For millions of Americans who couldn’t afford health insurance in the past, federal subsidies under the Affordable Care Act make it possible to pay for monthly premiums that might otherwise be beyond the scope of a normal budget. According to a report issued by government officials in June 2014, approximately 87 percent of enrollees on the federal health insurance exchange qualified for some form of a government tax credit. The report doesn’t take into account people who enrolled using state-run exchanges, but the numbers represent a widespread need for subsidies among low-income families nationwide. Subsidies reduce the out-of-pocket cost of insurance for those who qualify while the federal government picks up the tab for the remaining cost.
Qualifying for Assistance
To qualify for federal assistance, individuals must earn between 100 and 400 percent of the federal poverty line or FPL. In the contiguous United States, the poverty range is $11,670 to $45,960 per individual. People whose individual salaries fall within this range most likely qualify for some type of cost assistance when purchasing plans on the marketplace. The range increases for families and for those living in Alaska or Hawaii, where the cost of living is higher.
One of the issues with cost assistance on the marketplace is self-reporting. Enrollees must give accurate income information when applying for coverage, but some people may not have exact figures. Self-employed workers, for example, may report a higher or lower income based on fluctuating salaries each year. The government will check self-reported figures against tax returns, and those who earn more than they initially reported may owe money back to the IRS when they file taxes for 2014.
Financial Gray Areas
For some, subsidies aren’t enough to make insurance affordable, but there are others who fall into a gray area in which they don’t qualify for subsidies but can’t afford coverage. Other federal programs such as Medicaid and the Children’s Health Insurance Program offer free and low-cost options to those who can’t afford coverage, but the government encourages people to double-check their options on the marketplace. In some cases, low-income families may not have to pay a monthly premium thanks to subsidies.
Just how much are people getting in subsidies by enrolling in health insurance through the marketplace? On average, the government is covering more than $240 per month for people who take advantage of the tax credits. The Congressional Budget Office estimated that the cost of subsidies would total around $12 billion. Those with lower incomes will qualify for higher tax credits, and people in more populated areas with more diverse options on the marketplace will also see lower costs.
According to a report issued by the Kaiser Family Foundation, the federal government is spending just under $2,900 per person, per year on subsidies. Consumer awareness plays a large role in the success of the subsidy program. Densely populated states such as California and New York reported higher enrollment numbers among the subsidy-eligible population, most likely due to increased awareness of the programs. States that run their own exchange sites also report higher numbers.
In Wyoming, 92 percent of enrollees qualified for assistance, but only 13 percent of eligible enrollees took advantage of subsidies; Wyoming does not facilitate its own state exchange. On the other hand, approximately 50 percent of the subsidy-eligible individuals in Vermont utilized subsidies to pay for insurance. Vermont is one of the few states with its own state-run exchange.
The Future of Subsidies
Federal subsidies make the Affordable Care Act affordable for millions of Americans, but the subject of cost assistance has made headline news recently thanks to challengers of the law, who claim that the ACA only allows federal subsidies to individuals in states that run their own exchanges. The U.S. Supreme Court is expected to rule on this issue in the coming months. For now, consumer awareness and participation will shape the future of subsidies in America.