When it comes to purchasing Affordable Care Act (ACA) compliant health insurance, it’s important that you know where your income stands in relation to the Federal Poverty Line (FPL). The FPL is a measure of income issued every year by the Department of Health and Human Services (HHS). It’s used to determine your eligibility for certain programs and benefits, including savings on Marketplace health insurance, Medicaid, and CHIP coverage.

You may qualify for ACA subsidies. If so, the cost savings can be dramatic. It could mean the difference between paying full price for health insurance premiums and paying a portion of the premium—or no premium—for coverage from an ACA plan you select on the Marketplace (also called the state’s “exchange”).

What are ACA tax credit subsidies?

ACA subsidies are tax credits available to many people whose net income is between 100% and 400% of the FPL. ACA subsidies go toward paying health insurance premiums for those who might otherwise struggle to afford health insurance.

In general, ACA-subsidized people are also shielded from rising premiums as ACA subsidies usually increase (or decrease) in proportion to the premiums. This helps keep health insurance affordable for people with lower and middle class incomes.

In 2020,  87% of the 10.7 million people who purchased health insurance on the Marketplace received ACA premium subsidies, the Centers for Medicare & Medicaid (CMS) reported.

How do ACA subsidies for middle class insurance work?

There are two kinds of ACA subsidies. The more common kind is called “Advanced Premium Credits”, which can help pay ACA health insurance premiums purchased on the Marketplace through the year. If you qualify based on your projected income for the current year, you can either:

1. take the tax credit throughout the year to be paid directly to your health insurer to offset the premium of your coverage, or
2. pay the premium in full each month and receive your tax credit when you file your income tax return.

If you take the advance tax credit each month (option #1 above) and you underestimate your actual household income, you will owe some of this advanced money back at the end of the year. On the other hand, if you overestimate your income, you will receive an adjusted tax credit refund when you file your income tax return. To avoid this issue, report changes to your income by updating your Marketplace application online or contacting the Marketplace call center.

It’s important to know tax-credit subsidies apply to ACA plans you can purchase on the Marketplace. They are not available to ACA-compliant plans offered outside the Marketplace, catastrophic coverage plans, short-term health insurance, standalone prescription drug plans, or insurance supplements for such care as dental, vision, and critical illness. These alternative insurance plans may cost less, but provide fewer benefits than Marketplace plans offer, generally. The second kind of ACA subsidy is called a “Cost-Sharing Reduction (CSR) Subsidy”.

If you are eligible, CSR subsidies can reduce your out-of-pocket costs for covered services by paying a portion of your deductible, copayment, or coinsurance.

How do I know if I qualify for ACA Subsidies?

ACA subsidies are tax credits that are available to help middle-income and low-income people afford health insurance when they don’t have access to affordable employer-sponsored coverage or government-sponsored coverage, such as Medicaid or Medicare.

Your eligibility for certain health insurance programs and forms of assistance – including ACA subsidies –also depends on your projected household income. In 2021, those who earn between 100% and 400% of the 2020 FPL may qualify for ACA subsidies. Factors such as your household size and location can affect your eligibility for ACA subsidies and other health insurance programs.  The following chart shows the  income caps associated with Medicaid, CSR and ACA subsidies based on household size for calendar year 2021.

Income Limits For Subsidies Using 2020 Poverty Guidelines For The 48 Contiguous States & D.C.

Persons in Family/Household	100% of  Federal Poverty Line	138% of FPL: Medicaid Cap	250% of FPL: CSR Subsidies Cap	400% of FPL: Premium Tax Credit Cap
1	$12,760	$17,609	$31,900	$51,040
2	$17,240	$23,792	$43,100	$68,960
3	$21,720	$29,974	$54,300	$86,880
4	$26,200	$36,156	$65,500	$104,800
5	$30,680	$42,339	$76,700	$122,720
6	$35,160	$48,521	$87,900	$140,640
7	$39,640	$54,704	$99,100	$158,560
8	$44,120	$60,886	$110,300	$176,480

For families/households with more than 8 persons, add $4,480 for each additional person. For Alaska and Hawaii, see U.S. Department of Health and Human Services report. Additionally, other factors such as your age, household size, and location can seriously effect if you are eligible for ACA subsidies.

ACA subsidies: one of several affordable health insurance resources for the middle class.

For many middle-class individuals and families, the ACA subsidies provide a welcomed avenue for getting affordable health coverage on the Marketplace. This may be particularly important as Americans deal with the unique challenges of the COVID-19 pandemic, such as:

• Job loss and accompanying loss of employer-sponsored health insurance
• Job furlough, which may result in loss of employer-sponsored health insurance as well as wages
• Return to home of college-age children who are no longer eligible for student insurance
• Heightened risk of hospitalizations and medical care related to COVID-19 or actual treatment for COVID-19

One of the benefits of  Marketplace plans is that people who enroll in ACA-subsidized (and non-subsidized) plans may choose family or individual coverage for themselves or individuals within their families who do not otherwise have access to affordable health insurance. However, usually ACA plan enrollment is limited to the annual Open Enrollment Period or the Special Enrollment Period. Special Enrollment Periods are available to people who have a qualifying event, such as loss of a job and/or health insurance, divorce, relocation, etc. To learn more about ACA plan enrollment and qualifying life events, see our article, “The Special Enrollment Period under Obamacare”.

Another benefit to ACA subsidies is your flexibility in choice of ACA plans. Various levels of coverage are depicted by the metal labels assigned to the ACA plans. Although premium subsidies are based on the average cost of the second least expensive Silver plan, premium subsidies can be used to offset the premiums for any metal-level plan purchased on the Marketplace. Because the subsidies are relatively large, some people can get free Bronze plans, or Gold plans that are less expensive than Silver plans.

Also, you aren’t locked into an ACA Marketplace plan for a full year.  You can discontinue the ACA plan during the year if you return to work and/or other insurance, such as employer-sponsored group health insurance, becomes available to you.

Reasons you may not qualify for a subsidy

Some middle-class families may be excluded from ACA subsidies because employer-sponsored health insurance provides affordable health insurance for the employee, even though the employer’s share of the premium does not extend to family members’ coverage. If this is true in your case, you may find you cannot afford the cost of providing coverage for your spouse and/or children from your employer’s plan or from the Marketplace.

Other middle-class Americans aren’t eligible for ACA subsidies because their income is slightly above the 400% FPL and  may struggle to pay full price for ACA compliant coverage. This phenomena is referred to as “the subsidy cliff” as there is no phase out for those who make just over the income cut off for ACA subsidies.

According to an eHealth analysis, the subsidy cliff was $6,771 for a typical family of three. This means that earning an extra $204 per year – which would increase their income from 400% to 401% of the FPL and possibly make them ineligible for ACA subsidies – could cost them $6,771 in federal subsidies. Furthermore, a 2018 a household of three making between $81,884 and $128,795 in annual income would not be able to afford the lowest-priced health insurance plan. On average, the cheapest bronze plan would cost them $10,368 per year, which would be classified as unaffordable according to ACA rules.

Options for middle class individuals who don’t qualify for a subsidy

Keep in mind you aren’t restricted to ACA compliant plans on the Marketplace. If you are not eligible for ACA subsidies, you may want to compare health insurance options outside the Marketplace. eHealth is a private exchange that works with insurance carriers that offer ACA-compliant plans as well as a wide range of other health insurance, such as short-term health insurance and medical indemnity health insurance.

We invite you to take a closer look at health insurance for individuals and families if you’d like to compare all available options and find a plan that fits your budget. Our licensed health insurance agents are ready to help you assess whether you qualify for ACA subsidies, compare health insurance plans’ benefits and cost, and select the plan that best meets your personal needs.