Many of those enrolling through an Affordable Care Act exchange or marketplace receive federal premium subsidies and cost-sharing reductions, yet any significant improvement would require undoing tax cuts worth $2 trillion over 10 years.
These programs have made health insurance affordable for millions of Americans, but navigating them can be complex. Here is a guide that can help you navigate these rules more easily.
Cost-sharing reductions
Cost-sharing reduction (CSR) subsidies reduce the amount enrollees pay towards seeing health care providers. They are an integral component of the Affordable Care Act and can be applied to plans purchased both on and off of ACA exchanges. CSRs aim to lower out-of-pocket costs for people with lower incomes, making insurance more accessible. These subsidies may cover copayments, deductibles or coinsurance fees, while premium subsidies help cover additional monthly health insurance costs.
The Affordable Care Act was intended to make health insurance accessible and affordable for all Americans. It achieves this through various initiatives including legislated guarantees against insurer rejection for preexisting conditions, an individual mandate for having coverage, refundable tax credits that can be applied toward private health plans through marketplace/exchange programs or Medicaid expansions, as well as subsidies of 400% of federal poverty levels that help cover these costs for those eligible for private plans through these marketplace/exchange programs or Medicaid expansions.
CSRs are payments directly made to insurance companies to lower out-of-pocket costs of individuals who choose Silver health plans on the marketplace. These plans typically cover 70 percent of anticipated healthcare costs (known as their actuarial value), so CSRs ensure these individuals do not spend too much out-of-pocket on healthcare costs.
Costs associated with health care can be prohibitive for those with high medical expenses and limited disposable income, according to one recent study. When faced with excessive out-of-pocket expenses, individuals may avoid or delay needed treatments, leading to worse health outcomes and even bankruptcy. Furthermore, the RAND Health Insurance Experiment found that increasing cost sharing reduced utilization for chronically ill individuals as well as those on limited income.
After an ongoing federal subsidy for cost-sharing reductions expired in late 2017, states were given permission to add this benefit into their Affordable Care Act premium subsidies; for instance Maryland includes cost-sharing reductions as part of its premium subsidies while New Mexico only offers these state-funded subsidy plans at Silver level plans.
Premium tax credits
The Affordable Care Act (ACA) provided premium subsidies – known as advance payment tax credits – to assist those purchasing health insurance on marketplaces (or exchanges). These premium subsidies are only available for plans offered through an ACA marketplace, and are paid directly to insurers; you can take them now or claim them later when filing taxes.
The Congressional Budget Office (CBO) reported that subsidies were effective in lowering the uninsured rate, with states that implement reinsurance programs lowering marketplace premiums further still. However, CBO cautioned that some people may need to pay higher premiums in order to afford such coverage.
Individuals whose income falls within 400% of the poverty line typically qualify for premium tax credits. These subsidies help cover the costs associated with purchasing a benchmark health plan which costs no more than 8.5% of household income – up to an annual maximum contribution for families with two children of $3,425.
Premium tax credits are advanced payments from the government that are sent directly to your health insurance company on your behalf, which can be used to reduce monthly premiums. Taxpayers only become liable for this advance payment when filing taxes; if your income fluctuates more than expected and makes more money than anticipated, any excess advance payments may need to be returned in full.
To be eligible for a premium subsidy, it is necessary to submit an application through either the Affordable Care Act Marketplace (ACA Marketplace) or federally facilitated Marketplace (FFM). When filling out your application you will be asked for information such as age, address, household size and citizenship status; after which the marketplace will estimate your annual income before notifying you if eligible to receive a subsidy payment.
If you are eligible for a premium subsidy, the easiest way to claim it is through your online Marketplace account or calling your state’s marketplace or FFM for assistance applying. Many states already provide additional financial support through marketplace enrollee subsidies (like reducing silver plan costs by up to 40 percent!). These additional subsidies can make a big difference when it comes to providing coverage for low-income families.
State-funded subsidies
Additional to ACA premium subsidies, some states have implemented state-level programs designed to lower health care costs. New Jersey launched a state-based premium subsidy program called Get Covered NJ which launched in 2021 and provided state-based subsidies; its income limit was raised significantly higher than ACA’s cap of 300% while it also featured cost-sharing reductions.
The Affordable Care Act’s premium and cost-sharing subsidies have made marketplace coverage more accessible for millions of Americans, though an estimated 30 million non-elderly people do not meet income eligibility thresholds for financial assistance under ACA; by offering additional subsidies they could improve affordability while increasing marketplace participation.
Researchers have also identified that increasing premium subsidies could help strengthen market power for insurers. According to them, beneficiaries in more competitive markets seem to gain from subsidized rate increases more than reduced ones, and vice versa. A recent study also noted that those enrolling due to improved subsidies tend to be healthier individuals who spend less on health care overall than those who don’t enroll as a result.
Subsidies have also helped improve the quality of marketplace plans and reduce disparities in coverage, yet critics argue they are too generous and encourage political corruption. According to them, these subsidies favor big business which then funnel money back into politics as payment for getting government support in return; this practice is known as rent seeking or regulatory capture.
Concerns remain regarding the federal government’s limited ability to increase subsidies due to budget restrictions. For example, the 2017 tax bill cut $314 billion from health programs over 10 years; undoing these cuts would allow significant subsidy improvements by increasing government revenues.
Subsidies must be seen as advance payments for next year’s coverage, meaning it must be returned if your income increases or you cancel the plan. This differs significantly from other forms of tax aid, which typically requires upfront payment but must then be returned when earnings surpass estimates.
Tax-credit subsidies
The Affordable Care Act created premium subsidies, or tax credits, to make health insurance more accessible to low-income Americans. These tax credits are paid directly to insurance companies to offset monthly premium costs before reconciling on an individual’s federal tax return; eligibility depends upon household income, coverage costs in their area and benchmark plan costs; most exchange enrollees qualify for such premium subsidies.
The Affordable Care Act requires everyone to have at least minimum level of health coverage or face a penalty, which shouldn’t be an issue for those enrolled through their employer or Medicare, but may be problematic for individuals purchasing their own health insurance. To make healthcare more accessible for these individuals, government-sponsored marketplaces known as exchanges were established; each exchange offers various policies from which individuals may select. It is essential that people familiarize themselves with how premium subsidies work to help make informed choices regarding which plan will meet their individual needs and budget constraints.
To qualify for a premium subsidy, your income must fall within 400% of the poverty level and purchase health insurance through exchanges (or SHOP marketplace if applicable) such as HealthCare.gov or SHOP marketplace for small businesses. In order to assess eligibility, estimate your annual income – any more earnings could require you to repay some or all of your subsidy.
Premium subsidies are the cornerstone of the Affordable Care Act’s insurance marketplace, designed to ensure most exchange enrollees don’t pay more than 8.5% of their income for their benchmark plan. With the American Rescue Plan and Inflation Reduction Act coming into play for 2021-2025, premium subsidies became even more robust.
As well as premium subsidies provided under the ACA, some states provide additional assistance to enrollees of marketplace insurance plans. Reinsurance helps reduce high-cost enrollee costs while keeping premiums affordable for everyone – particularly younger consumers helping subsidize older and sicker consumers; an essential aspect of improving access to affordable health coverage. This has contributed significantly to its success and improvement under ACA.