The goal of the Affordable Care Act was to make health insurance more accessible to all Americans. Increasing the affordability of insurance was a large component of that goal. In an effort to bring down the costs of coverage for middle-class Americans, the ACA established financial assistance options to reduce how much you pay in premiums and other costs, like copays and deductibles. If you make between 100 and 400 percent of the federal poverty level (FPL), these cost-reducing programs may help you save money on your coverage.
Advance Premium Tax Credits
About 80 percent of people who buy Obamacare plans on the HealthCare.gov exchange qualify for advance premium tax credits, also known as subsidies. But these subsidies are not an automatic benefit for anyone who buys a private health plan. To receive subsidies, you must not have access to an employer-sponsored health plan, or your job-based insurance must be deemed unaffordable per the limits set by the ACA.
You also have to meet certain income guidelines. Your modified adjusted gross income (MAGI) must fall between 100 and 400 percent of the FPL, which is calculated by taking into account both your household income and your family size. In other words, the FPL is higher for a family of four than it is for a family of two or an individual.
Contrary to what you might think, you don’t have to shop on a health insurance exchange site to get a tax credit. You can benefit from Obamacare subsidies whether you purchase your insurance directly through the healthcare marketplace or you rely on the assistance of a broker to help you obtain health insurance in 2019. When you apply for your ACA 2019 plan, you will provide information about your income and family size. This information will be used to determine your eligibility for premium tax credits. The subsidy amount for which you qualify will also depend on the cost of the second-least expensive silver health plan in your area. (This is known as the “benchmark plan” and it determines cost assistance for everyone.)
Advance premium tax credits will cover part or all of your monthly premium costs. The federal government will submit your subsidy directly to your insurer. Each month, you’ll be responsible for paying the remaining portion of your premium.
You aren’t required to use your full tax credit each month. In fact, you can opt to pay your full premium each month instead of claiming any advance premium tax credit. Any funds that weren’t applied to your major medical premiums will be returned to you in your tax refund the following year.
We want to emphasize the importance of knowing your income or, in the case of self-employed or freelance workers, knowing how to estimate it correctly. If you get a subsidy but end up earning more than you thought for the year – thus reducing the amount of cost assistance that you qualify for – you will owe the difference back when you file your taxes for the year.
Cost-Sharing Reductions
Some people qualify for both ACA subsidies and an additional type of assistance known as cost-sharing reductions. This additional Obamacare benefit is available to individuals and families whose household income falls between 100 and 250 percent of the FPL. You can receive this benefit only if you purchase healthcare coverage at the silver level. As with ACA subsidies, you won’t qualify if you have access to affordable job-based insurance.
Cost-sharing reductions aren’t contributions to your premium payments. Instead, they’re payments made on the part of insurance companies to reduce your personal responsibility for healthcare expenses. This is accomplished by increasing the actuarial value of the plan. The actuarial value for which you qualify depends on your household income.
- Incomes above 250 percent of the FPL do not qualify for cost-sharing reductions. Silver plans at this level have an actuarial value of 70 percent.
- Households with incomes between 201 and 250 percent of the FPL qualify for plans with actuarial values of 73 percent.
- Individuals and families with incomes between 151 and 200 percent of the FPL can purchase silver plans with actuarial values of 87 percent.
- Those with incomes between 100 and 150 percent of the FPL can benefit from plans with actuarial values of 94 percent.
Not sure what any of that means? It boils down to value. If your income qualifies you for cost-sharing reductions, then you’ll qualify for a health plan with better actuarial value (meaning it covers a greater percentage of your healthcare costs) for less money than the average person would pay for the same plan. And the “discount,” so to speak, is automatic based on your income. The insurance company takes care of it because they’re required to under the ACA.
The federal government used to reimburse health insurers for the expense of these benefits, but that stopped in 2017. The year before, a challenge to cost-sharing reduction payments (how insurers got reimbursed for discounting their plans) had been successful in halting payments based on questions of legal funding, and the Trump administration decided last year to stop them altogether going forward. Insurers responded by raising the cost of their plans – particularly silver-level plans since these are the benchmark for cost assistance – to make up for this loss of reimbursement. Of course, this increased advance premium tax credits across the board since cost assistance goes up with premium prices, so the government is still footing the bill for cost-sharing reductions.
Unlike with premium subsidies, if you underestimate your income when applying for Obamacare 2019, you won’t end up having to pay back any benefits provided to you through cost-sharing reductions.
Lower Out-of-Pocket Maximum
The federal government sets guidelines for how high a major medical plan’s out-of-pocket maximum can be each year. This is the highest amount of money that you can be required to pay for covered healthcare services in a calendar year; it does not include premium costs. Federal limits on out-of-pocket maximums are lower for people who qualify for cost-sharing reductions.
In 2018, the government set a cap of $7,350 for out-of-pocket maximums for individual plans and $14,700 for family plans. This applies across all tier levels. But there are lower limits for people who get cost-sharing reductions. If you earn between 100 and 200 percent of the federal poverty limit, your cap will be $2,450 for an individual plan (doubled for families). Those earning between 201 and 250 percent of the FPL get capped at $5,850 for individual plans and twice that for families. To reiterate, cost-sharing reductions are only available at the silver level.
Other than setting limits on out-of-pocket maximums, the federal government does not specify what an insurer must do to increase the actuarial value of a plan purchased on the marketplace in 2019. Carriers might charge lower copays and coinsurance rates while charging a higher deductible to make the math work out on actuarial value.
Lower-Income Options
Advance premium tax credits and cost-sharing reductions are available to you only if your household income is at least 100 percent of the FPL. If your income is lower than that, you won’t qualify for the help. In some states, you might qualify for Medicaid instead. Since the ACA became law, most states have expanded their Medicaid programs to include higher income parameters and a broader applicant base.
However, some states have chosen not to expand Medicaid. If you live in one of the states that opted out of expansion, you may not qualify for this government-assistance program, even if you have a low income. People who don’t make enough to qualify for ACA assistance but who make too much to be approved for Medicaid are said to be stuck in the Medicaid gap.
Buying full-price major medical insurance might be an unrealistic prospect if you’re stuck in the Medicaid gap. Instead, you might need to rely on receiving healthcare services from free or sliding-scale clinics. And if you need coverage for emergencies in the interim, short term health insurance offers an affordable safety net.
The ACA sought to make health insurance more affordable, and for many people, it accomplished that goal. If you’re still unsure about your options or where to get started, let us help. Asking questions and exploring the plans that are available to you – on and off the exchange – is the only way to know for sure how to afford health insurance in 2019.