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Health insurance can be expensive. Subsidies make insurance more affordable. They reduce premiums and out-of-pocket payments for people with low and moderate incomes. They are part of the Affordable Care Act (ACA), a comprehensive healthcare reform law enacted in March of 2010, also known as Obamacare.

Subsidies are available to people who apply for health insurance through Marketplaces or exchanges. The two types of subsidies available are the premium tax credit and the cost of sharing reduction. This article will explain what each involves, the application process, and how to maintain eligibility.

What is the Premium Tax Credit?

The premium tax credit is a refundable tax credit awarded on a sliding scale. The lower your income, the higher the tax credit will be. You may be eligible for the credit with any type of Marketplace plan:  platinum, gold, silver, or bronze.

When you enroll in the Marketplace program, you can choose to have an estimated payment paid to your insurance company to reduce your monthly premiums. Or you can pay your premiums and receive your credit at the end of the year.

In either case, you must complete Form 8962, your Premium Tax Credit (PTC), and attach it to your tax return when you file.

Am I Eligible for the Premium Tax Credit?

The eligibility requirements for the premium tax credit are as follows:

  • Your household income must be equal to the Federal Poverty Level which varies from year to year
  • You must not have access to insurance through your employer or a family member’s employer
  • You must not be eligible for Medicare, Medicaid, or the Children’s Health Insurance Program (CHIP)
  • You must be a U.S. citizen or show proof of legal residency
  • If married, you must file taxes jointly

How to Apply

To receive the premium tax credit, you must apply through the marketplace. You must provide information such as your age, address, household size, citizenship status, and estimated income. You will then receive a determination that tells you your premium tax credit amount. You will have the option to have the credit paid to the insurer each month, or you can receive it on your tax return at the end of the year.

How to Maintain Eligibility

Taxpayers can maintain eligibility by reapplying through the Marketplace each year. If changes arise within the year, alert the Marketplace as soon as possible. They will adjust the advance payment amount (if applicable) to minimize discrepancies between your payment and your credit.

What is the Cost Sharing Reduction?

Cost-sharing reductions lower out-of-pocket expenses like deductibles and copays. They can be used in combination with the premium tax credit to further lower health insurance expenses. They are only available to people who apply for the silver plan.

The subsidy provides the following benefits:

  • Lower deductibles: If you qualify for the cost-sharing reduction, the insurance coverage will kick in sooner. If you choose a plan that typically has a $750 deductible, it may be lowered to $300 to $500 with the cost-sharing reduction.
  • Lower Copays: Copays of $30 for a doctor visit may be as low as $15 or $20 with the CSR.
  • Lower Out-of-Pocket Maximums: The out-of-pocket maximum is the total you will pay in out-of-pocket medical expenses each year. OOP expenses of $5000 can be reduced to $3000 or less for CSR-eligible patients.

These are just examples. The amount of your reduction is determined by your income on a sliding scale basis.

Am I Eligible for the Cost Sharing Reduction?

Anyone eligible for the premium tax credit may qualify for the cost-sharing reduction.

How to Apply

You can apply for the cost-sharing reduction by shopping for Silver Plans on the Marketplace. Provide the information you would to receive a premium tax credit. If you qualify, your reductions will kick in automatically.

How to Maintain Eligibility for Subsidies

Continue updating your information through the marketplace annually and as needed to maintain eligibility. Report any changes that occur. If you continue to fall within eligibility guidelines, you will continue to receive benefits.

Insurance Broker Hub will help you find a plan that’s right for you.  Fill out our secure, online health insurance quote form to get started.

Additional Resources

Are You Eligible for an ACA Subsidy or Tax Credit?

How to Save Money on Health Insurance: Tips for Finding Affordable Coverage

Smart Tips for Managing the Costs of Individual Health Care