouse clicks on this healthcare.gov calculator does all the work for you.

Both Health Insurance Costs and Subsidy Amounts on the Rise

Why is this health insurance subsidy such a big deal to Americans with low and even middle incomes?

Consider this recent npr.org report, which expects the average cost of a "benchmark" health insurance policy (sold through the federal or state marketplace) to increase by 27 percent next year.

Thankfully, the Department of Health and Human Services expects the typical subsidy amount to increase in 2018, too. In fact, it sees the average premium tax credit hitting $555 in 2018--a 45 percent hike compared to 2017's average of $382.

You only qualify for that assistance if you buy your health plan through the marketplace, however. If you purchase coverage somewhere else, you won't be eligible for a premium tax credit.

Frequently Asked Questions

Q: How do I know if I qualify for a health insurance premium tax credit?

A: You should have a pretty good idea as to whether or not you're eligible for this subsidy after reading this article. Even if you don't, though, you'll find out for sure when you go to buy a plan through the federal or state marketplace.

Q: What do I have to do to get a premium tax credit for my health coverage? Do I have to fill out a special application or form?

A: You don't have to do anything special. All you have to do is purchase health insurance through the federal or state marketplace. As you go through that process, you’ll see if you qualify for a premium tax credit or not. If you do qualify, you'll be able to apply the credit toward lowering your monthly payments or "save" it for your next tax return.

Q: Do I have to buy a benchmark health plan to take advantage of my premium tax credit, or can I choose another plan instead?

A: The government uses its benchmark silver plans to calculate your credit amount, but that doesn't mean you have to choose that particular policy. You can buy any of the bronze, silver, gold, or platinum plans sold through your state's marketplace (or the federal one, if you have to use it instead). Choosing another plan instead of the benchmark one could save you even more money.

Keep in mind that going with a lower-value plan usually means higher copayments and coinsurance costs when you go to receive care.

Q: How much can you make and still qualify for an Obamacare subsidy?

A: Your annual income is only one of the factors that determines your eligibility here. Other factors include the size of your family and how much marketplace health plans cost where you live.

Still, income is the most important of those factors. Generally speaking, you have to make between 100 percent and 400 percent of the federal poverty level to earn a premium tax credit. There are exceptions, though, so don't assume you're set if your yearly income falls in that range.

Q: Is it possible I won't have to pay anything for health insurance if I get a premium tax credit?

A: It is possible, actually. If you qualify for a health insurance tax credit and then choose a marketplace plan that's the same price as or cheaper than that amount, you may not have to pay a premium at all.

Just don't expect to receive a check for the difference if you buy a health plan that costs a lot less than your subsidy. The best you can do in this situation is get premium-free coverage.

Q: I didn't qualify for a health insurance subsidy last year. Does that mean I won't qualify this year, too?

A: It does not mean that. Subsidy eligibility is based on a number of criteria. One is the federal poverty level. Another is the cost of health plans sold via the marketplace. Both of those things change from year to year, so not qualifying for a tax credit in the past doesn't mean you won't qualify for one in the future.

Your annual income also plays a role in whether or not you qualify. And that's likely to change over time, too. In other words, don't make the mistake of assuming that missing out on the subsidy one year means you'll miss out this year as well.

Q: Will this health insurance subsidy end if Obamacare is repealed and replaced?

A: That's definitely possible. Should the ACA be repealed, at least some of the replacements Republicans offer up are sure to nix the premium tax credit. Some may retain it, though. Unfortunately, it's hard to say either way until lawmakers actually repeal the Affordable Care Act and start considering other options.


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