What are ACA plan subsidies?

There are two types of subsidies to help low- and moderate-income people afford health insurance in the ACA marketplace:

  • One subsidy helps reduce premiums.
  • The other subsidy helps reduce out-of-pocket expenses, such as deductibles and copayments.

You can only get these subsidies if you buy health insurance policies sold through the insurance marketplace. You can find links to your state's ACA marketplace at Healthcare.gov. Some states run their own marketplaces, while the federal government runs many others. Healthcare.gov will transport you to the correct marketplace.  

Private insurance companies offer marketplace policies, but they must meet ACA standards. These plans:

  • Can’t reject you 
  • Can’t charge more because of pre-existing health conditions
  • Must cover 10 essential health benefits, including hospitalizations, outpatient care, mental health and prescription drugs
  • Must have out-of-pocket spending limits for individual and family plans 

You usually have several health plan options for marketplace plans. ACA plans come in four tiers:

  • Bronze plans tend to have the lowest premiums but the highest deductibles and out-of-pocket costs.
  • Silver plans usually have slightly higher premiums but lower deductibles than Bronze plans.
  • Gold and Platinum plans generally have the highest premiums but the lowest out-of-pocket costs.

Find out more about ACA plan metal tiers.

Eligibility for both types of subsidies is based on your income. The premium subsidy is technically a tax credit that you receive in advance to help you pay your premiums. The subsidy goes directly to the insurance company and you pay the difference. 

If your income ends up being higher than expected by the end of the year, you may need to pay back some of the subsidy when you file your income tax return the following spring. If your income ends up being lower than expected when you applied for the policy, you may get back some money as a refund.

 

Who is eligible for ACA premium subsidies?

Your income must be between 100% and 400% of the federal poverty level to qualify for an ACA plan premium subsidy.  

The 2021 subsidies are based on your 2021 income compared to 2020 federal poverty figures. The limits are higher than many people expect. 

You can qualify for a premium subsidy in 2021 if your adjusted gross income for the year is:

  • Between $12,760 and $51,040 if you’re single
  • $17,240 and $68,960 for a couple
  • $26,200 to $104,800 for a family of four 

Also, you may qualify for Medicaid coverage if your income is below 100% of the federal poverty level, depending on your state’s income rules.

You need to estimate your income for the year when you buy a marketplace policy to figure out the subsidy’s size. The subsidy calculation is complicated, but it’s designed so that people pay no more than 2% to 10% of their income in premiums for a Silver-level plan on the ACA marketplace. The lower your income, the larger your subsidy. The government pays the subsidy, and you pay the remainder of the cost.

The Kaiser Family Foundation has a calculator that can help estimate your subsidy. The ACA marketplace websites have calculators to show exactly how much you'd have to pay for the policies available in your area after the subsidy.

 

How much do you save with ACA premium subsidies? 

ACA premium subsidies can save you hundreds of dollars each month, depending on your salary. 

Let’s look at an example. A 35-year-old couple in Chicago with two young children whose household income is $80,000 in 2020 could qualify for a subsidy worth $446 per month. That subsidy would bring their monthly premiums for a silver plan down to $652. 

Without the subsidy, they'd pay $1,098 per month for the coverage, according to the Kaiser Family Foundation calculator (those figures are based on 2020 costs; the calculator will be updated for 2021 before open enrollment begins in November).

If the family's income were $50,000, they'd qualify for a subsidy of $839 per month, which would bring their monthly premiums down to $259 for a Silver-level plan.

The subsidy calculation is based on the price of the second-lowest-cost Silver plan in your area, but you can use the subsidy to buy any plan on the marketplace. The size of the subsidy remains the same, even though the premiums for other plans are different. 

If you buy a Bronze plan, for example, your premiums will be even less. For example, the Chicago family with the $80,000 income would pay about $522 per month for a Bronze policy. The family with $50,000 income would pay about $129 per month for a Bronze policy.

The subsidy calculation can be tricky because it's based on your income for the full coverage year before knowing what you’ll make. Your 2021 subsidy is based on what you think you'll earn in 2021. 

Karen Pollitz, a senior fellow at the Kaiser Family Foundation, says gauging your next year’s income can be difficult. 

"When they apply, people should make the best estimate they can justify and then if circumstances change during the year, they can and should return to the marketplace to adjust their premium subsidy -- claiming more if income has dropped or rolling back subsidies if income has increased,” Pollitz says. 

 

Who is eligible for ACA cost-sharing subsidies?

If your income is below 250% of the federal poverty level, you can qualify for a cost-sharing subsidy in addition to the premium subsidy. For 2021, the income cut-off is:

  • $31,900 for singles 
  • $43,100 for a couple 
  • $65,500 for a family of four

This subsidy helps you pay out-of-pocket expenses, such as deductibles, coinsurance and copayments. 

 

How much do you save with ACA cost-sharing subsidies? 

Cost-sharing subsidies are another way to save money on your ACA plan. 

The ACA's out-of-pocket maximum in 2020 for a family of four is $16,300 (which includes deductibles and copayments, but not premiums). If we look at the Chicago family earning $50,000 again, they would receive a cost-sharing subsidy that would reduce their annual out-of-pocket spending limit down to $5,400 for a Silver policy. 

Insurers can figure out different ways to reduce the policy's deductibles and copayments to reach this out-of-pocket maximum. For example, the deductible may be reduced from a few thousand dollars down to a few hundred dollars. The family earning $80,000 wouldn't qualify for the cost-sharing subsidy because their income is too high.

You can only receive the cost-sharing subsidy if you buy a Silver policy. So if your income is below 250% of the federal poverty level, compare the cost and coverage of a Silver policy to a Bronze policy. The bronze policy may have lower premiums but may have higher out-of-pocket costs because it is not eligible for the subsidy.

 

How to find plans with health insurance subsidies

The best way to get a plan that’s eligible for subsidies is to go to the ACA insurance marketplace. 

You'll enter your income information and see all of the plans available in your area. You also can compare premiums as well as your actual cost after the subsidies are applied.

You can only shop for policies on the state marketplace at certain times. In most states, you can buy coverage or switch to a different policy during open enrollment every year, which runs from Nov. 1 to Dec. 15 for coverage to begin on Jan. 1. (Some states that run their own marketplaces have extended deadlines.)

You can also shop for policies on the state marketplace at other times if you qualify for a special enrollment period. You may become eligible for a special enrollment period if you:

  • Lose your job (and lose your employer's health insurance)
  • Move
  • Get married
  • Get divorced
  • Have a baby
  • Adopt a child 
  • Experience other eligible life changes

You generally have 60 days after the eligible event to get coverage on the marketplace, although there are some special rules in 2020 because of COVID-19. See Special Enrollment Periods for more information.