Middle- and low-income families are often concerned about their ability to afford health insurance coverage. The Affordable Care Act (ACA) or Obamacare provides a premium subsidy to qualifying families and individuals to help make health insurance more affordable.
What is Obamacare Premium Tax Credits?
Obamacare or ACA subsidies are premium tax credits available to citizens whose net income is between 100% and 400% of the FPL. Subsidies under the ACA are used to pay for health insurance premiums for people who would otherwise be unable to afford it.
Typically, ACA-subsidized individuals are protected from rising premiums because Obamacare premium subsidies may increase (or decrease) in proportion to insurance premiums. This contributes to the affordability of health insurance for people with lower and middle-class incomes.
According to the Centers for Medicare and Medicaid (CMS), 87 percent of the 10.7 million applicants who purchased health insurance through the Marketplace in 2020 received ACA premium subsidies.
Will you receive an Obamacare Premium Subsidy?
Obamacare provides a sliding scale of subsidies, also known as tax credits. They cap the monthly premiums at a certain percentage of your gross annual income. Most people are eligible for Obamacare premium subsidies if their income is between 100 and 400 percent of the FPL.
However, be aware that the American Rescue Plan Act (ARPA), approved by Congress on March 11, 2021, provides additional, temporary relief to citizens struggling to find affordable health insurance during the industrial and social trauma of the COVID 19 pandemic. So for the next two years (2021 and 2022), many Americans will be able to take advantage of several ARPA provisions. It is designed specifically to make health insurance plans even more affordable than the standard Obamacare premium subsidies.
For instance, under the ARPA:
- No citizen or legally present resident who does not have direct connections to other affordable insurance (for example, through an employer, Medicare, or Medicaid) will pay more than 8.5 percent of their income for the Marketplace Silver coverage plan.
- Most individuals who receive at least one week of cash assistance in 2021 will be able to enroll in a Silver health plan with $0 premiums and cost-sharing reductions.
- People who earn 500 percent of the FPL and do not have access to other affordable health insurance may qualify for specific cost-sharing discounts in Marketplace programs available to lower-income individuals.
Suppose your income is less than 138 percent of the FPL and your country has developed Medicaid coverage. In that situation, you may be eligible for Medicaid insurance based on your income. If your income is less than the FPL, you will not qualify for Obamacare premium subsidies. However, you are more likely to be eligible for Medicaid coverage. Medicaid is a government-sponsored healthcare program for low-income individuals and families.
Eligibility for Obamacare Premium Subsidies
To be eligible for Obamacare premium subsidies, you must meet the following requirements:
- You currently reside in the United States.
- You’re a U.S. citizen or legal permanent resident.
- You are not presently imprisoned.
- Your income cannot exceed 400% (or 500% respectively in 2021 and 2022) of the FPL.
According to Federal Records, the 2021 FPL for a person is $12,8800. The federal poverty level varies depending on the number of people in your household. Poverty levels differ between Alaska and Hawaii. The Obamacare household income changes annually because poverty rates are adjusted for inflation each year.
The following are the federal poverty guidelines for 2021:
| Household size | 100% of Federal Poverty level (2021) | 400% of Federal Poverty Level (2021) |
| 1 | $12,880 | $51,520 |
| 2 | $17,420 | $69,680 |
| 3 | $21,960 | $87,840 |
| 4 | $26,500 | $106,000 |
| 5 | $31,040 | $124,160 |
| 6 | $35,580 | $142,320 |
| 7 | $40,120 | $160,480 |
| 8 | $44,660 | $178,640 |
Use the 2021 minimum income guidelines when determining whether you can minimize your insurance rates through the Obamacare premium subsidies if you purchase health insurance for 2022 coverage. Also, use the second and final columns of the chart above to confirm if you are eligible for an Obamacare premium subsidy if you purchase Marketplace coverage in 2021.
How do Obamacare Premium Subsidies work?
There are two types of ACA premium subsidies:
The more common type is known as “Advanced Premium Credits”. It can be used to pay for ACA insurance coverage premiums purchased on the Marketplace over the year. Thus, if you meet the criteria based on your expected income for the current year, you have two options:
1) Take the tax credit during the year and have it paid directly to your insurance provider to cover your premiums, or
2) Pay the insurance premium in full each month and get your tax credit when registering your income tax return.
If you take the prepaid tax credit each month (option no: 1 above) and underestimate your actual family income, you will need to pay back some of this advanced credit at the end of the year. However, if you overestimate your earnings, you will receive a modified tax credit reimbursement when you submit your income tax return. Thus to avoid this problem, report changes to your income by updating your Marketplace enrollment application online or contacting your insurance company.
It’s critical to understand that tax-credit subsidies only apply to ACA plans purchased through the Marketplace. They do not apply to ACA-compliant plans sold outside of the Marketplace, short-term health insurance, standalone prescription drug plans, catastrophic coverage plans, or insurance supplements for vision, dental, and critical illness care.
These alternative coverage plans may be less expensive, but they typically provide fewer benefits than Marketplace insurance plans.
The second type of ACA subsidy is a “CSR (Cost-Sharing Reduction) Subsidy.” If you qualify, CSR subsidies can help you save money on provided medical services by covering a portion of your deductible, copayment, or coinsurance.
What should you know about Obamacare Premium Subsidies?
Anyone interested in their Obamacare subsidy eligibility should be aware of the following facts:
- Your eligibility for Obamacare premium subsidy is based on your income during the year in which your health plan protects you. It does not depend on the earnings reported on your previous year’s tax return. This means that when applying for subsidies, you must estimate your income.
- If you earn more than expected during the year, you may be required to repay some or all of the subsidy dollars that were applied to your monthly health insurance premiums on your behalf.
- If you earn less than the expected amount during the year, you might be entitled to additional Obamacare premium subsidy assistance, which you can claim when you register your taxes for the year.
How do I Apply for ACA coverage for Health Insurance?
Apply for the Obamacare premium subsidy through your country’s health insurance exchange. If you obtain your health insurance elsewhere, you will not be eligible for the premium tax credit.
If you don’t feel comfortable applying for health coverage through your country’s exchange, you can seek assistance from a licensed and certified health insurance broker or an enrollment navigator/assister. Also, they can help you sign up for a plan and complete the financial eligibility confirmation process to check whether you qualify for the Obamacare premium subsidy.
If you live in a state that uses health government portals as its exchange (most do), you can use our website to locate a certified broker who can assist you in selecting a health plan. There are enrollment counselors and navigators who can guide you through the enrollment process and help you find the right insurance plan. Suppose your state has its exchange platform. In that case, the exchange website will have a tool that allows you to locate enrollment assisters in your region. If you’re unsure whether your state has its exchange platform, you can begin the process at your state agency and select your area. Moreover, if your state does not use online government portals, they will direct you to the correct website.
Medicaid Expansion and the Obamacare Premium Subsidy
The Affordable Care Act and Patient Protection made several changes to Medicaid coverage. The most widely discussed is the expansion of eligibility to adults with incomes up to 133 percent of the FPL.
Initially, a requirement, the June 2012 Supreme Court decision in the National Association of Independent Agency effectively made Medicaid development an option. To date, nearly three-quarters of states have decided to expand Medicaid coverage.
Aside from Medicaid expansion, Obamacare sought to increase the number of citizens with health insurance by establishing new premium tax credits for private insurance policies. It also implements several private insurance market reforms, such as eliminating preexisting condition exclusions and establishing annual thresholds on out-of-pocket costs. The government also allowed young adults to continue with their parent’s insurance plans until they reached age 26 and required most people to obtain minimum essential coverage.
CHIP and Medicaid Provisions
Other ACA provisions for CHIP and Medicaid include a maintenance-of-effort criterion that prevents states from limiting eligibility below what it was on the date Obamacare was enacted. The condition was already in effect for individuals until 2014 and children until the fiscal year (FY) 2019. The ACA also set the minimum Medicaid eligibility threshold for children at 133 percent of the federal poverty level, requiring some regions to move older children from separate CHIP programs into Medicaid. Before the Obamacare premium subsidy, the legally required eligibility levels for kids in Medicaid coverage differed by age. Infants between the ages of one and five were needed to be covered in Medicaid up to 133% FPL. While the children between the ages of six and eighteen were required to be covered up to 100% FPL.
The ACA also included provisions to streamline enrollment, eligibility, and renewal processes, e.g., requiring a single application for CHIP, Medicaid, and subsidized exchange coverage. As a result of these changes, Medicaid enrollment and spending have increased in all states, regardless of whether the state developed non-disabled adult insurance programs.
The ACA also introduced reductions to federally granted funds for disproportionate share hospital (DSH) supplemental payments, assuming increased coverage would decrease uncompensated care. Furthermore, these reductions have been postponed several times and are scheduled to take effect in 2021.
Ready to apply for Obamacare Subsidies?
You can apply for ACA subsidies through your state’s health insurance Marketplace or through qualifying authorized agents and private online Marketplaces that work with the government agencies. A good place to go for all of your insurance needs is Insurance Shopping. We provide you with online tools that will help you determine your eligibility for Obamacare subsidies and Marketplace plans in your area. Also, we have licensed agents who can assist you in locating insurance plans that meet your needs and fit within your budget. With round-the-clock support and a wide range of plans to choose from, you can be confident that Insurance Shopping will assist you in finding and maintaining the best plans for you and your family.
