How Does the Government Subsidy for Health Insurance Work?

The Affordable Care Act (ACA), also known as Obamacare, came into force in 2010 to provide affordable health insurance for Americans. As part of this Act, Medicaid and some government subsidies were created to help people pay their health insurance premiums.

How do these subsidies work?

If you qualify, these subsidies will work to limit the amount of premiums you pay to a percentage of your annual income.  The actual amount you get varies based on the cost of the benchmark healthcare plans in your area.

If your benchmark plan costs more than a certain percentage of your estimated annual income, you get a subsidy for the difference.  But the subsidy can only be used for qualified health insurance plans available through the Healthcare Marketplace.

If you qualify for a subsidy, the government pays a share of your premiums directly to your health insurance provider, and you pay the rest.

Do I qualify for subsidies?

If you are a low or middle-income family or individual you might be eligible for subsidies under the Affordable Care Act.

For most subsidies, you would qualify for a premium tax credit if you earn less than four times the federal poverty level.  If you earn less than the federal poverty level, you won’t qualify for ACA subsidies, but you might be able to get Medicaid, CHIP or some other government program.

There are also some additional criteria:

  • You must currently live in the US & be a US citizen or legal resident
  • You cannot currently be incarcerated
  • In 2018, you would qualify for subsidies if the least expensive plan in your area costs more than 8.05% of your modified adjusted gross income (MAGI)

Note: the Federal Register sets the poverty level annually. In 2018, the poverty level for an individual is $12,140 in annual income.  There are adjustments made based on the size of your household.

When applying for subsidies, your income is an estimate of what you’ll be making during the coverage year; NOT what you earned last year.  If you earn more during the coverage year than estimated, you will need to pay back some of that subsidy.  But if you end up making less, you can get an additional subsidy when filing your tax returns for that year.

If you’re curious about how much you or your family might be eligible for, here’s a handy subsidy calculator.

How do I apply for subsidies?

The US government is the one who decides whether you qualify for subsidies or not and they are the ones providing the subsidy through their health insurance exchange.  You can apply on your own through the Health Insurance Marketplace.

If you’re uncomfortable applying on your own, the licensed agents at Healthcare Insurance Company can help.  You can visit the website or call (855) 401-8383 to speak to a licensed health insurance professional who can guide you through the process of selecting a plan and applying for subsidies.