Health insurance can be expensive, but health insurance subsidies under the Affordable Care Act (ACA) help make coverage more affordable for millions of Americans.
If you’ve ever wondered whether you qualify for a subsidy—or how much you could save—you’re in the right place.
This guide covers eligibility and how subsidies work, helping you make informed decisions whether you’re new to insurance or seeking the best deal.
Types of Health Insurance Subsidies
The government offers two types of subsidies: premium tax credits and cost-sharing reductions.
These programs help lower the cost of monthly premiums and out-of-pocket expenses for those who qualify. But who is eligible, and how do these subsidies actually work?
Health Insurance Subsidy Eligibility
Under the ACA, U.S. citizens and legal residents with household incomes at or above 100% of the Federal Poverty Level qualify for subsidies.
These subsidies help lower monthly premium costs and out-of-pocket expenses.
- If your income is below 100% of the FPL, you may qualify for Medicaid, depending on your state’s eligibility rules.
In 2025, the FPL is $15,650 for an individual and $32,150 for a family of four. States that expanded Medicaid cover residents earning up to 138% of the FPL, while others may leave those below 100% FPL without coverage options.
- If your income is above 400% of the FPL, you may still qualify for premium subsidies under the Inflation Reduction Act, which extends through 2025.
This allows households to receive financial assistance if their premiums exceed 8.5% of their income. Otherwise, you may need to consider full-price insurance or alternative options like health sharing plans.
The Inflation Reduction Act and Expanded Premium Subsidies
The Inflation Reduction Act of 2022 expanded ACA subsidies, ensuring that no one pays more than 8.5% of their income for health insurance premiums.
These enhanced subsidies, available through 2025, apply to both lower-income households and those earning above 400% of the FPL, as long as their premiums exceed the 8.5% threshold.
Here’s how much individuals and families are expected to contribute toward premiums based on income level:
| Annual Household Income (% of FPL) | Expected Premium Contribution (% of Income) |
|---|---|
| Up to 150% FPL | 0% |
| 200% FPL | 2% |
| 250% FPL | 4% |
| 300% FPL | 6% |
| 400%+ FPL | 8.5% (if premiums exceed this amount) |
These expanded subsidies are set to expire in 2025 unless extended by Congress. If they are not renewed, those above 400% FPL may lose eligibility for financial assistance.
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Premium Tax Credits: How They Work
Premium tax credits help lower the cost of monthly health insurance premiums for those who qualify under the Affordable Care Act (ACA).
The amount of the credit is based on your income and ensures you don’t pay more than a set percentage of your income for health insurance.
- The lower your income, the higher your subsidy.
- Subsidies are based on the cost of the benchmark Silver plan in your area.
- If you choose a more expensive plan, you will pay the difference.
- If you pick a cheaper plan, your out-of-pocket costs will be lower.
Using Advance Premium Tax Credits
Most people apply their premium tax credit in advance, meaning:
- The government pays part of your monthly premium directly to your insurance company.
- You only pay the remaining amount out of pocket.
- Your credit amount is estimated based on the income you report when applying.
Tax Reconciliation: Adjusting for Income Changes
At tax time, the IRS checks whether you received the correct subsidy amount:
- If your income was higher than expected, you may have to repay part of your subsidy.
- If your income was lower than estimated, you could receive additional credits or a refund.
To avoid surprises, report income changes to the Marketplace as soon as they happen.
Special Enrollment Periods (SEP)
Major life events can qualify you for a Special Enrollment Period, allowing you to update your insurance and subsidy amount. These include:
✔️ Getting married or divorced
✔️ Having a baby
✔️ Losing other health coverage
✔️ Major income changes
By keeping your income information up to date, you can ensure you are receiving the right amount of assistance throughout the year.
Employer-Sponsored Plans and Health Insurance Subsidies
If your employer-sponsored health plan costs over 9.12% of your household income in 2024, you may qualify for premium tax credits.
You may also qualify if the plan doesn’t meet minimum value requirements.
A minimum value plan must cover at least 60% of total medical costs and provide substantial coverage for hospital and physician services.
If your employer’s plan is too expensive or inadequate, you can apply for an ACA plan and receive subsidies to lower your premium costs.
However, if your employer’s plan is affordable and meets the minimum value, you will not be eligible for ACA subsidies even if you prefer a Marketplace plan.
Cost-Sharing Reductions (CSRs)
Cost-sharing reductions help lower out-of-pocket healthcare expenses for eligible low-income individuals and families.
These reductions apply only to Silver-level ACA plans and are automatically included for those who qualify based on income (100%-250% of the Federal Poverty Level – FPL).
Types of Cost-Sharing Reductions
1. Lower Deductibles
- CSRs reduce the amount you must pay before insurance starts covering costs.
- Example: A $750 deductible on a standard Silver plan could be lowered to $300-$500 depending on income.
2. Reduced Copayments
- Lower out-of-pocket costs for doctor visits, prescriptions, and medical services.
- Example: A $30 doctor visit copay may be reduced to $15-$20 with CSRs.
3. Lower Out-of-Pocket Maximums & Coinsurance
- The maximum amount you’ll pay annually for deductibles, copays, and coinsurance is reduced.
- Example: A standard $5,000 out-of-pocket max may be lowered to $3,000 with CSRs.
CSRs do not reduce your monthly premium, but most people who qualify also receive premium tax credits to help lower their monthly insurance costs.
How to Use Cost-Sharing Reductions
- If you qualify for CSRs, they apply automatically when you enroll in a Silver plan through the ACA Marketplace.
- These reductions lower your costs immediately—you do not have to file for reimbursement.
- Choosing a Bronze, Gold, or Platinum plan means you will not receive CSR benefits, even if you qualify.
Tax Reconciliation for Health Insurance Subsidies
At the end of the year, the IRS verifies your actual income to ensure you received the correct level of assistance:
✔️ If your income was lower than estimated, you may receive extra savings or a refund.
✔️ If your income was higher than estimated, you may have to repay some of the assistance you received.
To avoid unexpected costs, it’s important to report any income changes to the Marketplace as soon as they happen. Keeping your information up to date ensures you receive the right amount of assistance throughout the year.
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Get the Most Out of Your Health Insurance Savings
Understanding health insurance subsidies and cost-sharing reductions can help you find the most affordable coverage for your needs.
Whether you’re navigating ACA tax credits, employer-sponsored insurance, or out-of-pocket cost reductions, making the right choice can save you money while ensuring you get the care you need.
If you’re unsure which plan is best for you or want to maximize your savings, talk to a Personal Benefits Advisor today. They can help you compare options, determine your eligibility for subsidies, and find the best coverage for your budget.
For Further Reading:
- Health Sharing Plans vs. Short-Term Limited Duration Insurance: Which Is a Better Deal?
- Should I Switch from a Traditional Health Insurance Plan to Health Sharing?
- SICKER SHOCK: Employers Slammed by Biggest Health Insurance Premium Increase in Years
- Who Qualifies for Health Insurance Subsidies?
- Complete Guide to Direct Primary Care (DPC)
- Healthshare Plans
You can also learn more about health insurance subsidies at HealthCare.gov
