Health Insurance Subsidy
- What are the Obamacare Health Insurance Subsidies?
- 2014 Federal Poverty Levels
- Annual Out-of-pocket Maximums
- Federal Rulings on Obamacare Subsidies
What are the Obamacare Health Insurance Subsidies?
In the interests of promoting enrollment in health insurance, the Affordable Care Act (otherwise known as Obamacare) legislated a government assistance program to offset the costs of health insurance. These health insurance subsidies are granted on the basis of income and, depending on the level of need, reduce:
- Health insurance premium expenses
- Co-payments for healthcare services
- Annual out-of-pocket maximum for healthcare services
Unlike many federal aid programs, the subsidy benefits extend beyond low-income individuals and families to those in the moderate-income range. The subsidies are provided in the form of tax credits. The tax credits are obtained through state exchanges or federal exchanges during the health insurance application process. To be eligible for a subsidy, a person cannot be eligible for coverage in Medicare, Medicaid, or the Children’s Health Insurance Program (CHIP). Individuals who enroll in employer-provided health coverage that receives the minimum contribution level from the employer are also ineligible for a subsidy.
The health insurance subsidies cap insurance premiums as a percentage of income. However, "income" in this content refers to your Modified Adjusted Gross Income (MAGI). MAGI is determined by IRS rules pertaining to your taxable wages and other income minus applicable adjustments.
The below chart illustrates the sliding scale of caps where the cost of health insurance increases according to income level.
|Modified Annual Adjusted Gross||Premium After Government Subsidy|
|Up to 133% FPL||2% of income|
|133% to 150% FPL||Sliding scale from 3% of income to 4% of income|
|150% FPL to 200% FPL||Sliding scale from 4% of income to 6.3% of income|
|200% FPL to 250% FPL||Sliding scale from 6.3% of income to 8.05% of income|
|250% FPL to 300% FPL||Sliding scale from 8.05% of income to 9.5% of income|
|300% FPL to 400% FPL||9.5% of income|
|Above 400% FPL||No government subsidy|
The value of the subsidy that intends to enforce the premium cap works as follows. The annual cost of the benchmark Silver Plan is used as the estimated cost of health insurance coverage even if you choose a different plan. If the benchmark silver plan costs $10,000 annually and your income cap for premiums equals $4,000 then the subsidy is a tax credit worth $6,000 (i.e. $10,000 minus $4,000). If you buy a more expensive plan, then you would receive the same subsidy. If you buy a plan with premium costs less than the subsidy amount, then your subsidy would be limited by the premium costs.
2014 Federal Poverty Levels
Subsidies, as mentioned earlier, are tied to the Federal Poverty Level. The table below shows Federal Poverty levels for 2014 in the 48 contiguous states and DC.
|Federal Poverty Level||Individual||Family|
For people earning less than 250% of the Federal Poverty Level that buy a silver plan, co-payments for covered health care services will be reduced so that the plan pays a higher percentage of medical costs for a typical enrollee population. A regular silver plan pays 70% of covered health expenses for a typical enrollee population. Typical enrollees with incomes up to 150% FPL will only have to pay 6% of their covered health expenses. Those with incomes between 150% and 200% FPL will be responsible for 13% of covered health expenses, while those with incomes between 200% and 250% FPL will be responsible for 27%. For more information see the page on cost-sharing reduction silver plans.
Annual Out-of-Pocket Maximums
While the Affordable Care Act places a maximum annual limit on out-of-pocket cost for covered healthcare expenses, there are income-based subsidies to further reduce these costs. The maximum out-of-pocket amount is reduced as follows:
|Income||2014 reduced maximum annual individual out-of-pocket cost||2014 reduced maximum annual family out-of-pocket cost|
Federal Rulings on Obamacare Subsidies
The fate of Obamacare subsidies on the federal health insurance marketplace, Healthcare.gov, is currently unclear. The legality of these subsidies are currently being reviewed by the Supreme Court within the case King v. Burwell. Prior to the Supreme Court hearing, there were conflicting decisions on this issue by separate federal appeals courts. On July 22, 2014 a federal appeals court determined that subsidies are illegal if provided by the federal health insurance exchange, as opposed to an exchange set up by the state. However, on that same day, a separate federal appeals courts determined that the subsidies purchased on the federal exchange are legal.
The Supreme Court’s decision on King v. Burwell is expected to be announced in late June or early July of 2015.