The Affordable Care Act (ACA) assists low-income Americans in accessing affordable health insurance. Subsidies are provided for those who qualify, and it promotes comparison shopping among various plans available to individuals.
Subsidies, tax credits and cost-sharing reductions may be available based on income to help lower premiums and out-of-pocket costs such as deductibles and co-pays.
Subsidies
The Affordable Care Act offers subsidies to moderate and low-income families without access to employer-sponsored insurance or Medicaid/ Medicare coverage, through premium tax credits and cost-sharing reductions applied directly to monthly costs associated with health plans.
Premium subsidies depend on both your annual projected income and the benchmark plan cost in your region. If its price exceeds 8.5% of your income, then you may qualify for a subsidy.
Apply for a subsidy through either the federal health insurance marketplace or your state-specific exchange. The government will determine if you qualify and, if so, how much.
The average subsidy nationwide is around $486; this amount may differ depending on your state and income level. Your subsidy amount will be returned in the form of a tax credit when filing your taxes for that year.
Tax Credits
The Affordable Care Act offers several tax credits and subsidies that can lower monthly insurance premiums and provide families struggling to afford coverage with relief.
Premium tax credits (often called health insurance premium subsidies) can be earned either on your federal income tax return or as advance payments of credits during the year to assist with monthly health insurance premium payments. Refundable credits allow you to claim their full value even if your total tax liability falls short.
The American Rescue Plan and Inflation Reduction Act of 2022 extended subsidies through 2025, giving millions more Americans relief from the “subsidy cliff.” While these changes provided temporary solutions to affordability crisis, their long-term effect remains unknown.
Cost-Sharing Reductions
The Affordable Care Act has made health insurance more accessible through two subsidy programs – tax credits and cost-sharing reductions – though your actual medical expenditure will depend on both your needs and plan details.
People with lower incomes may qualify for a cost-sharing reduction (CSR), or discount on their deductibles, copayments and coinsurance costs when purchasing health insurance through an exchange. This discount may apply even when purchasing individual coverage through this source.
Individuals earning up to 250 percent of the federal poverty level (138 percent for Alaska and Hawaii residents) will find these savings invaluable, acting like an upgrade on a silver plan without incurring extra costs, making a real impactful difference in out-of-pocket spending.
Many states have responded by offering silver plans with cost-sharing reduction benefits bundled in, which are free for eligible enrollees – helping individuals who purchase their plans through exchanges afford to keep them.
Minimum Essential Coverage
Under the Affordable Care Act, it is required of you to have health insurance that provides minimum essential coverage (sometimes called qualifying health coverage) requirements. This includes Marketplace plans, job-based coverage options, Medicare, Medicaid and Children’s Health Insurance Program coverage options.
Some forms of coverage don’t count as minimum essential coverage; examples include limited-benefit Medicaid plans (coverage limited to family planning, pregnancy-related care or emergency services) as well as high-risk pools and grandfathered health plans that don’t provide essential health benefits or are unregulated by the ACA.
Your size of employer could also entitle you to an Affordable Care Act penalty if you fail to offer minimum essential coverage to at least 95 percent of full-time employees – that’s calculated as $2,570 in 2020 and 2021 and activates when even one employee obtains subsidised insurance through an exchange.
