We recently published The Definitive Guide to Obamacare for Individuals. It truly is a comprehensive guide to the Patient Protection and Affordable Health Care Act. In response to a question from a reader named Linda, however, today we are going to focus specifically on the health insurance premium subsidies that are available under Obamacare.
Here’s Linda’s question:
I’m one of the forgotten people. I only get $796.00 monthly from Social Security, I’m only 62 and don’t qualify for Medicare. I’m in a no Medcaid state, and all my social security goes to the room I rent, and I’m on a very little food stamp allotment.
What do I do ?
Linda’s question raises several important issues. How do you qualify for an Obamacare subsidy? If you make too little to qualify, do you qualify for Medicaid? These are difficult issues that often depend on a variety of factors including where you live, how much you make, and your age. In this article, we’ll take a closer look at how the Obamacare subsidies work.
Who Qualifies for a Subsidy
Qualification is determined based on household income (more about what household income is in a minute). Those with household income between 133 and 400 percent of the federal poverty line will qualify for a subsidy. Those below 133 percent qualify for Medicare. Technically, the minimum threshold is 138 percent, but five percent is ignored, giving us a 133 percent floor. Further, in those states that have not expanded Medicaid, those with household income of at least 100 percent of the federal poverty line qualify for a subsidy. The Obamacare subsidy will come in the form of a refundable tax credit to help lower your monthly premium costs.
The amount of the subsidy will vary, depending on your household income. For example, if you make between 100 percent and 133 percent of the poverty line, you’ll pay, at most, 2 percent of your income toward health insurance. If you make between 300 percent and 400 percent of the poverty level, you’ll pay a maximum of 9.5 percent of your income in insurance premiums.
The chart below gives the sliding scale, depending on your relationship to the federal poverty line (Note: FPL stands for the Federal Poverty Level):
This tax credit is set up so that you won’t pay more than a specified percentage of your income for your second-lowest costing Silver level plan.
Basically, this means that your dollar-amount subsidy will be based on the assumption that you’ll buy the second-lowest cost Silver plan. If you buy a cheaper or more expensive plan, you’ll still get that same dollar-amount subsidy, but the premium you pay will be different.
In addition, if your income is between 100 percent and 250 percent of the federal poverty level, you may also be eligible for a cost-sharing reduction subsidy. This further subsidy will help lower your deductibles, co-insurance and co-payments. To be eligible for this subsidy, you must choose a Silver-level plan.
What is Household Income
Under the Affordable Care Act, eligibily for a subsidy is based on a household’s Modified Adjusted Gross Income (MAGI). The Labor Center at Berkeley pulled together this useful chart on MAGI:
The use of MAGI to determine household income has one critical feature. Many people may be on the bubble of qualifying for a subsidy. For example, those with household incomes that are just over 400 percent of the FPL may be able to lower their income just enough to qualify. The chart above lists those items that are subtracted in the MAGI calculation, including certain education expenses, moving expenses, and even penalties on early withdrawals of savings, such as CDs.
The key is that some may be able to qualify for subsidies with a little tax planning.
Subsidies and the Health Exchanges
So where must you go to get the subsidy if you qualify. At the moment, the subsidies are only offered through the exchanges in each state. That’s a bit of a problem, of course, given all the issues with federal health exchange website.
The good news is that there is an alternative. For those living in the 36 states served by the exchange run by the federal government (see Obamacare Map to find your state), you can shop for insurance at eHealthInsurance.
I reached out to eHealthInsurance and asked them if subsidies were available through its website. Here’s the response I received back:
We are licensed by the Federal government to enroll people in health insurance plans, with a subsidy, in 36 states. However, the delays at the Federal exchange have forced us to delay that implementation – we hope to be enrolling people by December 1, if not sooner.
And we have a “rain check” system on our web site where we allow people to shop for plans with their estimated price, after the subsidy has been applied. They can save plans they’re interested in and enroll once the connection to the Federal exchange is functioning properly.
These are the 36 states: ID, NM, AL, AK, AZ, FL, GA, IN, LA, MS, MO, NJ, NC, ND, OK, PA, SC, TN, TX, WI, WY, AR, DE, IL, IA, MI, NH, WV, KS, ME, MT, NE, OH, SC, VA, UT
Finally, you can use this following calculator from The Kaiser Family Foundation to estimate your eligibility for a subsidy: