If you buy health insurance through your state's health insurance Marketplace, also called an Exchange, you may be able to get some financial help. The health care reform law helps lower the cost of health insurance for families with low to moderate incomes who make too much money to qualify for Medicaid.
There are two main types of financial help: premium tax credits and cost-sharing subsidies.
The amount of tax credit you qualify for depends on your income and the size of your family. In addition, households with lower incomes may qualify for subsidies to help lower the cost of doctor visits, hospital stays, and other types of medical care.
What Is a Tax Credit?
You may be able to use a tax credit to save money on health insurance when you enroll in a plan through a state Marketplace. The tax credits help lower your insurance premium, or the payments you make each month for your health plan. You can receive the tax credit in advance by having all or part of the money sent directly to your insurance company. That will lower your monthly bill. You can also pay the full cost of your insurance premium during the year and take your credit instead at income tax time.
How Do I Know If I Can Get a Tax Credit?
When you enroll in a plan through your state's Marketplace, you'll see if you can get a tax credit and how much it will be. How much money you can get depends on the size of your family and the amount of money your family makes in a year.
How Much Money Can I Make and Get a Tax Credit?
The amount of tax credit you are eligible for varies from year to year. You may be eligible for a tax credit if the amount of money you expect to make for all of 2020 is in the following income ranges:
- $12,490 to $48,960 for one adult
- $16,910 to $67,640 for a family of 2
- $21,330 to $85,320 for a family of 3
- $25,750 to $103,000 for a family of 4
The less money you make, the more financial aid you can get. These amounts change each year. The income amounts for people who live in Alaska and Hawaii are slightly different.
Can I Get a Tax Credit If I Get Insurance From an Employer?
In general, people who get insurance through an employer probably won't use a state Marketplace. And the Marketplace is the only place where this kind of financial aid is available.
Some people, though, may want to buy a health plan through a Marketplace even though an employer offers affordable insurance. In that case, the employee will not be eligible for tax credits or subsidies, even if the family's income falls within the ranges listed above.
In some cases, an employer's plan may not be affordable enough. If either of the statements below is true for you, you may enroll in a health plan in a state Marketplace:
- None of the health plans available from your employer covers at least 60% of your average health care costs.
- The cost of enrolling in a plan from your employer would cost more than 9.6% of your annual income.
If one of these statements is true and you do enroll, you may be eligible for a tax credit if your household income falls within the eligibility ranges listed above.
How Do I Get the Money From a Tax Credit?
When you sign up for health insurance in a Marketplace, you'll have a few choices for how you'd like to use the money from a tax credit.
- You can use it in advance. In this case, you don't receive any money directly. Instead, the IRS sends a monthly payment to your insurance company to pay part of your premium. You pay the rest of the premium directly to your insurer.
- You can split the money between premiums and a tax refund. You choose how much of the credit you want to go toward your premium each month. You get the rest of the credit as a tax refund.
- You can pay all of the premium yourself and apply the tax credit to your taxes. When you file your taxes, you can subtract the full amount of your tax credit from the tax you owe. If you don't owe any taxes, then you'll get a bigger refund.
What Should I Do If My Job or My Income Changes?
If you get a new job that makes you ineligible for the credit, tell your state's Marketplace. Every Marketplace will have an 800 number, so call and talk with a representative. If you don't, you may have to pay back advance payments the IRS made from the time you became ineligible.
If your income goes down, call a representative at your state's Marketplace because you may be able to get a larger tax credit or qualify for Medicaid.
If My Income Qualifies Me for Medicaid but My State's Not Expanding It, Can I Get a Tax Credit or Cost-Sharing Subsidy?
Some states have expanded Medicaid to include people with higher incomes ($17,609 for an individual and $36,154 for a family of four). If you have a low income, but your state did not expand Medicaid, you will be eligible for a tax credit to buy a health plan through your state’s Marketplace, but only if your income meets the minimum threshold ($12,490 for individuals and $25,750 for a family of four). It seems counterintuitive, but if your income is too low, you do not qualify for a tax credit to buy insurance. This is because the law assumed all states would expand Medicaid and the tax credits to help pay premiums would pick up where Medicaid left off. But the Supreme Court made the Medicaid expansion optional. As of 2020, 12 states have not expanded it, so in those states you do not qualify for assistance if your income is too low. To find out whether your state has expanded Medicaid, go to the Healthcare.gov’s Medicaid expansion page.
The amounts for people who live in Alaska and Hawaii will vary.
What Is a Cost-Sharing Subsidy?
A cost-sharing subsidy lowers your out-of-pocket costs -- the amount you spend whenever you get health care. You can only get this type of subsidy if you purchase a silver-level plan.
Who Qualifies for a Cost-Sharing Subsidy?
You may be eligible for a cost-sharing subsidy if the amount of money you and your spouse expect to make during the year is near the following income ranges:
- $31,225 for one adult
- $42,275 for a family of 2
- $53,325 for a family of 3
- $64,375 for a family of 4
Note that these are the government’s income guidelines for plans in effect in 2020, and they vary from year to year. If you live in Alaska or Hawaii, the amount you can make and still qualify will be different.
How Do I Get the Money From a Cost-Sharing Subsidy?
You won't get the money from your cost-sharing subsidy directly. Instead, your co-pay, cost insurance, or deductible are reduced from what they would have been without the subsidy. You must purchase a silver plan through the Marrketplace in order to get the cost-sharing subsidy.