Put simply, a health insurance subsidy helps you to pay for your health insurance. Subsidies lower your monthly premium, which is the amount you pay for health insurance coverage every month. Some subsidies also help by lowering other costs, like your copays. A subsidy is not a loan. You will not have to pay them back. They are just assistance with paying for health care.
How much of a subsidy you can get (if you can get any) depends on your estimated annual income. More specifically, you need to know how much your income is in relation to the federal poverty guidelines, also called the federal poverty level, or FPL. The guidelines are adjusted annually and if your expected income for the upcoming year is less than 400% of the poverty level for the upcoming year, you qualify for some kind of subsidy.
There are two types of health insurance subsidies available: the advance premium tax credit (APTC) and cost-sharing reductions (CSRs). Medicare is also worth considering.
How much a subsidy is worth
How much of a subsidy you can get will depend on which state you live in, your income, and the cost of the second-lowest cost Silver plan (SLCSP).
The biggest determinant of how much of a subsidy you can get is how your income compares to the federal poverty level. You should be able to get a subsidy if your income is worth 400% or less of the poverty level. However, each state may also have its own guidelines around how much aid they can offer and who qualifies.
Based on your income, your state will determine the maximum amount that it thinks you should reasonably be paying on your health insurance premiums. This maximum spending level is known as the premium cap. The premium cap is written as a percentage of your income. For example, a state may say that someone with an income of $40,000 shouldn’t be spending any more than 9% of their income on insurance premiums.
In order to standardize how much a premium is for a marketplace plan, the government uses the premium of the second-lowest cost Silver plan (SLCSP).
The subsidy you receive is the difference between the premium for the SLCSP and your premium cap, which your state has set for your income level.
Learn more about the second-lowest cost Silver plan and how to calculate your exact subsidy.
A review of the metal tiers
As a quick review, health care plans available through a health insurance marketplace are categorized into four levels, each of which is named after a metal: Bronze, Silver, Gold, Platinum. Bronze plans usually have the lowest premiums, followed by Silver plans.
The level of the plan is unrelated to the quality of the plan’s coverage. The difference is in how the insurance company splits the costs with you. So if you have a Bronze plan, the insurance provider will generally cover 60% of your insurance costs, which mostly applies after you hit your deductible.
Which type of subsidy you are trying to get will determine which of the metal tiers you can use. The advance premium tax credit is available for any metal tier, but cost-sharing reductions require you to use a Silver plan, as we will discuss in the next sections.
Advance premium tax credit (APTC)
The advance premium tax credit (APTC) is a tax credit that helps lower the costs of monthly health insurance premiums. You may qualify for the credit if your household income is between 100% and 400% of the federal poverty level.
The value of the APTC, as described in the previous section, is the difference between the premium of the second-lowest cost Silver plan and the premium cap your state has set for your income level. You can use the APTC for any plan available through the marketplace.
There are two ways to use the APTC: You can take it in advance or get a credit when you file your tax return.
If you opt to take the credit in advance, you can use it throughout the year by applying the credit directly to the payments you make to your insurance company. Then, when you file your tax return, you report the exact amount of subsidy you used throughout the year. You only need to provide an estimate of your annual income in order to qualify for a subsidy, so your tax return allows the government to check that you received the proper subsidy based on what your actual income was for the year.
You can also opt to receive the entire credit when you file your taxes. The biggest challenge with this option is that you will still have to pay the full premiums throughout the year, which may not be affordable for many of the people who qualify for subsidies.
Cost-sharing reductions (CSRs)
Cost-sharing reductions, sometimes called extra savings, work similarly to the premium tax credit, with a couple of key differences. They only apply to Silver plans, unlike the tax credit, which you can apply to any health insurance plan. However, you do calculate the value of your subsidy in the same way, by using the second-lowest cost Silver plan.
A CSR also applies to more than just your monthly premiums. If you qualify for a cost-sharing reduction and you enroll in a Silver plan, you automatically get a version of that Silver plan that has reduced deductibles, copayments, and coinsurance. You will also receive a lower out-of-pocket maximum.
How to apply for health care
Whether or not you get a subsidy, signing up for a plan from the marketplace is the same. You have to wait until Open Enrollment in order to choose a new plan. For 2021 plans, that’s the period from Nov. 1, 2020, to Dec. 15, 2020 (longer in some states). Whichever plan you choose will go into effect starting on Jan. 1 of the next calendar year.
The only way to sign up for a health plan outside of Open Enrollment is if you qualify for Special Enrollment. Special Enrollment is available to people who experience a qualifying life event (QLE). This is a major change to your life, such as getting married or divorced, having a baby, or starting work for a new employer.
Learn more about Special Enrollment and how you can qualify.
Medicaid isn’t a subsidy, but it is worth mentioning here. Medicaid is a health insurance program for low-income families and individuals who need help paying for health coverage. It’s partially federally funded, but each state also helps to fund and to run its Medicaid program. Because states help run their programs, eligibility varies by where you live.
Eligibility for Medicaid changes depending on multiple factors, including your annual income, disability status, age, your household size, and whether or not you’re pregnant. In general, any American making up to 133% of the federal poverty level could qualify. The federal poverty level for an individual in 2019 is $12,490 in all states except for Alaska and Hawaii, which have slightly higher levels.
If you’re eligible for Medicaid, you can apply all year round through either your state's Medicaid website or healthcare.gov, the federal health insurance marketplace website.
Find out whether or not you qualify with our state-by-state guide to Medicaid.