The next open enrollment period for health insurance in 2018 starts on November 1, but you’ll need to plan ahead if you want to maximize the shorter signup period this year. You’ll have just 45 days to choose and enroll in a plan that fits your needs and budget. Fortunately, if you find that health insurance is more than you can afford, the ACA offers several different methods to make coverage more affordable. There are qualifications, however, so it’s important to understand the differences between cost assistance options. In addition, there are other ways that health insurance can be made affordable that are not part of the ACA.
Federal Poverty Level and MAGI
Assistance is based on your Modified Adjusted Gross Income (MAGI) and the federal poverty level. MAGI is your income adjusted for deductions and then modified by adding some of those deductions back for the computation. The federal poverty level is based on your household income and size. In 2017, the federal poverty level for a family of four is $24,470. This means that your entire household income based on your MAGI cannot be more than $24,470 to be considered at poverty level.
Premium Tax Credits
If your family income is between 100 percent and 400 percent of the federal poverty level based on your MAGI, you may qualify for premium tax credits through the health insurance marketplace (or via a broker’s site, like this one, that can take care of the assistance for you). Premium tax credits can be paid directly to the insurance company to lower your monthly premium or you can use the credit when you file your taxes at the end of the year.
This means that if you have a family of four and your household income is between $24,470 and $97,000, you may qualify for the credit. Tax credits, also referred to as subsidies, cap your monthly insurance premium between 2 and 9.5 percent, depending on your income. Caps are based on the price of the second-lowest cost silver plan, but you don’t have to choose this plan unless you want to. You can apply your subsidy amount to any level. If your income changes, the amount of your tax credit will also change. You can also decide what percentage of the tax credit you receive is paid to your health insurance provider.
Tips for Premium Tax Credit Use
Tax credits are associated with the health insurance marketplaces, like the federal one at HealthCare.gov, but in 2018, you can apply for health insurance using a broker and still benefit from subsidies. You can also qualify for the credit even if you do not have to pay taxes.
These subsidies are both refundable and payable in advance. Note, though, that you will have to file taxes to get the credit, even if you don’t owe any money to the government. If you don’t file, you risk not claiming the credit but you also risk the ability to use the credit in future years. You cannot file married filing separately in most cases, but you can file single or married filing jointly.
When you apply for coverage, you will be given an estimate of your premium tax credit as well as your family parameters. Taking the credit in advance will mean you must make an adjustment at the end of the year if your income changes, whether it decreases or increases.
Choosing to reduce the cost of your insurance using the credit reduces the amount you can use on your tax returns. If you use all of the credit to reduce the cost of your insurance and your income increases during the year, you will be required to repay the tax credit when you file your taxes. If you suspect your income may increase during the year, many tax experts recommend that you don’t use the entire credit to reduce your insurance costs, or that you save throughout the year to cover the cost of the repayment when you file your taxes if necessary.
For people who earn no more than 250 percent of the federal poverty level, extra cost assistance is available that could help offset out-of-pocket medical expenses for the year. This extra savings is known as cost-sharing reductions.
You can only qualify for cost-sharing reductions if you enroll in a silver-level health plan, unlike tax subsidies, which can be applied toward any level of plan. Silver plans have higher premiums than bronze plans, but it’s important to consider total cost when you determine what your healthcare needs will be. Silver plans have smaller deductibles, sometimes thousands less than bronze plans, and with cost-sharing reductions, you may find that you save a significant amount on your health insurance.
Cost-sharing reductions only apply to covered costs in your network, so compare plans to determine what services best suit your needs. The amount of cost-sharing reduction you are eligible to receive is based on income. Note that these reductions do not actually lower your premium in the same way the tax credits do. There are different levels of cost-sharing reductions, each based on actuarial value of the policy and your income. They are:
- CSR 94: 100 to 150 percent of the federal poverty level
- CSR 87: 150 to 200 percent of the federal poverty level
- CSR 73: 200 to 250 percent of the federal poverty level
The numbers refer to the “actuarial value,” which is the value of the policy from an insurance standpoint. Plans with an actuarial value of 70, for example, will pay for about 70 percent of your covered medical costs for the year, leaving you with around 30 percent in out-of-pocket expenses.
Under the ACA, Medicaid was expanded so that people could qualify for the program based on higher incomes. States could choose to expand their guidelines, and 31 states along with the District of Columbia did so. In states where Medicaid was not expanded, you may still qualify as each of these states sets its own criteria for qualification.
Medicaid and CHIP are designed for people who have low incomes, including families, children, pregnant women, the elderly and people with disabilities. In states that agreed to expansion, you must have a household income at or below 138 percent of the federal poverty level to qualify with no other criteria required.
One of the issues facing Medicaid today is that President Trump and Republicans in Congress believe that the program is riddled with fraud and mismanagement. They are proposing eliminating the expansion and creating either block grants or a per-capita system that would allow the federal government to give each state a set amount of money each year for the program, allowing states to have more control over enrollment. They believe that this will reduce fraud and make states more accountable for the program.
Despite recent healthcare reform bills failing in Congress, it is possible that the qualifications for Medicaid could change in the next few years. Many believe that proposed changes will result in millions losing coverage under the program. Right now, however, you can still pursue Medicaid as an option if your income falls within the guidelines where you live.
Catastrophic Health Plans
If you’re under the age of 30, you may be able to purchase a catastrophic health plan in lieu of major medical insurance, and it will still count as minimum essential coverage under the law (meaning you won’t have to pay the penalty fee for not having insurance). These plans have very low premiums but extremely high deductibles, as high as $6,850 in some cases.
Catastrophic plans are designed to protect healthy people from serious sicknesses or injuries and the healthcare costs they can incur while allowing them to pay for routine medical expenses out of pocket. Consider your medical costs carefully before choosing this route. Catastrophic coverage could save you money during major crises and in monthly premiums, but if you need regular medical care, they aren’t sufficient.
Outside the Marketplace
It may benefit you to choose a policy outside the marketplace. Although most of the attention has been focused on the marketplace, you do have the option of purchasing individual policies in every state except the District of Columbia. These are health insurance policies purchased directly from the insurance carrier or an agent.
Consumer protections put in place through the marketplace also apply to these policies, including pre-existing condition protections and covered essential health benefits, among others. You may find that a policy outside of the marketplace could provide the same coverage at a lower cost. It’s important to compare all options and research each policy, company and agent before purchasing an off-marketplace insurance policy to find one that fits in your budget.
There are many ways that you can make health insurance more affordable. Use generic medications instead of brand-name drugs where possible; check in with your doctor once a year for wellness screenings that might catch diseases or conditions earlier, when they’re less expensive and time-consuming to treat; take a proactive approach to your health, including eating well and exercising regularly; and following the guidance of physicians you trust. The healthier you are, the lower your chances are of needing costly medical care as you age, which will reduce your yearly healthcare costs and may enable you to purchase lower-premium, higher-deductible plans.