In building out our State Exchange Insurance Comparisons, we had to account for the subsidies provided by the Affordable Care Act (ACA). The ACA creates a subsidy system for low and some middle income families to help in the purchase of insurance on the state insurance exchanges. The law sets a cap on the amount of insurance premium that individuals and families will have to pay for the second cheapest Silver plan based upon that person/family's income in relation to the Federal Poverty Level (FPL). Still confused? So were we when we first looked at the subsidies, so we decided to break down how this all works for our readers.
Calculating Your Subsidies
The Federal Poverty Level
Let's first begin with an explanation of the FPL and how it impacts your insurance costs. Each year the federal government benchmarks the federal poverty level at a certain income. Eligibility for some government services and benefits depends on how much your income is above or below this number. In 2013-2014 this number for a single individual will be set at $11,490. If you are married, or have children, this number is adjusted accordingly (Table 1). For 2014 - 2015 the single individual will be set at $11,670
|Household Size||Federal Poverty Level 2013 - 2014||2014 - 2015||2015-2016|
Table 1: Federal Poverty Level by Household Size 2013 (additional family members past 4, increase the federal poverty level number by an additional $4,020 each), Additional family members for 2014 will increase the number by an additional 4,060
How the FPL impacts your insurance spending
To help lower and some middle income families pay for health insurance, the Affordable Care Act limits the amount of money the family would have to spend on premiums for a Silver Plan (we will get to this later) based upon a percentage of income. The law does this by capping the amount that each family will pay themselves depending on where they fall in relation to the FPL (Chart 2). Higher income households will have a higher cap as a percentage of income.
To illustrate, for a single individual with an income of $28,725, the applicable FPL would be $11,490 and their income would be 250% of that amount. Under the law this would cap their yearly premium for that Silver Plan at 8.04 of their annual income $2,313 or about $193 monthly.
For a family of 4 earning $47,100 they would have an income of 200% FPL ($23,550) and under the law would have premiums capped at 6.3% of their annual income: $2967.30 or $246.27 monthly.
|Income as % of FPL||Cap % (Lower End)||Cap % (Higher End)|
|Up to 133%||2.0%||2.0%|
|133% - 150%||3.0%||4.0%|
|150% - 200%||4.0%||6.3%|
|200% - 250%||6.3%||8.05%|
|250% - 300%||8.05%||9.5%|
|300% - 400%||9.5%||9.5%|
Table 2: Premium Caps for Income Levels as % of FPL
The "Silver Plan" and your actual subsidy
Now lets get to that "Second Cheapest Silver Plan". Under the ACA, insurers that sell plans on the state exchanges will have to categorize each plan under one of 4 metal tiers based upon how much of the policyholders total health care costs the plan will cover. These metal tiers are Bronze, Silver, Gold and Platinum with Bronze plans covering the least amount and Platinum plans covering the most. More coverage also equates to higher premiums.
As we stated before, the preceding premium cap calculations are used to determine how much a family would have to pay themselves for the second cheapest silver plan available to them. Because insurance costs vary from state to state, the government will then subsidize any amount that the cost of that Silver Plan exceeds the premium cap. If the silver plan costs more than what your premium cap would be, you would receive of a subsidy of the difference.
Let's use our existing examples: For the single person, if the benchmark silver plan cost $300 a month in premiums, the person would still only be responsible for $193 dollars a month and receive a subsidy for the difference of $107 dollars. The consumer could even opt to buy a cheaper Bronze plan or a more expensive option, and apply the same $107 dollar subsidy. (Note: If the cheaper plan actually costs less than $107 dollars a month, they would not receive the difference and lose the remainder of the subsidy)
Other Questions Regarding Subsidies
What happens if my income changes? Do I have to pay back subsidies?
Most consumers receiving premium subsidies will receive it in the form of an advanced tax credit, with the subsidy applied directly to the cost of their insurance. Since these amounts will be based upon your projected income for the year, the actualy amount of subsidies you are eligible will in many cases differ. If you end qualifying for more subsidies than any amount will be received in the form of a tax credit when income taxes are filed. What happens if you actually make more money and therefore qualify for less subsidies than you received?
In cases where households received higher amounts than they were ultimately eligible for, they are responsible for repayment of some or all of the tax credits they received. How much they have to pay back will depend upon their final household income. Households with a final income over 400% of FPL will be required to pay back the entire premium subsidy amnount. For those households with incomesunder 400% of FPL, repayments will be capped at the following amounts
|Income Range||Repayment Cap|
|< 200% FPL||$600 ($300 individual)|
|200% to 300% FPL||$1,500 ($750 individual)|
|300% to 400% FPL||$2,500 ($1,250 individual)|
To figure out how much you may have to pay for insurance on a state exchange, and if you qualify for federal subsidies:
- First determine what FPL income level applies to your household size
- Calculate the premium cap as a % of income based on how much your family earns as a % of FPL
- Take the second lowest silver plan in your area, and if it costs more than your premium cap, you will receive the difference
If you have any questions or comments please leave us a message below and we'll do our best to get back to you. The ACA subsidies are a rather complicated topic that consumers would be best served to be informed about.