There are three primary ways to reduce the cost of health plans under the Affordable Care Act in California.
- You may be able to lower the cost of monthly premiums when you sign up for a private health insurance plan. Your savings will come in the form of federal or California state tax credits.
- You may be able to reduce your out-of-pocket costs -- including copayments, deductibles, and coinsurance -- with cost-sharing subsidies paid for by insurers.
- You may qualify for free or low-cost coverage through Medi-Cal, or your children may be able to obtain coverage through the Children’s Health Insurance Program (CHIP).
Each of these forms of assistance depends on your income and family size.
Many people who apply for coverage at the California exchange will be eligible for some form of financial assistance. Read on to learn more about each option.
Who Qualifies for Obamacare Tax Credits?
Obamacare tax credits can immediately bring down your monthly health insurance premiums; you don't have to wait until tax time to claim them. Using these tax credits, many low- to middle-income Americans can sign up for free or very low-cost health insurance plans, while others achieve significant savings on monthly premiums.
In addition, California has added state tax credits to those available from the federal government. We discuss these below.
New Obamacare (ACA) Subsidies Under the American Rescue Plan Act
Before March 11, 2021, tax credits were available only to those earning between 100% and 400% of the federal poverty level, as shown in the table below. However, with the passage of the American Rescue Plan Act to support Americans struggling with the COVID-19 pandemic, millions more people are now eligible for help.
Under the new law, no individual or family will have to pay more than 8.5% of their household income for a mid-level “silver” plan purchased from Covered California. (See below to learn what counts as household income.) Even though the amount of the subsidy is based on a silver plan, you can apply the subsidy to any marketplace plan, including bronze, gold, or platinum plans.
To claim these credits, you must be:
- under age 65, and
- not eligible for job-based health coverage or Medicaid.
Your final eligibility for tax credits will be determined when you apply for a health plan at Covered California, but a calculator offered by the Kaiser Family Foundation can help you figure out your potential savings.
The New Subsidies are Temporary
These enhanced subsidies are retroactive to the start of 2021, but they're also temporary. They will last only through 2022 unless Congress enacts legislation to extend them.
Eligibility Under the Old Rules
The Affordable Care Act, without the new, temporary tax credits, limits eligibility to individuals and families earning between 100% and 400% of the federal poverty level. In case you’re curious, here’s what that looks like for different California household sizes in 2020, the most recent year for which federal poverty level numbers are available.
- $12,760 to $51,040 for individuals
- $17,240 to $68,960 for a family of 2
- $21,720 to $86,880 for a family of 3
- $26,200 to $104,800 for a family of 4
- $30,680 to $122,720 for a family of 5
- $35,160 to $140,640 for a family of 6
- $39,640 to $158,560 for a family of 7
- $44,120 to $176,480 for a family of 8
California State Tax Credits
Beginning in 2020, California premium subsidies offer lower rates for the following three groups:
- Californians who earn between 400% and 600% of the federal poverty level may save an average of 23% on their monthly premiums. For 2020, 600% of the federal poverty level is $76,560 for an individual and $157,200 for a family of four.
- Those earning between 100% and 400% of the federal poverty level (see above) are eligible to receive state subsidies in addition to federal assistance. The state subsidy will contribute additional average savings of 5% on monthly premiums.
- State residents whose annual household income is less than 138% of the federal poverty level may see premiums for certain plans lowered to just $1 per person, per month. The 2020 earnings cutoff for this level is $17,609 for an individual and $36,156 for a family of four.
Remember to Report Income Changes
If you receive federal or state tax credits and your income significantly increases during the year, you must report the change to Covered California. If you don't, you may find yourself with a big tax bill at the end of the year because you will have to pay back the tax credits for which you were no longer qualified.
Your final eligibility for tax credits will be determined when you apply for a health plan at Covered California.
In 2017, the Trump administration decided to end the second type of Affordable Care Act subsidy, called "cost-sharing reductions" or CSRs. These subsidies were paid by the federal government directly to insurers, allowing them to reduce deductibles and co-payments for people with incomes between 100% and 250% of the federal poverty level.
The good news is that insurers figured out a way to continue to offer CSRs to consumers. That means that, in addition to saving money with tax credits, cost-sharing subsidies may help you pay for out-of-pocket costs. They also lower the total amount you'd have to pay for health care in a given year. (The annual out-of-pocket spending limits for plans offered by Covered California will vary depending on the type of plan – platinum, gold, silver, or bronze. See How Much Does Obamacare Cost in California?)
Cost-sharing subsidies are available for people earning between 100% and 250% of the federal poverty level. The limits below will help you determine whether you qualify. (These amounts are based on the federal poverty level for 2020.)
- $12,760 to $31,900 for individuals
- $17,240 to $43,100 for a family of 2
- $21,720 to $54,300 for a family of 3
- $26,200 to $65,500 for a family of 4
- $30,680 to $76,700 for a family of 5
- $35,160 to $87,900 for a family of 6
- $39,640 to $99,100 for a family of 7
- $44,120 to $110,300 for a family of 8
Note that these out-of-pocket savings are available only for silver plans. Generally, if you qualify for the subsidy, you’ll get the out-of-pocket benefits of a gold or platinum plan for the price of a silver plan.
Getting Free or Low-Cost Coverage Through Medi-Cal or CHIP
You may qualify for free or low-cost coverage through Medicaid (Medi-Cal) in California, or your children may be able to obtain coverage through the Children’s Health Insurance Program (CHIP).
Medi-Cal. If you are eligible for Medi-Cal, you will get free or low-cost health care. You will not need to buy a separate health plan through Covered California.
When you apply for health coverage at Covered California, the state will check your application against the Medi-Cal eligibility rules and tell you whether you qualify for Medi-Cal or the other savings options described above.
Children’s Health Insurance Program (CHIP). Even if you don’t qualify for Medi-Cal, your children may be eligible for the Children's Health Insurance Program (CHIP). Kids covered by CHIP don’t need to be included in another health plan.
When you apply for health coverage at Covered California, the state will check to see whether your children might qualify for CHIP. If so, it will alert the California CHIP agency.
What Counts as Income for Obamacare Subsidies?
Subsidies are calculated using what's called "modified adjusted gross income." To get a rough idea, start with your Adjusted Gross Income, which you can find on your 1040 federal tax form. Add to that any tax-exempt income like Social Security, tax-free interest, or income excluded by the foreign income or housing exclusion rules.
For more information, see What to Include as Income at HealthCare.gov.
You can learn the final costs for specific plans, including whether you qualify for subsidies or low-cost care programs, when you apply for insurance online at Covered California or when you talk to a navigator or broker about the plans available to you.
For more information, see How to Sign Up for Obamacare in California.