How Do the Obamacare Subsidies Work?

Affordable Care Act

How Do the Obamacare Subsidies Work?

Published on July 30, 2014

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affordable care act subsidiesWhile health insurance can be expensive, the Affordable Care Act includes an option to offset the costs. Find out about the Obamacare subsidies, how you can get them, and how much they pay.
You may qualify for premium tax credits, or subsidies, to help pay for your health insurance if your total Modified Adjusted Gross Income (or MAGI) is between 100% and 400% of the Federal Poverty Level (or FPL) and you meet these requirements:

  • You live in the U.S.
  • You are a U.S. citizen, U.S. national, or lawfully present in the U.S.
  • You are not currently incarcerated.
  • You are not eligible for other minimum essential coverage.

These subsidies are set on a sliding scale so that what you spend each month is limited to a defined percentage of your income, adjusted to the second least-expensive silver-level plan available in your area. Government subsidies can only be determined by the governing body in your area.
Here is an example for an individual: If you wanted to buy the second least-expensive silver plan available in your area, and your monthly income is 133% of FPL, you would be earning about $1,273 per month in 2013. At that income level, you could spend no more than 3% of your income — about $38 per month — to buy that second least-expensive plan. The government subsidy pays the rest of your monthly premium.
As your income increases, so does your share of the cost for the monthly premium. So, if your income rises to 400% of FPL — about $3,832 per month in 2013 — you could spend no more than 9.5% of your monthly income — about $364 — for that same plan; the second least-expensive silver plan. So if the second least-expensive silver plan available in your area costs $300 a month, and you earn 400% of FPL, there is no subsidy for you.
But if the second least-expensive silver plan available in your area costs $500 a month, the government would pay the difference between the $500 plan and your $364 cap. In that scenario, you would pay $364 per month for your health insurance plan, and the value of your subsidy would be $136 per month; $500 minus your $364 cap.
Now, if there also happened to be a bronze plan available for $400 a month, you could enroll in that plan and get the same $136 per month subsidy. In that case, your plan would cost you $264 per month. Or if you wanted a gold plan that cost $600 per month, you would — once again — apply your $136 per month subsidy and pay $464 per month for your insurance policy.

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