Individual and Family
Who is affected by the ACA “Subsidy Cliff”?
Updated on November 18, 2019
While premiums are mostly dropping slightly or holding steady on average for 2019, those who make just above the cut off for Affordable Care Act (ACA) subsidies are having – in some areas of the US severe – affordability challenges. This cutoff is referred to as the “subsidy cliff, and data from the Kaiser Family Foundation (KFF) shows that older people living in rural areas – where insurance premiums tend to be the highest – have the steepest subsidy cliff.
How do subsidies and the subsidy cliff work?
For those who do not receive health insurance coverage through an employer and who make a certain amount above the federal poverty line (FPL), subsidies called premium tax credits are available. These subsidies help these households afford the monthly cost of their health insurance.
Most people who purchase their coverage through exchanges receive premium tax credits to help afford their premiums.
Every year the government benchmarks the FPL at a particular income. Your eligibility for forms of government assistance, such as premium tax credits, are based on how much your annual income is above or below the FPL.
The above information in the chart is from the 2018 HHS poverty guidelines, which is what eligibility for ACA subsidies for the 2019 coverage year is based on.
Other factors such as age, location, and household size can seriously affect whether or not you will be eligible for ACA subsidies.
The cut off for ACA subsidies is 400% of the FPL (which for 2019 is $48,560 for an individual and $100,400 for a family of 4). This stiff cut off is responsible for the subsidy cliff.
There is currently no phase out for subsidies for those making just above 400% of the FPL which is why there is a steep subsidy cliff. Since there is no phase out, making slightly more income (as little as around $200 more per year) can cost an individual or household thousands of dollars in subsidies.
A slight increase in income can push an individual or a family over the subsidy cliff and end up costing them more money in the long run.
Who is affected most by the subsidy cliff?
Those who make just above the subsidy cut off are affected most by the subsidy cliff, especially older people who live in rural areas where premiums tend to be higher which makes their subsidy cliff much steeper.
Middle-income individuals and families who make just above the 400% cut off and are subjected to this subsidy cliff may struggle to afford their ACA plans.
The KFF analyzed 2019 premium data to show how affordable the lowest-cost marketplace plan is in each county with a focus on middle-class people with incomes are too high to qualify for ACA subsidies. They found that there was a substantial drop in affordability for health insurance premiums between those who made $45,000 per year and $50,000. They attribute this drop to those making $50,000 being at 412% of the FPL which makes them ineligible for subsidies. This drop in affordability is due to the subsidy cliff.
A 40-year-old man making $50,000 per year would spend more than 10% of their income on health insurance premiums for the cheapest available plan, while the same man making $45,000 per year would spend hardly anything as they would be eligible for subsidies.
This is an example of a somewhat small subsidy cliff, though it can still cause affordability challenges for those effected.
Affordability of Individual Market Premiums (2019) for 40-year-old with an Annual Income of $50K
They found that for older people living in rural areas and other areas that have very high premiums, the subsidy cliff is even sharper.
A 60-year-old living in the 28 Nebraska counties with the highest premiums who makes $45,000 per year would pay nothing in monthly premiums with ACA subsidies. While the same person making $50,000 would have to pay 32% of their income on average for the lowest-cost plan available.
This is one of the most drastic examples of the subsidy cliff as there is a 30% difference in what health insurance would cost this individual. They go from paying almost nothing to paying a third of their income after experiencing a slight increase in salary.
Affordability of Individual Market Premiums (2019) for 60-year-old with an Annual Income of $50K
Report your income changes as soon as possible
When it comes to ACA subsidies you report your expected income at the beginning of the year. If you experience an increase in income you may become ineligible for subsidies which you would have to pay back during tax season.
To avoid an unexpectedly large tax bill or to make sure you don’t miss out on becoming eligible for subsidies, report any changes in income as soon as possible.