Affordable Care Act subsidies help make health insurance accessible for millions of Americans, by linking directly to premiums and mitigating risk from annual increases in costs.
Your actual income determines the amount of tax-time subsidies that are due to you, which could fluctuate during the year and alter your savings plans.
Cost-Sharing Reductions
Under the Affordable Care Act, cost-sharing reductions are federal subsidies available to households earning up to 400% of poverty who select a silver level marketplace plan. They offer discounts that help lower deductibles, copayments (copays), coinsurance premiums and out-of-pocket maximums while simultaneously decreasing out-of-pocket maximums.
These subsidies, funded through payments from the federal government to insurers, have significantly raised the actuarial value of marketplace plans available to low- and moderate-income families; however, these have not offset increases in marketplace premiums.
Without the American Rescue Plan and Inflation Reduction Act of 2021, cost-sharing reductions would have been phased out starting in 2022, leaving millions of consumers who received them exposed to unaffordable increases in marketplace costs. This issue brief explores the differences in deductibles, copayments, out-of-pocket limits, market benchmarks and employer sponsored coverage between marketplace plans with and without CSRs as well as benchmark plans; further comparing them against employer sponsored plans as a whole; it concludes that several major subsidies improvements could make Affordable Care Act marketplace plans more accessible for millions more individuals and families alike.
Advance Premium Tax Credits
The Affordable Care Act’s premium tax credits help eligible families pay for marketplace plans on the exchanges. They’re estimated when someone signs up, and individuals can elect to have part or all of their advance premium tax credit directly deposited with their insurer each month in order to reduce monthly costs. To qualify, household income must fall between 100%-400% of poverty level in order for subsidies.
Subsidies typically cannot cover more than 8.5% of an individual’s annual income, though that figure may change by 2021. Furthermore, under the Affordable Care Act (ACA), people who receive subsidies must report their actual income on their tax returns annually.
Federal subsidies are calculated based on the cost of the second-lowest silver plan in each area. Some states have provided additional financial support, which has helped significantly lower premiums; as a result, uninsured rates have seen marked reductions, particularly in Massachusetts with one of the lowest premiums.
Tax Credits for Employers
ACA premium tax credits are designed to assist people in affording marketplace plans. Their value is calculated based on the second-lowest-cost silver plan in their area and can be used towards bronze (lower premium, higher deductible) or gold plans (lower premium, lower deductible) plans – though only available to people without an offer of adequate employer coverage or who cannot afford one without subsidies.
The Affordable Care Act’s (ACA) authors knew that subsidies could strain the federal budget, so they included provisions to offset those costs by taxing wealthier Americans at higher rates. Under current law, premium subsidies are only available to people earning under 400% of poverty (this threshold will gradually rise between now and 2025), although legislative proposals introduced during previous Congress would improve subsidies, bringing net premiums closer to Massachusetts levels while expanding eligibility to cover those over 400% poverty.
Tax Credits for Individuals
As the Affordable Care Act mandates most individuals to purchase health insurance, subsidies are available to help cover costs. Your subsidy depends on your household income and cost of the cheapest Silver plan available in your area – typically no more than 8.5% of income in net premiums will be due for such coverage.
The Affordable Care Act includes a new, refundable credit known as the Premium Tax Credit to help reduce the cost of health insurance premiums in Marketplace plans, or you can claim the total amount on your taxes at tax time. You can utilize it throughout the year or claim all at once at year’s end.
People whose income falls within 400% of the poverty threshold typically qualify for premium subsidies under the Affordable Care Act; however, individual states may offer additional financial aid beyond this minimum – these policies have helped drive down uninsured rates significantly. Furthermore, the ACA permits households with incomes above 138% of poverty line to enroll in off-exchange plans with premium subsidies not being available for these consumers.
