ACA Subsidies: How Do They Work?
6 minutes
It’s a known fact that health insurance can be expensive, but you might not have to pay full price thanks to Affordable Care Act subsidies. Many people qualify for ACA subsidies that lower the cost of health coverage. These subsidies are available through the federal Marketplace (HealthCare.gov) or your state’s particular exchange, and they’ve helped millions of Americans afford the insurance they need.
If you're not sure what an ACA subsidy is or how to use it, you're not alone. We’re going to make it all make sense: how it works, what these subsidies do, how to know if you qualify, and how to get help paying for your health plan.
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What is an ACA subsidy?
An ACA subsidy is a discount that helps lower the cost of health insurance. It’s money from the federal government that you don’t have to pay back (as long as your income is reported accurately). There are two main types:
1. Premium tax credits
These lower the amount you pay each month for your health plan. Most people who qualify for ACA subsidies use this type.
2. Cost-sharing reductions
These help you pay less when you get medical care, like at the doctor’s office, hospital, or pharmacy. They reduce out-of-pocket costs like deductibles, copays, and coinsurance. These only apply if you pick a Silver-level plan on the Marketplace.
In most cases, people only need to focus on premium tax credits, especially if they’re just trying to get affordable monthly coverage.
Example: If you’re a single person making about $30,000 a year, or a family of four earning around $80,000 to $100,000, you could qualify for subsidies that drop your monthly premium to $50, $20, or even $0, depending on your situation.
Also: Even though they’re called tax credits, ACA subsidies apply to your monthly premium right away. You’ll see the discount every month, not just when you file your taxes. This is known as the advance premium tax credit, and it’s the most common way people use ACA subsidies.
How do ACA subsidies work?
When you apply for health insurance on HealthCare.gov or your state’s exchange, the system will ask about your income and household. Based on that info, it will calculate how much financial help you can get.
You can apply the subsidy right away to your monthly premiums (so you pay less each month), or you can claim it later when you file your federal taxes.
Here's what the process looks like:
Apply for a Marketplace plan during Open Enrollment (or a Special Enrollment Period if you qualify)
Enter your income and family info to see how much help you get
Choose a plan and decide whether to use the tax credit now or later
If your income changes during the year, report the change to avoid surprises at tax time
Who qualifies for ACA subsidies?
You likely qualify for ACA subsidies if:
You don’t get affordable health coverage through an employer or government program like Medicaid or Medicare
You live in the U.S. legally
Your income is within a certain range based on your household size
Even higher-income households may now qualify, thanks to recent changes in federal law. Most people who buy their own insurance are eligible for at least some level of help.
There’s no penalty for applying, and if you don’t qualify, you’ll simply see the full price of plans.
Where can you use an ACA subsidy?
You can only use ACA subsidies on plans sold through:
HealthCare.gov (the federal Marketplace)
Your state’s health insurance exchange
You can’t use subsidies to pay for:
Plans bought directly from an insurance company
Short-term health insurance
Employer-provided coverage or COBRA
All plans that qualify for subsidies must cover essential health benefits like doctor visits, hospital stays, mental health, and prescriptions.
What if I already have insurance through work?
If your job offers coverage that’s considered affordable and meets basic standards, you probably can’t get ACA subsidies, even if you’d prefer a different plan.
But there are exceptions. For example, if your share of the monthly premium costs more than around 8.5% of your household income, you might still qualify for help.
If you’re unsure, the Marketplace will help you figure it out when you apply.
When can you apply?
You can apply for a subsidized ACA plan during:
Open Enrollment (usually Nov. 1 to Jan. 15)
A Special Enrollment Period, if you’ve had a major life event like losing a job, having a baby, or moving
If you miss these windows, you may have to wait until the next Open Enrollment period unless you qualify for Medicaid.
How do I apply for ACA subsidies?
You can apply online, by phone, or with free in-person help.
Visit HealthCare.gov (or your state’s Marketplace)
Create an account and fill out an application
Get your subsidy estimate and choose a plan
Need help? Certified Navigators can walk you through it for free. Just search your ZIP code on the Marketplace website to find one near you.