Updated Income Limits and Subsidy for Obamacare in 2021
You probably have heard on the news about getting health plans for as low as $0 and having many questions regarding how.
While there are many articles written about this topic, they are rather technical and full of jargon. As a former healthcare administrator who worked in both hospital, medical office, and corporate healthcare but also a healthcare consumer myself, I am writing this article as the most comprehensive and updated 2021 guide to help you understand ACA subsidy in layman terms.
Article is updated to include the impact of the American Rescue Act in 2021 and will continue to be updated when there are legislations.
There are two types of ACA subsidies.
According to the IRS, the legal name of the ACA subsidy is Premium Tax Credit. This is a defined amount that you could use to help pay for health insurance premiums.
When signing up for an ACA plan, the exchange will calculate how much credit you are eligible for based on your income level.
There are two options for Premium Tax Credit/subsidy. For the standard Premium Tax Credit, you are responsible to pay 100% of health insurance premiums but you can get some of it credited back in the form of more refund when filing for tax return every Spring.
The more popular option is called Advance Payments of Premium Tax Credit. Under this option, you claim the credit in advance and only pay a portion of the health insurance premiums. At the end of the tax year, if you claim more credit than allowed, you will have to pay it back.
Misconception: ACA/Obamacare subsidy or Premium Tax Credit is simply a discount.
Truth: the subsidy is not a discount but rather a tax credit that you can claim at the end of the year (think more refund) or in advance (like a loan that might be forgiven). If you claim more than eligible, you will have to pay it back.
If your annual income is between $12,760 and $51,040 you are eligible for ACA subsidy/Premium Tax Credit.
With the new American Rescue Act signed into law in 2021, the premium tax credit has been increased and eligibility expanded for 2021 and 2022.
How does income get calculated: the income is calculated by averaging the gross income you received in the past three months multiplied by 12. For example, if you live in NY and after-tax paycheck is $1644 each (paid every two weeks), your annual income is estimated at $52,000 - over the eligibility threshold.
As a quick rule of thumb, if you make less than $25K a year, you can get a health plan for less than $50 a month. If you make more than $25K a year, the monthly cost increases significantly.
If you are unemployed, you are automatically qualified for no-cost plan, but this is set to expire in November - December 2021.
Estimate monthly subsidized premiums & subsidy for a 40-years-old in 2021
| Max Annual Income | Estimate monthly premiums | Estimate Tax Credit/Subsidy |
|---|---|---|
| $ 12,760 | $0 | $451 |
| $ 19,140 | $0 | $451 |
| $ 25,520 | $43 | $408 |
| $ 38,280 | $191 | $259 |
| $ 51,040 | $362 | $89 |
| $51K or more | $451 | $0 |
Misconception: all eligible individuals receive the same amount of tax credit.
Truth: tax credit amount depends on your annual estimated income.
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If you get a new job and your income increases, you might have to pay back the tax credit
While the Affordable Care Act has been a life saver for many, there have also been horror stories.
In one instance detailed by the Inquirer, a 64-year-old Philadelphian woman who was told she qualified for a $0 plan but then was told by her tax preparer that she was no longer eligible for the tax credit and owed the IRS more than $10,000 payback because her income soared above $50K during the year.
According to acasignup.net, there were nearly 2.7 million people that owe $6.3 billion in excess subsidies (that required pay back) in 2020 due to overestimating income. While the American Rescue Act temporarily waived that clawback for 2020, it is unclear what will happen in 2021.
| Income ($) | Max tax credit pay back |
|---|---|
| $25,519 | $325 |
| $25,520 - $38,279 | $800 |
| $38,280 - $51,039 | $1,350 |
| Above $51,040 | Full amount |
Misconception: you can use a lower income amount to get the maximum tax credit regardless of how much you make.
Truth: State exchange often asks for pay stubs and your might be responsible to pay back subsidy/tax credit if your actual income on the tax return is more than the income you estimated when signing up for health insurance.
If you make more than $51K a year or ontrack to make more, there are still affordable options.
According to the Bureau of Labor Statistics, the average wage for full-time workers in the U.S. is $990 a week or $51,480 a year (as of Jul 16, 2021). This means if you live in a large urban center, chances are you will make more than the eligibility threshold. But it’s not the end of the road.
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Options if you make more than $51K (in order from most to least affordable):
- Medicare: Medicare is the best option and comes at little or no cost if you are 65 or above.
- Insurance alternative: if you are relatively healthy and don’t foresee a major surgery in the way, healthcare memberships like Mira could make a lot of sense. Mira functions like Costco but for healthcare, for $45/month, the company curates a network of clinics, labs, pharmacies and negotiates on member behalf for the best rates possible. In results, you can get similar or even better copays compared to a Silver plan but at 10x less the monthly cost. You can see full Mira benefit’s here.
- Spouse’s plan: if your spouse has insurance through a job, you could ask to get on their plan. The company often recalibrates the contribution and you might have to pay more monthly but this is the most economical option if catastrophic plans or Medicare do not work for you.
- Catastrophic plans: if you are under 30 years old, you can still purchase an unsubsidized catastrophic plan for $150-$200/month. This option often comes with a very high deductible (meaning you will have to pay 100% out of pocket for most services) but it could protect you against very large hospital bills (if they’re in network).
Misconception: you can use a lower income amount to get the maximum tax credit regardless of how much you make.
Truth: State exchange often asks for pay stubs and your might be responsible to pay back subsidy/tax credit if your actual income on the tax return is more than the income you estimated when signing up for health insurance.
Source & Data:
- https://www.irs.gov/affordable-care-act/individuals-and-families/questions-and-answers-on-the-premium-tax-credit
- https://www.kff.org/health-reform/issue-brief/how-the-american-rescue-plan-will-improve-affordability-of-private-health-coverage/
- https://www.inquirer.com/health/consumer/health-insurance-tax-credits-aca-marketplace-20210301.html
- https://www.inquirer.com/health/consumer/health-insurance-tax-credits-aca-marketplace-20210301.html
- https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2013.0186
- https://acasignups.net/21/06/30/68-million-low-middle-income-americans-are-getting-extra-900-apiece-covid-relief-thanks
- https://www.bls.gov/news.release/pdf/wkyeng.pdf
Khang T. Vuong received his Master of Healthcare Administration from the Milken Institute School of Public Health at the George Washington University. He was named Forbes Healthcare 2021 30 under 30. Vuong spoke at Stanford Medicine X, HIMSS conference, and served as a Fellow at the Bon Secours Health System.
