Important Things to Know About Health Insurance Subsidies

Important Information about Health Insurance Subsidies

If you are interested in a government subsidy in order to make health insurance (and in some cases, your out-of-pocket costs) more affordable, there are several important things you need to know.

1
There's More Than One Type of Subsidy

Affordable Care Act
The Affordable Care Act nationalized healthcare. Joe Raedle/Getty Images

The Affordable Care Act created two types of health insurance subsidies. You can use both at the same time if you qualify for both.

More people qualify for the premium tax credit subsidy, which lowers the monthly premiums you pay to buy health insurance. Eligibility for this subsidy extends to 400 percent of the poverty level, which amounts to $98,400 for a family of four in 2018. In 2017, 84 percent of exchange enrollees qualified for premium subsidies.

There is also a cost-sharing subsidy, designed to help lower your costs each time you use your health insurance. If you qualify for cost-sharing subsidies, you'll also qualify for premium subsidies. But the same is not necessarily true in reverse. Cost-sharing subsidy eligibility only extends to 250 percent of the poverty level ($61,500 for a family of four in 2018), and they're only available if you purchase a silver plan in the excange. The cost-sharing subsidy decreases the amount you pay in cost-sharing like deductibles, copays and coinsurance. It can also decrease the out-of-pocket maximum you pay each year if you have high health care costs. 57 percent of exchange enrollees in 2017 were receiving cost-sharing subsidies.

2
Get It on the Exchange, Use It on the Exchange

The only place you can get a health insurance subsidy is your state’s health insurance exchange. The only place you can use a subsidy is on your state's health insurance exchange.

To receive a cost-sharing subsidy, you must choose a silver-tier health plan from your exchange. If you choose a bronze, gold or platinum plan, you won’t get the cost-sharing subsidy even if meet all of the other necessary requirements.

Your premium tax credit subsidy can be used for any metal-tier plan on the exchange, but not for a catastrophic plan. 

3
It's All About Income, Not Assets

Health insurance subsidies are based solely on your estimated income. The income in question is your modified adjusted gross income, or MAGI, for the year you’ll be receiving the subsidy. This has important implications.

First, if your income varies considerably from year to year, it might be difficult to accurately estimate your future income. Provide the best possible estimate of your future income and be prepared to explain how you came up with that estimate. If you estimate your income incorrectly, you’ll get too much or too little subsidy money (you'll reconcile the difference on your tax return).

Second, your assets, how much you have in savings, the value of your house and your net worth don’t affect your eligibility for a subsidy. All that matters is your income. You could have a million dollars in cash sitting in your bank account and still potentially qualify for a health insurance subsidy if your income is in the subsidy-eligible range (this means at least 100 percent of the poverty level—at least 139 percent in states that have expanded Medicaid—and not more than 400 percent of the poverty level; ​this chart shows what that amounts to for various family sizes).

4
Your Tax Status Matters

If you’re married, your filing status must be filed jointly in order to be eligible for a health insurance subsidy. If you’re married and file separately, you won’t qualify for a subsidy even if you meet all of the other requirements.

5
Eligible for Other Coverage? Probably No Subsidy for You

If you’re eligible for government-sponsored health insurance like Medicare or Medicaid, or an employer-sponsored plan that provides minimum value and meets the ​requirements for affordability, you won’t qualify for a subsidy in the exchange. ​

This is true even if you’re not actually enrolled in the government-sponsored or employer-sponsored health insurance. It’s your eligibility that disqualifies you for a subsidy.

6
There Are 2 Ways to Get Paid

You have two options for receiving the premium tax credit subsidy money.

If you choose the advanced payment option, your subsidy money goes directly to your health insurance company each month to lower the cost of that month’s health insurance premium. You never see or handle the subsidy money, but the amount you pay to buy health insurance each month is lower than it would be if you didn't get the subsidy.

Alternatively, you can get your subsidy money in one lump sum after the end of the year when you file your federal income taxes. The entire yearly amount of the premium tax credit subsidy will be added to your refund check. If you’re not getting a refund because you still owe taxes, the subsidy will offset what you owe. If you choose this option, you’ll pay the full price of your health insurance premium each month during the year, but you’ll be reimbursed for part of that cost when you file your taxes.

In both cases, you have to purchase coverage through the exchange in order to get the subsidy. If you're planning to pay full price throughout the year and claim the subsidy on your tax return, you'll only be able to do that if you purchased your plan in your state's exchange.

7
You Might Have to Pay It Back

If you get more subsidy money than you should have, you might have to pay it back. This is important for people who choose the advanced payment option for their premium tax credit subsidy.

Here’s how it works. Let’s say you apply for a subsidy for the upcoming year. You estimate next year’s income will be $35,000, and your subsidy amount is determined based on that estimate. Each month next year, your subsidy money goes directly to your health insurance company.

When you file your federal income taxes after the year ends, you discover that you actually made $45,000.

While filing your taxes, the amount of subsidy you received based on your estimated income will be compared to the amount you should have received based on your actual income. Since you under-estimated your income by $10,000, you received more subsidy money than you should have. You may have to pay back the difference.

There are three ways to avoid this scenario:

  • Notify your health insurance exchange if you’re getting a subsidy and you become aware that your actual income will be different than what you estimated when you applied for the subsidy. For example, if you get a raise, tell your health insurance exchange. The exchange will modify your subsidy for the rest of the year to help you avoid having to pay any money back.
  • Estimate your income accurately when you apply for a subsidy.
  • Don’t choose the advanced payment option. Collect your subsidy money when you file your taxes after the end of the year instead. By then, you'll know exactly what your income was.

If you do end up receiving a larger premium subsidy than you should have, the IRS caps the amount you have to pay back (with varying caps depending on your income), unless your income ends up over 400 percent of the poverty level. If that happens, you have to pay back the full amount of any premium subsidy you received during the year.

On the other hand, if your income ends up lower than you projected for the year (but still in the subsidy-eligible range, rather than the Medicaid-eligible range or the Medicaid coverage gap range in a state that didn't expand Medicaid), the additional premium subsidy will be added to your tax refund, or used to offset the amount of taxes you owe if you're not due a refund.​

8
Where to Learn More

Below are some sites with further information regarding health insurance subsidies: 

Can I Get Help Paying for Health Insurance? This page gives an overview of health insurance subsidies and will help you find out if you're eligible for a subsidy.

How Does the Premium Health Insurance Subsidy Work? This page will teach you how much subsidy money you'll receive from the premium tax credit, as well as the rules associated with it.

Learn more about the cost-sharing subsidy in How the Cost-Sharing Health Insurance Subsidy Works and How the Subsidy to Reduce Your Out-Of-Pocket Maximum Works.

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