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04-18-2014

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Several programs subsidize insurance costs for individuals with incomes under a specified threshold. In some cases it is possible for individuals to enroll in a health insurance plan without paying any premiums. This page explains Affordable Care Act subsidies, the Medicaid program, the Children's Health Insurance Program, and the Medicare Extra Help program.

Affordable Care Act subsidies

The Affordable Care Act created subsidies for both premiums and out-of-pocket costs for enrollees that have household incomes between 100% and 400% of the federal poverty level but do not qualify for Medicaid, Medicare, or CHIP. Subsidies are in the form of tax credits which are obtained through state or federal exchanges during the application process.

An enrollee's premium subsidies are determined by their household income and the premium cost of the second cheapest marketplace silver plan in their rating area (the benchmark silver plan). If the enrollee is a smoker, then their benchmark plan is for non-smokers. The enrollee's applicable percentage is a function of their income that ranges between 2% and 9.5%. If the product of the enrollee's applicable percentage and income is at least the premium cost of the benchmark silver plan, then the enrollee gets no premium subsidy. Otherwise the enrollee's maximum possible subsidy is the difference between the cost of the benchmark silver plan and the product of the enrollee's income and applicable percentage. Since the benchmark silver plan has premium costs that increase with age, many 18-34 year old enrollees with incomes between 300% and 400% of the federal poverty level fall into a subsidy gap in which they cannot qualify for subsidies.

If the enrollee purchases a plan more expensive than the benchmark silver plan, then they will still receive the same subsidy as they would for the benchmark silver plan. The same is true for plans less expensive than the benchmark silver plan, unless the premium cost of the plan is less than the subsidy. In this case the enrollee pays nothing for premiums, but does not receive any additional tax credits.

Enrollees with incomes at most 250% of the federal poverty level can qualify for out-of-pocket subsidies if they buy a cost-sharing reduction silver plan. The cost-sharing reduction silver plans are designed so that enrollees with incomes up to 150% of the federal poverty level would typically pay 6% of health care costs instead of the usual 30% for silver plans. Enrollees with incomes between 150% and 200% would pay 13% and enrollees with incomes between 200% and 250% would pay 27%. Moreover these enrollees also qualify for lower caps on out-of-pocket costs. Those with incomes up to 200% of the federal poverty level qualify for caps that are $2,250 for individuals and $4,500 for families. Those with incomes between 200% and 250% of the federal poverty level qualify for caps that are $5,200 for individuals and $10,400 for families.

Medicaid

Medicaid is a federal and state program that subsidizes some or all health insurance costs for several low-income eligibility groups, including pregnant women, the disabled, seniors needing to be in a nursing home, children, and parents of eligible children. Medicaid benefits vary by state, but usually they include primary care visits, prescription drugs, lab tests, x-rays, and inpatient/outpatient hospital services. Benefits can also include services for pregnant women and screening for breast and cervical cancers.

Together the Medicaid and CHIP programs benefit nearly 60 million Americans. The Affordable Care Act expanded Medicaid coverage in 2014 by setting an income of 133% of the federal poverty level to be the Medicaid eligibility threshold for people younger than 65, but so far not every state has implemented this expansion. People that are at least 65 years old can be eligible for both Medicare and Medicaid. Those that are dual eligible may receive premium and out-of-pocket cost reductions through the Extra Help program.

A HealthPocket study from May 2013 found that fewer than half of health providers in the United States accept Medicaid payments. Most states use a system in which enrollees receive Medicaid services from organizations under state contracts called Managed Care Organizations (MCO). Medicaid enrollees in these organizations get primary medical services from a primary care case manager that also coordinates referrals for specialized services.

Children's Health Insurance Program (CHIP)

The Children's Health Insurance Program (CHIP) provides coverage to almost eight million children up to age 19. Pregnant women in most states can also be eligible for CHIP benefits. Benefits include free routine check-ups, as well as other services (some that may require copayments) such as immunizations, dental care, vision care, lab tests, x-rays, and inpatient/outpatient hospital care. States can choose to charge CHIP beneficiaries monthly premiums, but these costs are limited to at most 5% of an enrollee's family's monthly income.

States can implement their CHIP programs in three different ways. Seven states, as well as DC and five US territories, implemented Medicaid Expansion CHIP programs that provide the standard Medicaid benefit package to CHIP beneficiaries. 17 states have separate Medicaid and CHIP programs, while 26 states have some combination of the two approaches.1

Medicare Extra Help

The Medicare Extra Help program reduces the costs of prescription drugs (premiums, annual deductibles, copayments, and coinsurance) for eligible Medicare beneficiaries. People are eligible for Extra Help if they have original Medicare (Parts A and B), they live in one of the fifty states or DC, their combined savings, investments, and real estate is not worth more than $26,860 for a married couple and $13,440 for an individual, and their annual income is limited to $23,265 for a married couple or $17,235 for an individual.2

Medicare beneficiaries that qualify for full Extra Help will pay no more than $2.55 for a generic drug prescription (or a brand-name drug treated as generic) and $6.35 for any other brand-name drug. They also will pay no more than 15% of drug costs on their plan's formulary until they reach the cap on out-of-pocket costs.3 Moreover Extra Help beneficiaries do not enter the Medicare prescription drug plan coverage gap.4

Sources:

1 Children's Health Insurance Program (CHIP)
2 Extra Help With Medicare Prescription Drug Plan Costs
3 If you get extra help, make sure you're paying the right amount
4 Costs in the coverage gap



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