VIDEO: How do the ObamaCare subsidies work?
One question we hear often in our customer care center is in regards to the premium tax credits, or subsidies, that the Affordable Care Act (Obamacare) makes available for people who buy their own health insurance.
They’re complicated, but here is a high level overview:
To qualify for a subsidy you must:
1. Live in the U.S.
2. Be a U.S. citizen, U.S. national, or be otherwise lawfully present in the U.S.
3. Not be incarcerated
If you meet these three criteria, you may qualify for premium tax credits to help them pay for their health insurance, so long as your total household income is between 100 and 400% of the Federal Poverty Level (or FPL).
WATCH THE VIDEO
The ‘premium credits” or subsidies will be set on a sliding scale so that your portion of the monthly premium is limited to a defined percentage of your income when you buy the second least expensive silver-level plan available in your area.
Confused? Here is an example from the video:
If you wanted to buy the second least expensive silver plan available in your area, you’re single, and your monthly income is 133% of FPL, you would be earning about $1,273 per month in 2013.
At that income level the law limits what you can spend to no more than 3% of your income, which is about $38 per month IF… IF, if… you buy the second least expensive silver plan available in your area. If you buy that plan, you pay $38 and the government pays for 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 for an individual – your spending on that silver plan would be limited to no more than 9.5% of your monthly income, which is about $364. So, for the same plan – the second least expensive silver plan – at a higher income level you’ll pay more for the same plan.
Here’s an example of how that would work: 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. Remember that at that income level, your subsidy doesn’t kick in unless the second least expensive silver plan costs more than 9.5% of your income – $364 a month.
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; $500 minus your $364 cap.
So you’re probably wondering what happens if you want a cheaper plan, or a more expensive plan right?
Here’s an example. 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 subsidy. In that case, your plan would cost you $264 per month. You’re subtracting your $136 subsidy – which is based off of the second least expensive silver plan – and applying it to the cheaper plan.
If you wanted a Gold plan that cost $600 per month, you would – once again – apply your $136 per month subsidy and subtract that from the cost of the gold plan, and you would pay the remaining $464 per month for your insurance policy.