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The Basics of Subsidized Vs. Unsubsidized Insurance



Insurance can be costly to purchase and maintain premium payments. According to 2020 data, an employer-sponsored health insurance plan costs an average of $645 monthly for a single employee and $1,852 monthly for a family.


Not everyone, especially when unsponsored, can afford to pay that much. That’s where subsidized, and unsubsidized insurance comes in. Subsidized insurance comes with more affordable premiums, with part of the cost being footed by help from a third party. With an unsubsidized insurance plan, you cater fully to all your insurance expenses.


Let’s dive deeper into the basics of subsidized and unsubsidized insurance and how it affects plans such as health insurance.


What is Subsidized Insurance

Subsidized insurance is an insurance plan with reduced premiums where part of the insurance’s cost is footed by a third party, such as the government or your employer. Subsidies are very common in health insurance plans, with financial assistance from the government or public assistance programs such as American Rescue Plan and Medicaid.


Subsidized insurance is typically offered based on the following:

  • Income – Specifically, low-income individuals as measured using the Federal Poverty Level

  • Family size

  • The cost of health insurance where you live

What Does Subsidized Insurance Cover?

Subsidized insurance, such as subsidized health insurance, only covers qualified health plans purchased through a qualified online insurance marketplace partnering with a government exchange or directly through a government health insurance exchange.


Some insurers offer additional health insurance plans outside the insurance exchanges that still meet the coverage requirements of the Affordable Care Act. However, you cannot purchase these off-exchange plans with a subsidy.


The subsidy only covers a fixed amount of expenses. For instance, government health insurance subsidies are given to qualified consumers to help them purchase health insurance in the open market, only for themselves. The consumer foots any costs above that.


Types of Insurance Subsidies

The federal government offers two types of subsidies for individual health insurance plans. These are:

  • Premium Tax Credit

  • Cost Sharing Subsidies

Premium Tax Credit

The premium tax credit lowers the monthly payments or premium of your health insurance purchased through the insurance exchange or Marketplace. Typically, the Marketplace offers four “metal” coverage levels. These are bronze, silver, gold, and platinum.


Bronze plans have the lowest premium but the highest deductibles and other cost sharing. Therefore, you pay more out of pocket when receiving your covered healthcare services.


Platinum plans have the highest premiums but the lowest deductibles. Therefore, you pay the least out-of-pocket costs.


You can also get Catastrophic health plans on the insurance exchange, packing lower premiums and higher deductibles than bronze plans. Catastrophic health plans are typically available to individuals under 30. However, premium tax credits do not apply to them.


Eligibility

To be eligible for a premium tax credit, a marketplace enrollee must fulfill the following requirements:

  • Have a household income equal to or above the Federal Poverty Level (FPL)

  • Not have access to an employer subsidy for affordable coverage, including any family member

  • Not be eligible for coverage through Medicaid, Medicare, the Children’s Health Insurance Program, or any other public assistance program

  • Be a U.S. citizen or have proof of legal residency. Lawful immigrants with a household income below 100% of the Federal Poverty Line are also eligible if they meet other eligibility requirements

  • If married, must jointly file taxes to qualify

To receive the premium tax credit, you must apply for your insurance coverage through the insurance exchange or Marketplace. Your application must provide your age, household size, address, estimated income for the coming year, and citizenship status.


Immediately after submitting your application, you should receive a determination informing you how much premium tax credit you qualify for. You can opt to have the tax credit paid in advance, claim it later when filing your tax returns, or combine both.


Cost Sharing Subsidies

Cost-sharing subsidies reduce the maximum you pay out of pocket. The maximum is the highest amount of money you’ll pay over a policy period, typically a year. It covers your healthcare services, including your coinsurance, deductibles, and copays.


Unlike the premium tax credit available through all “metal” levels of coverage, cost-sharing subsidies are available only through silver plans. Therefore, the cost-sharing reductions are applied to silver plans, making the effective cost-sharing and deductibles similar to a gold or platinum plan.


Individuals with a household income level at 100% or 250% of the Federal Poverty Line can still apply for a premium tax credit, as long as they’ve selected a silver plan.


Eligibility

Individuals eligible for a premium tax credit and have a household income between 100% and 250% of the Federal Poverty Line are also eligible for cost-sharing subsidies.


What is Unsubsidized Insurance?

Unsubsidized insurance is any insurance coverage where the policyholder is responsible for paying the entire cost of their insurance plan. Therefore, it costs higher to pay for premiums and deductibles.


With unsubsidized health insurance, you may also have to pay for other parts of your medical bill out of pocket, such as copays and fee-per-visit, since they fall outside your regular coverage.


What Can You Do to Stop Paying Unaffordable Premiums?

It’s easy to blindly buy into unsubsidized insurance while you’re qualified for a government-sponsored, employer-sponsored, or individual Marketplace subsidy. So, what can you do to stop paying unaffordable premiums?


Switch to the Exchange

You cannot receive a subsidy on your insurance if enrolled in a plan outside the insurance exchange or Marketplace in your state. Switching to the exchange often gives you more affordable and comprehensive coverage. This is especially true with the recent implementation of the American Rescue Plan.


You can switch to a plan within the Marketplace during the open enrollment, which happens from November 11 to January 15 in most states. You can only switch plans outside the open enrollment through a qualifying life event.


Talk to Your Employer

The family glitch causes most households to pay unaffordable premiums on their health insurance. Consider talking to your employer about the situation and finding a workaround in such a case.


Most family glitches occur with the employer’s unawareness, especially when they offer spousal coverage. Therefore, coming forward can help resolve the issue and potentially make you eligible for subsidized insurance.


Adjust Your Household Income or Increase Your Subsidy Amount

Adjusting your household income can help you qualify for better subsidies. For instance, reporting every bit of income, such as babysitting income or farmer’s market proceeds, can push your income slightly above the Federal Poverty Level and make you eligible for higher subsidies.


Consult with a Trusted Insurance Company

Getting subsidized or unsubsidized insurance will significantly affect whether you can afford critical services such as healthcare. To ensure your eligibility, consult a trusted insurance company today and get the best options for your state.