What are Obamacare Subsidies?

One of the major provisions of Obamacare (the law more properly known as the Affordable Care Act) allows for individuals and families with qualifying incomes to receive government assistance, in the form of Obamacare subsidies, that will help them pay for their health insurance.

These Obamacare subsidies, also known as “premium tax credits,” can make a big difference when it comes to the affordability of major medical health insurance. But how do these Obamacare subsidies work? Who qualifies for them? And what do you need to know before you apply for subsidies?

In this article we’ll answer these and other questions about government health insurance subsidies under Obamacare.

Why does Obamacare offer subsidies?

To put it simply, Obamacare offers subsidies because health insurance is expensive and without help many people can’t afford it. If they want to comply with the law and get Obamacare coverage, many people need subsidies.

According to figures from eHealth, Inc., the average monthly premium for an Obamacare-compliant individual health insurance plan selected during the 2016 open enrollment period was $321 for someone without subsidies*.

Families pay even more. According to eHealth’s figures, the average monthly premium for non-subsidy families (of 2 or more persons) was $833 during the 2016 Obamacare open enrollment period*.

Who gets Obamacare subsidies?

Please view this short video below that explains how you can qualify for Obamacare subsidy:

In order to qualify for government subsidies under Obamacare, you must meet certain criteria related to household income.

You may qualify for Obamacare subsidies if your household income (technically, your “modified adjusted gross income” on your federal taxes) is no more than 400% of the federal poverty level.

The federal poverty level can vary depending on where you live, but for most Americans in 2016 that comes out to about $47,000 for a single person or about $97,000 for a family of four. If you earn less than that amount, you may qualify for Obamacare subsidies.

In fact, if you earn less than 250% of the federal poverty level, you may qualify for additional Obamacare subsidies that can lower your annual deductible or the copayments under your Obamacare health insurance plan.

If you earn less than 133% of the federal poverty level, you may qualify for Medicaid under Obamacare, though eligibility requirements for Medicaid may vary from one state to another.

It’s important to note that you will generally not qualify for Obamacare subsidies if you are eligible for employer-sponsored health insurance, are enrolled in Medicare or some other form of government-sponsored health insurance, are not a citizen or legal resident of the United States, or if you are currently incarcerated. Other factors may also apply.

How much are Obamacare subsidies worth?

Assuming you qualify for them, the dollar value of your Obamacare subsidies may vary. If your household income is closer to the cap of 400% of the federal poverty level, your subsidies may be less substantial than if you earn 150% of the federal poverty level.

Depending on where your household income falls below 400% of the federal poverty level, Obamacare subsidies will typically limit your personal expenses for monthly health insurance premiums to somewhere between about 2% and 9.5% of your taxable income.

The dollar value of subsidies is also pegged to the cost of the “benchmark” Obamacare health insurance plan in your area. The benchmark plan is typically the second-lowest cost silver-level plan in your area. This means that your subsidy dollars will go farther with a bronze-level or silver-level plan than with a gold or platinum-level plan.

How do you apply for Obamacare subsidies?

You can apply for Obamacare subsidies when you shop for health insurance. For most of us this happens during Obamacare’s nationwide open enrollment period, which typically occurs in the fall. If you experience a qualifying major life change, you may also be able to apply for subsidies and enroll in a new Obamacare plan within a sixty-day window outside of the open enrollment period.

You’ll be able to apply for subsidies when you shop for coverage through the government-run Obamacare health insurance marketplace in your state. Depending on where you live, you may also be able to apply for subsidies when you shop through licensed agents or licensed online health insurance brokers.

What can you use Obamacare subsidies for?

You can use Obamacare subsidies only toward the monthly premiums for a qualifying Obamacare-compliant health insurance plan.

It’s important to know that not all Obamacare-compliant health insurance plans are eligible for purchase with a subsidy. Though they are offered by a variety of brand-name health insurers in each state, only a subset of Obamacare health insurance plans can be purchased with subsidy dollars.

If you’re eligible for Obamacare subsidies, the government-run health insurance marketplace in your state, or a licensed health insurance agent or licensed online broker, may help you enroll in a subsidy-eligible Obamacare plan.

Note that you may not use Obamacare subsidies to purchase short-term health insurance plans, vision or dental insurance plans, accident or critical illness insurance plans, life insurance plans, or anything other than qualifying Obamacare plans.

How are Obamacare subsidies applied?

Assuming you qualify for subsidies and enroll in a qualified Obamacare health insurance plan, you may have your subsidies applied directly to your health insurance premiums on a monthly basis. The government will pay the subsidy amount directly to your health insurer on your behalf. You will need to pay the rest of your premium yourself on a monthly basis to keep your coverage in effect.

If you prefer, you may also opt to have your subsidies applied at tax time. This means you will need to pay the full monthly premium yourself throughout the year. The subsidy dollars you were entitled to can then be applied when you file your federal tax return for the year.

What else do I need to know about Obamacare subsidies?

Before you apply for Obamacare subsidies or enroll in an Obamacare health insurance plan using government subsidies, there are a few things you should know:

• Obamacare subsidies are based on your projected income for the year, not on last year’s income – It’s tempting to look at last year’s tax return when deciding whether or not you may qualify for subsidies, but your eligibility is actually based on your income in the year in which you are covered by your plan. This means that you’ll need to estimate your income when applying for subsidies.
• Your eligibility for Obamacare subsidies may change based on your income – If your income changes, your eligibility for subsidies may change as well. If your income decreases mid-year, you may be eligible for additional subsidy assistance. If your income increases, you may no longer be eligible for as much in the way of subsidies as you were initially granted.
• If you earn more than anticipated, you may be required to pay back some or all of your subsidies – It’s true. If you didn’t adjust your subsidies mid-year (through your state’s government-run Obamacare marketplace) and earned more than anticipated, you may be required to pay back your subsidies –or a portion of them – when you file your federal tax return.
• The final determination of your eligibility for Obamacare subsidies is made by the federal government – Though it may be possible to apply for subsidies when shopping through either government-run Obamacare marketplaces or (in some states) through licensed agents and online brokers, the final determination on your subsidy eligibility is always made by the government.

Notes

* See eHealth’s Health Insurance Price Index data for the 2016 Obamacare open enrollment period: