For some people, paying for health insurance can be a struggle. But if you don’t have it, and illness or injury comes knocking, it can cost even more. If you’re not eligible for a government assistance program (like Medicaid) and you don’t have access to employer-based insurance, what are your options?

For those who purchase a plan from the health insurance marketplace, coverage can be more affordable with the help of health insurance subsidies. Learn how the right health insurance subsidy can help you lower your costs, whether you qualify and how to apply.

What is a health insurance subsidy?

Before we go into a deep dive on the Affordable Care Act, it’s important to fully understand what a health insurance subsidy is and what it can do for you. Put simply, a health insurance subsidy is a federal government assistance program designed to help you save money on health coverage by providing a tax credit. These targeted tax credits can lower the overall cost of your monthly insurance premium or what you pay out of pocket in cost sharing, making health coverage and care more affordable for you and your family.

Affordable Care Act (ACA) subsidies explained

The Affordable Care Act (also known as the ACA or, more informally, Obamacare) is a health care reform law passed in March 2010. It changed the way we access health insurance by creating health insurance marketplaces with plans subsidized by the American government.

At a marketplace, you can shop for and enroll in non-group private health insurance plans that meet a set of federal coverage standards. This way, whether you’re buying your plan from a federal or state exchange, you can rest easy knowing you’re getting trusted coverage that meets national standards.

Another critical part of the ACA was the inclusion of subsidies – health tax credits that can lower the cost of coverage for individuals and families. The goal of this is to make health insurance coverage more accessible and affordable for more people who buy their insurance from the marketplace.

How ACA subsidies work

For those enrolling in a marketplace plan, there are two different ACA subsidies to consider: Advance premium credits and cost-sharing reductions. Like the name suggests, advance premium credits contribute to your monthly premium costs.

Cost-sharing reductions, the second type of subsidy offered by the ACA, lower the amount you pay for deductibles, copays and coinsurance through a discount. This type of ACA subsidy is less common, available only to those enrolled in silver plans. In the health insurance marketplace, plans are classified within four categories – platinum, gold, silver and bronze – with silver meaning more moderate monthly premiums and cost of care.

And remember, ACA subsidies only apply to marketplace plans. Private plans (also known as off-exchange health insurance) that are sold independently, even ones considered ACA compliant, don’t apply.

The addition of ACA enhanced subsidies

In 2021 the American Rescue Plan (ARP) extended subsidy eligibility to some people earning more than 400% of the federal poverty level (FPL). This helped millions more Americans afford marketplace health coverage by allowing greater access to premium tax credits. However, these credits are set to expire in 2025.

Affordable Care Act income limits

ACA subsidy eligibility is, in large part, based on income. When applying, you must estimate what you think your yearly income will be for this calendar year. You qualify based on this projection and not your income reported on last year’s tax returns. This means that if you make more money than expected during the year, you might be required to pay back subsidy dollars applied to your health plan on your behalf.

Typically, you’ll qualify for a premium tax credit if your household makes up to 400% of the federal poverty level (FPL). These numbers vary depending on how many are in your household. And the FPL changes each year, determined by federal poverty guidelines from the year before. To be eligible for a cost-sharing reduction, you must earn between 100% and 250% of the FPL, making this subsidy more accessible for those from low-income households.

How health subsidy payments are made

If you’ve got a premium tax credit through the ACA, these health credits can be paid directly to your insurance provider to lower the cost of your monthly payment. You can also pay your premiums in full for the year and receive a reimbursement when you file your income taxes.

For those with an ACA cost-sharing subsidy, cost reductions are automatically applied to a silver plan, essentially making deductibles and other cost sharing options more affordable.

Eligibility requirements for health insurance subsidies

To qualify for a premium tax credit, you must be a legal citizen or resident of the United States whose household income level is within 400% of the FPL. You must also not have access to affordable coverage options through an employer, or a state or federal program, such as Medicare, Medicaid or the Children’s Health Insurance Program (CHIP). If you’re married, you must file your taxes separately.

How to apply for ACA government health subsidies

To apply for an ACA health subsidy, you should start with the official federal health insurance marketplace website or your state marketplace website. For those in Minnesota, the state exchange is MNsure.

To get started, make sure you have your documents and information at the ready, including all personal information, social security numbers, tax return information and estimated household income for yourself and each dependent.

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