The Affordable Care Act provides subsidies to low- and middle-income individuals who purchase coverage through the Marketplace. These subsidies are paid by tax credits that are based on the cost of a benchmark plan.
The ACA also makes investments to expand access to health care, implement broad private insurance reforms and improve public health infrastructure. Many of these reforms and investments are funded through direct public funding included in the law.
Subsidies
Subsidies help people pay for health insurance, especially low-income Americans who can’t afford to buy their own coverage. The subsidies are funded by a combination of premium tax credits and cost-sharing reductions.
A person can qualify for a subsidy if he or she has an income between 100% and 400% of the federal poverty line (FPL) for the 2023 policy year, based on ACA-specific income calculations. The subsidies are meant to ensure that everyone has access to affordable health care, said Bruce Siegel, CEO of America’s Essential Hospitals.
The enhanced subsidies are estimated to save consumers an average of $800 per month in 2021. Without them, premiums would rise by an average of 53% across the entire market.
The new Inflation Reduction Act will extend the subsidies through 2025, which is good news for many consumers who have been able to get lower deductibles and copayments. However, the expansion could make it difficult for states to return to broad-based premium subsidies if the PTC expands after 2022.
Tax Credits
The Affordable Care Act includes a number of tax credits that help pay for insurance coverage. These include the premium tax credit, which is designed to help people lower their out-of-pocket costs for insurance.
These tax credits are funded by a combination of new taxes and spending cuts to existing programs, including Medicaid. They are also partially offset by the cost of health insurance exchanges, small business tax credits and new outlays for state and federal Medicaid programs.
Generally, premium subsidies are not available to households with income (ACA-specific MAGI) above 400% of the poverty level. However, from 2021 through 2025, the American Rescue Plan and the Inflation Reduction Act will allow premium subsidies to be used for those with incomes above that threshold if they are necessary to keep the cost of the benchmark plan at no more than 8.5% of their household’s ACA-specific MAGI.
Cost-Sharing Reductions
Cost-sharing reductions (CSR) are one of the two primary ways the Affordable Care Act makes health insurance more affordable. They reduce enrollees’ out-of-pocket costs by lowering deductibles, copayments and coinsurance when they use covered health care services.
The ACA requires insurers to offer CSRs to people enrolled in silver plans who have incomes between 100% and 250% of the poverty level. These reductions reduce the maximum out-of-pocket exposure on a Silver plan for these households by up to 70%.
This reduction in out-of-pocket maximums is what helps low-income enrollees afford a Silver plan. However, CSRs do not reduce deductibles or out-of-pocket maximums for people with non-silver plans.
When the ACA first passed, cost-sharing reductions were paid directly to insurers. However, President Trump removed this funding in 2018. This allowed insurers to increase the premiums of silver plans without changing their actuarial value. This practice is known as “silver loading.” The ACA’s premium tax credit has not been reduced by this change.
Grants
Since the Affordable Care Act was enacted in 2010, many new grants have been funded to aid states, communities and other organizations. These are a diverse group of programs, but they all have one thing in common: they assist individuals in need of health care.
For example, there are a number of grants that provide assistance to pregnant women and their families, including money for birthing facilities, prenatal and postpartum health care, and childbirth and pregnancy services. In addition, there are also funds that target children, adolescents and adults with certain medical conditions and diseases.
The ACA also requires that states establish exchanges to allow individuals and small businesses to purchase health insurance. To help states do this, the law authorized HHS to award exchange and rate review grants.
