Some of the most common questions about subsidies are:
- What is a subsidy?
- Who qualifies for a subsidy?
- How much is the subsidy?
- What are Cost Share Reductions?
- What if my income changes?
What Is A Subsidy?
There are actually 3 types of subsidies available in health care reform.
- Premium Assistance Tax Credits
These are what most people are familiar with and refer to as a subsidy. These tax credits can be applied to help pay your monthly premiums. If you decide not to use them to reduce your premiums, then you can get the tax credits as a refund when you file your tax return. You can qualify for federal premium assistance tax credits if your Modified Adjusted Gross Income (MAGI) is between 100% to 400% of the Federal Poverty Level (FPL). In 2020 the state of California may provide premium assistance to you if your MAGI is greater than 400% but less than 600% of the FPL.
- Cost Sharing Assistance
These subsidies help by reducing your out of pocket costs for medical services. These cost-sharing subsidies can be applied to your copays, coinsurance, deductible, and out-of-pocket maximums. This assistance can only be applied to the Silver plans available on the CoveredCA exchange. To qualify for the cost-share reduction your MAGI must be between 100% and 250% of the FPL.
Medi-Cal is the California version of the federal Medicaid program. This is a free health insurance plan that is available if your MAGI is less than 138% of the federal poverty level.
Who Qualifies For A Subsidy?
To qualify for a subsidy, your household modified adjusted gross income (MAGI) must be less than 600% of the federal poverty level, and you can not have Medi-Cal, Medicare, or a group health insurance plan at work that offers the minimum essential coverage (Bronze level coverage).
If you have group coverage available to you, it is possible, but difficult, to qualify for a subsidy. You can qualify for subsidized coverage if,
- The company plan costs more than 9.86% of your MAGI to cover just the employee (not including the family)
- The company plan does not provide the minimum essential coverage of 60%
Special Note For Married Couples – Married couples MUST file a JOINT Tax Return in order to qualify for a subsidy.
This table also shows various $0 cost or low-cost health insurance programs you may qualify for based on your income.
A key item to make note of is the MAGI Medi-Cal for Children limit at 266% of the Federal Poverty Level (FPL). If your household income is at or below 266% then your children will qualify for Medi-Cal and not be on your subsidized health plan through Covered California.
In San Mateo, Santa Clara, and San Francisco counties there is a County Children’s Health Initiative Program (CCHIP) that extends the AGI at which your children will fall into the CCHIP program, to 322% of the FPL.
The income limits for each open enrollment period are set before the beginning of that year. However, the Medi-Cal and Medi-Cal for Children limits are adjusted each year at the beginning of April. If your Adjusted Gross Income is close to the 266% level or the 139% level, you may find your children or yourself falling into Medi-Cal at the beginning of May.
The biggest question we get when people ask if they can qualify for a subsidy is, how do you calculate the MAGI? The answer to the question is not especially straightforward, but we’ll outline the process for you here.
How To Calculate MAGI For Health Care Reform
For most people who will apply for health coverage under the Affordable Care Act, MAGI will be equal to your Adjusted Gross Income. You can find this number by looking at your tax return from the previous year, and getting the number on the following line:
- Line 37 on your Form 1040
- Line 21 on your Form 1040A
- Line 4 on your form 1040EZ
Then you’ll need to modify this number from your tax return by adding back specific income that was deducted:
- Tax-exempt interest shown on line 8b of your Form 1040 (typically from Municipal bonds)
- Social Security income that was not taxed (Subtract line 20b from 20a on your Form 1040)
- Foreign income you earned and housing expenses that were paid for you when living abroad (this is reported on form 2555)
Planning to keep your MAGI below 400% (or 600%) of the federal poverty level will become an important strategy if you want to reduce the cost of Obamacare coverage. The best way to do this is to talk with your tax professional to see what you can do to qualify for a subsidy next year.
How Much Will My Subsidy Be?
Most of the online subsidy calculators are only designed to tell you IF You Qualify For A Subsidy, and estimate how much you may be eligible for. The only calculator that gives actual subsidy amounts is the calculator inside the Covered California application (the Shop and Compare tool provides only estimates).
The subsidy amount you can qualify for is based on your MAGI and the 2nd lowest cost Silver plan for you and/or your family. If your MAGI is less than 600% of the FPL for your family’s size, then you may be able to qualify for premium assistance. By running an On-Exchange Quote here at SPF Insurance you can find out how much subsidy or premium assistance you can qualify for.
To see what amount of subsidy you can qualify for, click “Get Health Insurance Quote” in the Quote Center in the upper right corner. Or you can Get CoveredCA Health Insurance Quotes here.
On the first page of the quote engine you’ll enter your zip-code and your household size. The page will then display the maximum income limit and ask you if your AGI is greater than that amount. Click NO. If you click yes, then the quote engine will show you the plans that are outside the Covered CA exchange without premium assistance.
On the second page you will enter your contact information and the date of birth for each member of your household. The items with a red asterisk are required.
At the bottom of the second page, you will enter your expected AGI for 2020. This is your best estimate. Then click the green “Continue” button.
Now you will see the quote results with all the health plans listed from lowest cost at the top, to the most expensive plans at the bottom.
In the grey section at the top you will see four key pieces of information;
- Your Estimated Monthly Subsidy Amount
- An editable field showing your household income
- A Selection to have the monthly subsidy amount subtracted from the Quoted Rates
- Notification if you qualify for Cost Share Reduction Silver plans
To see what effect your AGI has on the cost of your health insurance, you can modify the Household Income and click the green “Update” button. The quote page will refresh with the results.
If you have any questions please call us.
What Are The Cost-Sharing Reductions?
The cost-sharing reductions are a special subsidy that is available if your income is between 100% and 250% of the FPL. If you are in this income range, the co-payments, co-insurance, and deductible of CoveredCA Silver plans will be reduced. This is along with the premium assistance subsidy that reduces your monthly premium costs.
The table below shows the effect of these cost share reductions on the standard Silver plan which provides a 70% actuarial value. The gray column labeled Basic 70% Silver shows the standard Silver benefits.
Many people ask if these cost-sharing reductions are available on any other Metal plans. They are not. Only the Silver plan offers these. The effect of these cost reductions can actually make the Silver plan better than the benefits offered in a Platinum plan.
If your income is less than 150% FPL, then the cost-reduced Silver plan provides richer benefits, at lower costs than the Platinum plans. At this income level, you have a $3 copay for a doctor visit, $3 for any lab tests, and $3 copay for generic prescriptions. One of the biggest benefits of these reductions is the out-of-pocket maximum is dramatically cut to just $2,250 for an individual and $4,500 for a family (versus $6,350 for an individual and $12,700 for a family).
The combination of both subsidies is a great benefit to those that can qualify to get them.
What If My Income Changes?
The Adjusted Gross Income (AGI) you put into your Covered California application is your best guess for the upcoming year. If your income increases or decreases from your initial estimate you should update the income in your application.
The reason why you should keep your application AGI up to date is two-fold.
- If your income decreases you will receive more subsidy and your monthly cost of health insurance will be reduced.
- If your income increases you may receive more subsidy than you should and the IRS will ask you to return the excess.
Covered CA expects you to report any changes to the exchange within 30 days. This self-reporting is very important and can save you a headache at tax time.
The main issue of not reporting changes, is that if you qualify for less subsidy because your income increased during the year, you will be asked to pay back the extra subsidies when you file your tax returns.
If your AGI is greater than 400% of the FPL, you will be asked to repay all the subsidy money you received. If your AGI is below 400% then you will be required to repay a portion of the extra subsidies you received as shown in the table above.
A special note to those of you whose AGI is below the FPL or 138% of the FPL. If you do not want to be in Medi-Cal then you can make your Covered CA expected AGI a few thousand above the 138% level* and get highly subsidized cost-sharing reduced health plans for the year. At the end of the year, if your income is below the Medi-Cal qualification income (138% of FPL), then you are not required to repay any of the subsidies you received.
* – The Medi-Cal FPL numbers are updated in the spring each year and the new numbers take effect in April. If your AGI is near the Medi-Cal limit at the beginning of the year, then there is a great likelihood you will fall into Medi-Cal when the new FPL levels take effect.
We’ve covered about 90% of everything you could want to know about the health care reform subsidies. If you have questions, please leave a comment below, or call us and we’ll be happy to help you.
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