Health insurance is often expensive, and many people in low or moderate-income brackets who don’t receive coverage through their employers simply can’t afford the high monthly premiums. The Affordable Care Act (ACA) makes health insurance accessible to those people by providing subsidized insurance. Subsidies help reduce premiums and out-of-pocket expenses for eligible individuals and families.

Here’s a brief guide to help you understand the types of financial assistance available through the ACA.

What Is a Subsidy?

ACA subsidies are health coverage tax credits that are applied toward health insurance premiums for qualified individuals. Subsidies help to keep insurance premiums affordable for people with low or moderate incomes. They work on a sliding scale based on income level and are generally adjusted proportionately to rising premiums to help insulate recipients from premium increases. In 2020, approximately 87% of the 10.7 million Americans who purchased health insurance through the marketplace received subsidies for their ACA premiums.

What Is Subsidized Health Insurance?

Generally, there are two types of healthcare subsidies: premium credits and cost-sharing credits:

  • Premium credits are applied toward your monthly premium payments for plans purchased through the marketplace to reduce the cost. You have the option to have the credit paid in advance directly to the plan insurer every month or claim the credit later in a tax return. The advance premium tax credit (APTC) option pays 1/12 of the credit directly to the insurance provider every month, thereby reducing the amount you must pay. The amount of the credit is based on estimated income for the coming year. The lower the income, the higher the subsidy.
  • Cost-sharing credits reduce your responsibility for other out-of-pocket expenses, such as deductibles, copayments, and coinsurance. Like premium credits, cost-sharing credits work on a sliding scale based on income. Those with lower incomes will receive more generous subsidies than those with higher incomes. However, unlike premium credits, which are available for any metal level of coverage ― Bronze, Silver, Gold, or Platinum ― cost-sharing credits are only available under Silver plans to make the actuarial value more like a Gold or Platinum plan.

How Do You Calculate Your Health Care Subsidy?

The amount of premium tax credit available is determined by subtracting your required contribution from the actual cost of a benchmark Silver plan.

For example, if the annual cost of a Silver plan is $6,000 and you earn 300% of the federal poverty level (FPL) of $40,770, your required annual  premium contribution for essential health services would be 6% of $40,770, or 2,446.20 (the premium tax credit would be 3,553.80).

As there are a lot of variables in calculating your health care subsidy, it helps to use a subsidy calculator:

What Are the Income Limits for Health Care Subsidies in 2022?

ACA premium subsidies are available if you:

  • Are a legal United States resident
  • File your tax returns jointly, if married
  • Earn a modified adjusted gross income (MAGI) at least equal to the FPL, but not more than 400% of the FPL
  • Do not have access to employer-sponsored coverage, Medicare, Medicaid, or other types of health coverage

The following table shows the federal poverty guidelines for 2022.

Federal Poverty Guidelines for 2022 Health Insurance Coverage

Number in Household 100% FPL 150% FPL 200% FPL 250% FPL 300% FPL 400% FPL
1 $13,590 $20,385 $27,180 $33,975 $40,770 $54,360
2 $18,310 $27,465 $36,620 $45,775 $54,930 $73,240
3 $23.030 $34,545 $46,060 $57,575 $69,090 $92,120
4 $27,750 $41,625 $55,500 $69,375 $83,250 $111,00
5 $32,470 $48,705 $64,940 $81,175 $97,410 $129,880

Note: Tax credit eligibility for 2022 coverage year is based on 2022 federal poverty guidelines. For households with more than five people, add $4,540 for each additional person. Somewhat higher guidelines are established for Alaska and Hawaii. For more information see U.S. Department of Health and Human Services Poverty Guidelines.

The premium subsidy essentially limits the percentage of income you must contribute toward the premium. The American Rescue Plan Act (ARPA) enacted in March 2021 temporarily adjusted these limits for years 2021 and 2022. Prior to these adjustments, the contribution limits ranged from 2.06% to 9.78% of the MAGI, and subsidies were not available to those earning more than 400% of the FPL.

There is some uncertainty about whether the revised limits will be made permanent after 2022 or revert to the previous limits. The following table shows the ACA income limits for 2022.

Household Income Range (Expressed as % of FPL) Required % of Household Income at Start Range Required % of Household Income at Top of Range
Less than 150% 0 0
At least 150% but less than 200% 0 2
At least 200% but less than 250% 2 4
At least 250% but less than 300% 4 6
At least 300% but less than 400% 6 8.5
At least 400% and higher 8.5 8.5

Source: IRS

Insurance and health care consultant

Tammy Burns is an experienced health insurance advisor. She earned her nursing degree in 1990 from Jacksonville State University, obtained her insurance billing and coding certification in 1995, and holds a health and life insurance license in Alabama, Georgia, Iowa, Mississippi, and Tennessee. Burns is Affordable Care Act (ACA)-certified for health insurance and other ancillary, life, and annuity products. She maintains an active nursing license and practices private-duty nursing.

Burns’ background as a nurse, insurance biller and coder, and insurance consultant includes infectious disease, oncology, gynecology, phlebotomy, post operative, family medicine, geriatrics, home health, hospice, human resources, management, billing, coding, claims, fixed annuities, group and individual health and life products, and Medicare. She’s always been driven by a desire to help people, spending more than 25 years as a practicing nurse in hospitals, private doctors’ offices, home health, and hospice. As a nurse, Burns supported patients filing insurance claims with Medicare, Medicaid, and private insurance companies as well as responding to billing questions from confused patients.

Seeing firsthand how unsuspecting patients are frequently confused by an overly complex system they don’t understand led Burns to become an insurance agent and health care consultant, now helping people understand the medical system. Since becoming an insurance agent in 2013, she has worked with some of the largest and most reputable insurance carriers and agencies in the nation, and she has built a large and loyal clientele by way of her commitment to transparency and personalized service.