The Affordable Care Act, or Obamacare, created tax credits to help people afford health insurance. Whether you’re looking for insurance or are renewing your current plan, knowing if you are eligible for subsidies can be confusing.
These subsidies help lower-income consumers pay for their ACA coverage. They work by estimating how much money you will make in a year and then sending that estimated amount of subsidy money to your insurer. If you earn more than estimated, you may have to repay part or all of the extra subsidy.
What is Obamacare?
Obamacare is the Affordable Care Act, signed into law by President Barack Obama in 2010. It changed the way we deliver health care and made it available to more people.
In addition, it aims to control healthcare costs and make medical care more innovative. It also helps people find affordable plans and offers cost assistance, like tax credits and out-of-pocket savings.
Before the ACA, people with chronic conditions often couldn’t afford to get regular checkups and treatment. They also sometimes ran out of insurance coverage.
The ACA protects people with pre-existing health conditions, allows you to stay on your parent’s plan until you’re 26, and requires health plans to offer preventive care with low copays or deductibles. These changes help reduce the number of hospital visits and reduce health care costs.
Who is eligible for subsidies?
The Affordable Care Act provides subsidies to help lower-income people pay for insurance. This is done through a tax credit that consumers receive in exchange for buying a plan through the Marketplace.
Subsidies are available to those who earn up to 400% of the poverty level. In some states, that is higher than the federal poverty level.
For example, Rick and Alice earn $27,180 (two times the federal poverty level). If they both enroll in a benchmark Silver plan that costs $433 per month in their area, their after-subsidy costs are about $544 a year.
They are both eligible for subsidies, since they contribute 2% of their income to health coverage.
The government will also reimburse those who purchase plans through the marketplace for the cost of their premiums when they file their taxes. This is called a premium tax credit and can be applied to plans in the four metal levels of health insurance, bronze, silver, gold or platinum.
How do subsidies work?
The ACA provides subsidies to help reduce the cost of health insurance. They come in two forms: premium tax credits and cost-sharing reduction subsidies.
Premium tax credits lower the monthly cost of insurance plans, allowing more people to afford coverage. They apply to the federal government’s four plan levels, which start with bronze (lower premium, higher deductible) and end with platinum (higher premium, lower deductible).
Cost sharing subsidies make deductibles and other cost-sharing less expensive for people in a silver plan. They are available for people with incomes between 100% and 250% of the federal poverty line.
The ACA was designed to make insurance more affordable for middle- and low-income families, and its subsidies have made this possible. By reducing premiums and out-of-pocket costs, ACA subsidies have helped millions of Americans get coverage. Several legislative proposals introduced in Congress would significantly improve the ACA’s financial assistance. In particular, they would increase premium tax credits and make cost sharing reductions even more generous.
Are people with higher incomes more likely to be eligible for subsidies now?
ACA subsidies are available for anyone who doesn’t have access to affordable employer-sponsored or government-sponsored (Medicaid or Medicare) coverage. They can be applied to a wide range of insurance plans in the Marketplace, including bronze, silver, gold, and platinum plan levels.
Subsidies help lower monthly premiums, which are the amount you pay for your health insurance each month. They are based on your estimated income in the year you purchase your plan, but they can be adjusted if your actual income changes during the year.
Evidence shows that improving subsidies is key to increasing coverage for people with higher incomes and reducing the overall uninsured rate. In addition to targeting by income, states can also target eligibility for subsidies by other factors, such as age or gender.