Individual Subsidies

Tax credit and cost-sharing subsidies are designed to reduce certain individuals’ out-of-pocket premium costs for enrolling in qualified health plans through Exchanges.

What are the federal subsidies?

Under the ACA, individuals who purchase insurance after January 1, 2014, through an Exchange will be eligible for subsidies for health insurance premiums and cost-sharing if their income is less than 400 percent of the federal poverty level (FPL) – $94,200 for a family of four in 2013. FPL amounts are updated annually to reflect inflation.

Individuals who get insurance through their employer can get subsidized coverage in an Exchange if their premiums are unaffordable (more than 9.5 percent of their household income) or the plan is inadequate (pays less than 60 percent of the cost of covered benefits).

The ACA provides two forms of subsidies to help pay for health insurance. First, a monthly premium assistance tax credit will lower the premium amount an individual or family must pay. Second, cost-sharing assistance will limit a person’s maximum out-of-pocket costs, and for some it will also reduce other cost-sharing requirements (i.e., deductibles, coinsurance, co-payments).

Premium Assistance Subsidies

The premium assistance subsidy reduces the amount that an individual or family pays for health insurance coverage by providing a tax credit. These subsidies are only available through the Exchange. Subsidies are determined on a sliding scale, based on income, so that individuals at the lower end of the income scale get the most help. The percentage increases as income increases, from 2% of income for families at 138% of the FPL to 9.5% of income for families at 400% of FPL.

The subsidy is based on the premium for a benchmark plan (the second-lowest-cost silver plan available in an Exchange). An individual or family who wants a more expensive or higher tier plan (i.e., gold or platinum) must pay the difference.  The credit is capped at the premium for the plan the family chooses (so no one receives a credit that is larger than the amount they actually pay for their plan).

Cost-sharing Assistance Subsidies

All people who buy coverage through an Exchange will have a cap on their total out-of-pocket spending, including deductibles, co-pays and co-insurance. These limits are based on the out-of-pocket limits that apply to high-deductible plans used with Health Savings Accounts (HSAs). People with incomes under 400 percent FPL will get subsidies to lower those caps based on their income.

Who is eligible for the health insurance premium tax credit?

A taxpayer is generally eligible for the credit only for any month that:

  • The taxpayer’s household income for the year is between 100% and 400% of the federal poverty level (FPL) for the taxpayer’s family size for the taxable year;
  • The taxpayer or a member of the taxpayer’s family is enrolled in one or more qualified health plans through an Exchange; and
  • The taxpayer or a member of the taxpayer’s family is not eligible for other qualifying coverage, known as “minimum essential coverage.”

Minimum essential coverage includes the following:

  • Employer-sponsored coverage (including COBRA coverage and retiree coverage)
  • Coverage purchased in the individual market
  • Medicare Part A coverage and Medicare Advantage
  • Most Medicaid coverage
  • Children’s Health Insurance Program (CHIP) coverage
  • Certain types of veterans health coverage administered by the Veterans Administration
  • Coverage provided to Peace Corps volunteers
  • Coverage under the Nonappropriated Fund Health Benefit Program

Minimum essential coverage does not include coverage providing only limited benefits, such as coverage only for vision care or dental care, Medicaid covering only certain benefits such as family planning, workers’ compensation or disability policies.


Also see the Subsidy Calculators:

KFF Health Reform Subsidy Calculator