Under the Affordable Care Act, Obamacare offers health insurance subsidies to lower-income families to help offset the costs of insurance premiums. Individuals and families are eligible for insurance premium assistance if their annual household income is less than 400% of the Federal Poverty Level. The maximum dollar amount a family may earn and still qualify for a subsidy depends on household size.
The Federal Poverty Level is adjusted for inflation each year and is released by the Department of Health and Human Services. In terms of health insurance, the Federal Poverty Guidelines from the current year are used to set income guidelines for subsidy eligibility in the following year. For example, 2015 Federal Poverty Guidelines are used to set income limits for receiving premium assistance in 2016. Click here to see the current income limits for receiving health insurance subsidies by household size.
Health Insurance Subsidy Amounts
The amount of a health insurance subsidy an individual or family will receive depends on the number of people living in the household and the total annual income for that household. The government calculates a maximum dollar figure that families of certain sizes and incomes are required to pay towards premiums. The amount of insurance premium assistance awarded will be the difference between the maximum amount the family is expected to contribute, and the cost of the second cheapest silver level plan in the area. Individuals and families are notified of their eligibility for a subsidy and the amount when applying for health insurance through Healthcare.gov, or their State-sponsored Health Insurance Marketplace.
Once awarded, families may choose to use their subsidy to pay for a higher-level plan that would otherwise be unaffordable, or apply the subsidy to the lowest cost plan (bronze level) for the greatest premium savings.
Using Health Insurance Subsidies
A health insurance subsidy may be applied immediately to the cost of insurance and used for insurance premium assistance, or collected in the form of a premium tax credit. If used to lower the cost of premiums, the insurance provider will be paid the subsidy directly by the government. If collected as a premium tax credit, the individual or family will pay the full premium amount and a credit will be awarded when taxes are filed for the insured year.