Individual and Family

ACA Health Insurance Subsidies and the Middle Class

Updated on February 13, 2020


When it comes to purchasing Affordable Care Act (ACA) compliant health insurance, it’s important that you know where your income stands in terms of the Federal Poverty Line (FPL).
Depending on how much your income is above or below the FPL, you may qualify for ACA subsidies which help lower and middle-class households afford health insurance.
Knowing where your income is in comparison to the FPL could mean the difference between paying full price for health insurance premiums and getting an ACA subsidy – which could mean paying nothing for coverage.

What are ACA Subsidies?

ACA subsidies are available to some of those who make between 100% and 400% of the FPL. These ACA subsidies go toward paying health insurance premiums for those who would otherwise struggle to afford health insurance.
In general, subsidized enrollees are also shielded from rising premiums as ACA subsidies usually increase along with the price of premiums. This helps keep health insurance affordable for the lower and middle classes.
These ACA subsidies can be taken in advance. However, if you use more advance payments than what you are allotted per month you must repay the difference. If you use less, you will get the difference as a refundable credit when you file your taxes.
It’s important to know that there are two kinds of ACA subsidies (also called Obamacare subsidies by some). The more common kind are called “Advanced Premium Credits”, which individuals and families can qualify for at the beginning of the year, and help pay for health insurance premiums through the year. The second kind of ACA subsidy is called a “Cost-Sharing Reduction (CSR) Subsidy”.

How do I know if I qualify for ACA Subsidies?

Every year the government benchmarks the FPL at a particular income. Your eligibility for certain programs and forms of assistance – including ACA subsidies – is based on how much your income is above or below this number. For instance, for 2018 this number was $12,140 for an individual and $25,100 for a family of 4.
Those who earn between 100% and 400% of the FPL may qualify for ACA subsidies.
2018 Poverty Guideline for the 48 Contiguous States and the District of Columbia

Persons in Family/Household 100% of  Federal Poverty Line 200% of FPL 300% of FPL 400% of FPL

Households with more than 8 members, add $4,320 for each additional person.
The above numbers are the 2018 HHS poverty guidelines, which the Federal Register published on January 18, 2018. Eligibility for ACA subsidies for the 2019 coverage year is based on these guidelines for 2018.
Additionally, other factors such as your age, household size, and location can seriously effect if you are eligible for ACA subsidies.

What does this mean for the middle class?

Middle class households who have an income on the lower end of the middle-income spectrum may qualify for ACA subsidies.
However, middle-income individuals and households who make just above 400% of the poverty line will receive no subsidies and may struggle to pay full price for ACA compliant coverage.
This phenomena is referred to as “the subsidy cliff” as there is no phase out for those who make just over the income cut off for ACA subsidies.
What is a subsidy cliff, and how is the middle class affected?
According to an eHealth analysis, the subsidy cliff was $6,771 for a typical family of three. This means that earning an extra $204 per year – which would increase their income from 400% to 401% of the FPL and possibly make them ineligible for ACA subsidies – could cost them $6,771 in federal subsidies.
While the cost of ACA premiums are holding steady or falling in most parts of the country in 2019, the cheapest plans are still proving to be difficult to afford for many middle class households who do not receive any kind of subsidies.
According to the same eHealth analysis, in 2018 a household of three making between $81,884 and $128,795 in annual income would not be able to afford the lowest-priced health insurance plan. On average, the cheapest bronze plan would cost them $10,368 per year which is classified as unaffordable according to ACA rules.

Report income changes as soon as possible

If you experience any changes in your income during your coverage year it’s important that you report them as soon as possible. You may become eligible for subsidies if you experience a drop in income, or become ineligible if you experience a rise in your yearly earnings.
Note: When it comes to Advanced Premium credits, you report your expected income at the beginning of the year, and if you end up making a lot more than you originally reported, you could end up owing back money on your taxes. Make sure to avoid money at the end of the year by correctly reporting your income.
Make sure to report any changes in income as soon as possible so that you don’t miss out on receiving assistance if you become eligible. If you become ineligible and don’t report the change in income, you may have to pay money back during tax season.

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