If you enroll through Connect for Health Colorado, there are two types of financial assistance available:
- Tax Credits applied to your premium or taken when you file with the IRS (these have been enhanced in 2021 and 2022, by the American Rescue Plan)
- Cost Sharing Subsidies to lower your out of pocket costs on Silver plans
One of the primary goals of the Affordable Care Act (ACA) was to make health insurance more accessible to more people. This was accomplished with a variety of reforms impacting the individual health insurance market (which had historically not been regulated as much as the group market), along with subsidies to help people pay for their health insurance and lower their out-of-pocket expenses.
Guaranteed issue individual health insurance means that you no longer have to go through medical underwriting to get an individual health insurance policy. Your medical history is no longer be a factor in determining whether you can get a policy or what your premium will be.
But the law also provides financial assistance for individuals and families who need it the most. You have to purchase your policy through Connect for Health Colorado (the Colorado marketplace, sometimes referred to as the “exchange”) in order to get any type of subsidy. Our brokerage is certified to assist you with this process, but it’s important that you’re aware that “off-exchange” plans (purchased directly from a health insurance company, or outside of the exchange) are not eligible for subsidies.
How to calculate ACA MAGI or “household income” for subsidies
There are two types of financial subsidies available: Premium Tax Credits, aka premium subsidies, and cost-sharing reductions (CSR, also called cost-sharing subsidies). Much more detailed information is available about the subsidies if you follow those links, but here’s a brief summary of each one:
Premium Subsidies
Colorado is a Medicaid Expansion state. That means Colorado has opted to expand Medicaid to people with incomes up to 138% of the federal poverty level (FPL), under the ACA. So premium subsidy eligibility starts above that level, picking up where Medicaid eligibility ends.
Unlike most tax credits, premium tax credits can be taken in advance, throughout the year (as opposed to claiming the whole amount on your tax return). Indeed, that’s how most people receive their premium tax credit, with the money paid directly to their insurance company each month to offset the amount they have to pay for their coverage. So you’ll often hear people refer to premium subsidies as APTC, which stands for “advance premium tax credit.”
The premium subsidies are on a sliding scale, with the most assistance provided to individuals and families in the lowest income ranges. Prior to 2021, subsidy eligibility was capped at 400% of the federal poverty level, which created a “subsidy cliff” at that income: People with income above 400% of the poverty level were ineligible for subsidies, regardless of the percentage of their income they would have to spend on health insurance.
But the American Rescue Plan, enacted in 2021, made subsidies larger and did away with the income cap for subsidy eligibility, through the end of 2022 (these provisions might be extended past 2022 under future Congressional action).
More details are available here to explain the percentage of income that you’ll be expected to pay for your coverage with the American Rescue Plan in place. But the short story is that depending on your income, you’ll pay between 0% and 8.5% of your income for the second-lowest price silver plan (ie, the benchmark plan).
That calculation will determine your subsidy amount (the amount necessary to pay the rest of the cost of the benchmark plan). But you can then use that subsidy to purchase any “metal” plan offered at Connect for Health Colorado and have the subsidy applied to the price. So you can get a bronze plan and pay even less than the capped amount, or you can get a gold plan and pay more… it’s up to you.
Be aware that “catastrophic” plans available for people under 30 (and to people age 30+ who qualify for hardship exemptions) are not eligible for subsidies, even if you purchase them within Connect for Health Colorado. If you’re a 20-something enrollee who qualifies for a subsidy, you may be better off with at least a bronze plan instead of a catastrophic plan, simply because of the subsidy availability.
If you are eligible, you may choose to have some or all of the tax credit paid directly to your insurance carrier to reduce your premium payment (this is the option most people select). But you can also choose to pay full price for your coverage throughout the year and wait until you file your taxes to claim the tax credit. Or you can take a smaller APTC than the amount for which you think you’ll be eligible, and claim the rest on your tax return.
One reason to take less than the total amount upfront (paid to your insurer throughout the year) is if you think your income will go up during the year, or if you’re unsure of what your total income will end up being and you want to avoid having to repay the premium tax credit on your tax return.
Whichever option you choose, you’ll have to reconcile your premium tax credit (or claim it in full) with the IRS when you file your taxes. You’ll use Form 8962 to do this. And Connect for Health Colorado will send you Form 1095-A, which will have information on it that you’ll use to complete Form 8962.
When you file your taxes, if your income is higher than you projected when you applied for coverage, you may have to pay back a portion of your subsidy. On the other hand, if your income is lower than projected and you’re eligible for a higher subsidy, you’ll get the additional amount as a regular tax credit when you file your taxes. If your income changes during the year, it’s important to communicate with Connect for Health Colorado so that they can adjust your subsidy and you can avoid headaches at tax time.
The tax credit you receive cannot be higher than the premium for your health plan, so if you pick a health plan that costs less than your subsidy amount, you’ll pay $0/month for your coverage, but you won’t receive any additional amount of tax credit. The premium tax credit also cannot be paid directly to you on a monthly basis. The only way it can be paid directly to you (as opposed to being paid to your insurance company on your behalf) is if you claim it on your tax return after the end of the year.
How to claim the ACA tax credit
If your gross household income (before taxes and other deductions are taken out) is at or below 138% of FPL (the limits are higher for children to qualify for Medicaid and CHIP), or if you are pregnant or disabled, you may qualify for free or low-cost state medical coverage through Medicaid or Child Health Plan Plus (CHP+).
The Federal Poverty Guidelines Help to Determine Subsidy Amounts
People earning at least 139% of the federal poverty guidelines can receive assistance with their insurance premiums in 2021 and 2022 (as of 2023, the upper income limit of 400% of the poverty level might be reinstated).
Although Medicaid and CHP+ eligibility are based on current FPL numbers as of the time the person is applying, premium subsidy eligibility is based on the prior year’s FPL numbers. So for 2021 covergage via Connect for Health Colorado, the 2020 FPL numbers are used. And for 2022 coverage (enrollment starts November 1, 2021), the 2021 FPL numbers will be used.
Cost-Sharing Subsidies
Cost-Sharing Subsidies (also known as cost-sharing reductions, or CSR) are the second type of financial assistance available at Connect for Health Colorado.
Cost-sharing subsidies are only available on silver plans
Cost-sharing subsidies make coverage more robust and out-of-pocket costs lower. They apply to anyone with an income up to 250% of FPL, as long as a Silver plan is selected. If you’re eligible for cost-sharing subsidies, they’ll already be included in the plan details for all the Silver plans available through Connect for Health Colorado. More details are here, but this is a brief summary:
- Cost-sharing subsidies reduce the maximum out-of-pocket exposure on silver plans for households with incomes up to 250% of FPL. For 2022 coverage, the unsubsidized out-of-pocket maximum for an individual is capped at $8,700 ($17,400 for a family). But enrollees with incomes up to 250% of FPL will be able to select Silver plans with lower out-of-pocket limits: For enrollees with income between up to 200% of poverty level, the subsidized Silver plans have a maximum out of pocket of $2,900 ($5,800 for a family). Enrollees whose income is between 200% and 250% of poverty level will have a maximum out-of-pocket of $6,950 ($13,900 for a family) on Silver plans.
- Cost-sharing subsidies also increase the percentage of costs that are paid by the health insurance policy. It’s also on a sliding scale. An unsubsidized silver plan pays roughly 70% of the average enrollee’s total health care costs (this percentage is called actuarial value, or AV). But for applicants with income between 138% and 150% of FPL, Silver plans have an AV of 94%, which is better than a Platinum plan. For applicants with income between 150% and 200% of FPL, Silver plans have an AV of 87%, which is nearly as good as a Platinum plan. And for applicants with an income between 200% and 250% of FPL, Silver plans have an AV of 73%.
Cost-Sharing Subsidies require that you estimate your MAGI before you enroll for your health insurance plan through the exchange. Start getting a good guess where your household size and MAGI will be a year ahead so you can manage your income accordingly.
You can only enroll in ACA plans during open enrollment unless you have a qualifying event. If you have questions about subsidy eligibility, please let us know. As always, there is no cost for our services. We’re happy to help you find the best policy to meet your needs, whether it’s in the Connect for Health Colorado marketplace or not.