The Affordable Care Act ( Obamacare) of 2010 brought ample changes to the healthcare system.
In addition to coverage requirements, the Affordable Care Act provides health insurance premium subsidies that vary depending on your income.
In 2021, American Rescue Plan greatly expanded those subsidies also known as premium tax credits. Now, you might qualify for subsidies for your health care, even if you were well above the previous income limit.
Here's how to qualify for the affordable care act subsidy.
2021 ACA Subsidies from the American Rescue Plan
In response to COVID-19, the federal government implemented the American Rescue Plan Act in March 2021.
This coronavirus relief package brought several economic benefits to American families like direct payments, expanded unemployment benefits, broadened the child tax credit, among several other advantages.
It also played a significant role in the Affordable Care Act (ACA) premium subsidies by expanding eligibility to higher-income individuals and families who did not qualify previously.
Before the American Rescue Plan, individuals who earned more than 400% of the federal poverty level (fpl) did not qualify for any subsidy.
But, the bill eliminated an upper-income ceiling for the tax credit and instead changed the rules to a percentage of your premium in proportion to your income. If your premium exceeds 8.5% of your income, then you qualify for a subsidy.
The federal bill also increases ACA premium subsidies for lower-income individuals and families who already qualify. Individuals whose household income is 150% or less of the national poverty level are now eligible for premium-free coverage through the ACA marketplace.
If you received unemployment benefits at any point during 2021, then you may qualify for significant subsidies as well. By meeting specific IRS requirements, your income will be counted as no more than 133% of the poverty level, regardless if it was actually much higher. That’s the case even if you only received unemployment benefits for a small portion of the year.
As you can see, qualifying for Affordable Care Act subsidies is possible regardless of your income. It’s imperative to consider the ACA in your financial plan.
How To Tell If You Qualify
Now that we have looked at the recent changes to qualification requirements, you can use this information to see if you qualify for the affordable care act subsidy.
First, you’ll need to understand how the ACA subsidy defines your “income.”
It’s based on your Modified Adjusted Gross Income (MAGI). Although MAGI isn’t directly stated on your tax return, you can calculate it with information from your return. It may be helpful to have a tax professional or financial advisor help you with navigating the numbers.
For example, at Covenant Wealth Advisors, we use advanced tax planning strategies software to help client calculate their MAGI. In turn, we can then tell them how to qualify for the affordable care act subsidy.
Beyond knowing that you qualify for subsidized coverage, you need to know how much you are eligible for. The amount you receive will also depend on your income levels. In general, the higher your annual income, the smaller the subsidy.
However, given the recent changes we just discussed, even if your income is above 400% of the federal poverty level, you shouldn't have to spend more than 8.5% of your income on health care.
So what if you are currently spending more than that with (deductibles, monthly premiums, co-pays, co-insurance, and other out-of-pocket costs, etc.) on your healthcare?
The subsidy will make up the difference between 8.5% of your income and what you're paying. You can use an online calculator like this one or talk to your financial advisor to get an idea of how much of a subsidy you may qualify for.
Keep in mind that there are several circumstances that could disqualify you from eligibility for ACA premium subsidies:
Your employer-sponsored health plan has to meet two criteria: affordable and provide minimum value. If your workplace plan fits these benchmark plans, you aren't eligible for a subsidy on the exchange. The affordability metric only applies to you, no other family members or other dependents.
Once you turn 65, you often qualify for premium-free Medicare Part A, thereby disqualifying you from premium subsidies.
Those on Medicaid don't qualify because Medicaid often provides additional financial support.
Identifying critical ways to save our clients money via premium subsidies, cost-sharing reductions, and more, in the long term is one of our key strengths at Covenant Wealth Advisors.
Healthcare is one of the biggest ticket items in your retirement plan, so making the most of subsidies and other tax credits can keep more of your money working for you to support your retirement goals and less funneled to the healthcare system.
We use sophisticated tax planning software to analyze your total tax picture to identify specific actions to take to improve the chances that you qualify.
Next Steps Toward Receiving ACA Subsidies
After applying the new rules to your own situation, you may find that obtaining a health plan through the health insurance marketplace is a cost-effective option.
Even if you already have health insurance coverage, it’s helpful to compare your current health insurance plan to the plans available through the ACA marketplace. If your calculations show you could be saving money with subsidies through one of the ACA marketplace plans, you can switch from your current health insurance company!
To switch, you’ll need to do it during ACA open enrollment period. The open enrollment period for coverage starting in 2022 is from November 1, 2021, through January 15, 2022. You’ll also need to create an account on HealthCare.gov. From there, you can browse the plans and see what each would cost based on the state you live in, your family size, and income.
The best part is, you don’t have to do all of this on your own. Reach out to your advisor for help changing your health insurance or talk through the long-term impacts of switching.
If you don’t have a trusted advisor, we would be happy to help.
Call us today to see how we may be able to help you navigate the ACA and reduce your health insurance costs.
Katherine Fonville is a personal financial advisor and fee-only financial planner and founder of Covenant Wealth Advisors.
She manages investment portfolios for individuals age 50 plus with over $1 million in investments.
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