How Can You Afford Health Insurance If You're Not Subsidy-Eligible?

Most Americans Get Subsidized Coverage. But What If You Don't?

American health insurance is expensive. Government-sponsored coverage (Medicare, Medicaid, and CHIP), employer subsidies (and the massive tax breaks that go along with employer-sponsored health coverage), and exchange premium subsidies make coverage affordable for most people, but what if you're not getting any subsidies? Do you have any options for affordable coverage? 

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How Much Does Health Coverage Cost?

The average employer-sponsored health insurance plan cost $623/month for a single employee in 2019 and $1,779/month for a family. Most employers pay the majority of this cost, leaving employees with a more manageable portion—but that's not always the case when you're adding family members to your plan.

For people who buy their own health insurance, the average full-price cost of a plan purchased in the health insurance exchanges (marketplaces; ie, and various state-run exchanges) was $576/month per enrollee in 2020. But most people who buy coverage in the exchange qualify for premium subsidies (premium tax credits) that covered an average of $492/month—the majority of the full premium cost.

However, roughly 15% of exchange enrollees nationwide do not qualify for premium subsidies and have to pay full price for their coverage. In addition, everyone who enrolls off-exchange (ie, buying coverage directly from an insurance company) is paying full price, as there are no premium subsidies available outside the exchange.

What If You Have to Pay Full Price?

So while employer subsidies, pre-tax premiums, and individual/family premium tax credits serve to keep private coverage affordable for most people, they don't help everyone. Some of the people who aren't getting premium subsidies are earning enough that their health insurance—even at full price—is still a manageable percentage of their income. If you live in an area where self-purchased health insurance is expensive (Wyoming and West Virginia are good examples) and your family of four has to pay $30,000/year for coverage, that's a lot more realistic if you're earning $500,000/year than it is if you're earning $105,000/year.

In both cases, your income is too high for subsidies (a family of four can earn up to $104,800 in 2021 and qualify for premium subsidies; this limit could be temporarily eliminated under a COVID relief bill that Congress is considering in 2021). But if you're earning $500,000, the premiums are only 6% of your income, whereas if you're earning $105,000, the premiums are 29% of your income.

For perspective here, it's important to understand that for people who do qualify for premium subsidies, the IRS determines what's considered "affordable" based on a percentage of the household's income. For households with the highest subsidy-eligible income (ie, up to 400% of the poverty level), the IRS expects them to pay just under 10% of their income for the benchmark silver plan (in 2021, the limit is 9.83% of income, although it's much lower for people with lower incomes).

They can pay less if they buy a cheaper plan, or more if they buy a more expensive plan. Lower-income households pay a smaller percentage of their income for health insurance, and the premium subsidies make up the difference.

But on the high end, coverage is considered affordable if it's a little less than 10% of the household's income. That only applies, however, if the household is eligible for premium subsidies. If they're not, there's no limit on the percentage of income that they might have to spend to buy health insurance.

Who Has to Pay Unaffordable Health Insurance Premiums?

There are a few different circumstances in which a person might have to pay well over 10% of their household income for health coverage, and still not be eligible for subsidies. Let's take a look at what they are:

  • Your household is impacted by the family glitch. This means that you or your spouse has access to employer-sponsored coverage that's considered affordable for just the employee's coverage (ie, it doesn't cost more than 9.83% of the employee's household income in 2021), but the cost to add family members pushes the payroll-deducted premiums above that level.
    In this circumstance, unfortunately, your family members don't qualify for premium subsidies if they buy coverage in the exchange. And you may find that regardless of whether you add the family members to the employer-sponsored plan OR purchase coverage for them in the exchange, the cost ends up being an unaffordable percentage of your household income.
  • You earn more than 400% of the poverty level, but not enough to make premiums an affordable percentage of your income. For 2021 coverage, the 2020 poverty level numbers are used to determine subsidy eligibility (the prior year's numbers are always used, since open enrollment occurs in the fall, before the new numbers are published). To see what that amounts to for your family, find your family size on this chart. So if you're a single person applying for 2021 coverage in the continental U.S., your subsidy eligibility ends if your income (MAGI) is above $51,040. And if you have a family of four, your subsidy eligibility ends if your income is above $104,800 (note that the income limits are higher in Alaska and Hawaii). Those are certainly not low-income wages, but people earning a little above those levels probably wouldn't be considered wealthy in most areas of the country (obviously $100,000 goes a lot further in the middle of Kansas than it does in San Francisco or New York City, but there's no adjustment based on the cost of living in different areas). Lawmakers are considering at least a temporary relief measure, however, that would cap premiums at 8.5% of income even if a household has income above 400% of the poverty level. This is part of a broad bill designed to address the ongoing COVID pandemic.
  • You're in the Medicaid coverage gap. There are 14 states where Medicaid has not been expanded under the ACA, although two additional states—Missouri and Oklahoma—will expand Medicaid eligibility as of mid-2021. In 13 of those states (all but Wisconsin), there's little in the way of financial assistance for people who earn less than the poverty level but don't qualify for Medicaid (including all non-disabled adults who don't have dependent children). If you're in this situation, you have to pay full price for health insurance, which generally isn't realistic for people living below the poverty line. Once Missouri and Oklahoma expand Medicaid, there will only be 11 remaining states where a Medicaid coverage gap exists.

What Can You Do If You're Facing Unaffordable Premiums?

Most Americans get coverage from a subsidized government-run program (Medicare, Medicaid, or CHIP), an employer-sponsored plan that includes significant employer subsidies and tax breaks, or a subsidized individual market plan through the exchange. So the people who have to pay full price for their coverage are sometimes lost in the shuffle. But if you're faced with a premium bill that amounts to a substantial portion of your income, you're not alone. Let's take a look at what you can do in this situation.

First, understand why you're not eligible for financial assistance with your premiums. In most cases, you'll be in one of the three scenarios described above.

Talk to Your Employer

If your family is affected by the family glitch, it may help to discuss the situation with your employer. If, for example, your employer offers coverage to spouses but requires the entire premium to be payroll deducted (ie, the employer isn't paying any of the cost to cover the spouse), they may not realize that they may be inadvertently consigning families—particularly those with lower incomes—to unaffordable premiums due to the family glitch. Once they understand the implications for their employees' families, they may consider changing the benefits they offer (or they may not, but it can't hurt to discuss it with your employer).

It's important to understand, however, that the family might still not be eligible for financial assistance with their premiums even if the employer stops offering spousal coverage altogether (ie, eliminating the family glitch for the spouse). This is because premium subsidy eligibility is based on how the family's total on-exchange premiums compare with the family's total household income. The amount that the family pays for other non-exchange coverage is not taken into consideration. If some members of the household have coverage elsewhere (an employer's plan, for example, or Medicare), the on-exchange premiums for the remaining family members might not be enough to trigger a subsidy, depending on the household's total income.

Adjust Your Income to Qualify for Subsidies

Adjusting your income to qualify for premium subsidies in the exchange can work on both the high and the low ends of the subsidy eligibility spectrum.

If your income is too low for subsidies and you're in a state that has expanded Medicaid (that's DC plus 36 states and counting), you're eligible for Medicaid, so you'll still have coverage. But if you're in a state that has not expanded Medicaid, you may find that the eligibility guidelines for Medicaid are very strict. And you can't get premium subsidies in the exchange unless you earn at least the poverty level. That's $12,760 for a single person enrolling in 2021 coverage, and $30,680 for a family of five; note that kids are eligible for CHIP in all states with household incomes well above these levels, so it's just adults who are stuck in the Medicaid coverage gap.

So if your income is below the poverty level, make doubly sure that you're reporting every bit of income. Things like babysitting income or farmers' market proceeds might be enough to push your income over the poverty level, making you eligible for significant premium subsidies. Depending on your age and where you live, these subsidies can amount to many thousands of dollars per year. And if your income ends up a little above the poverty level, the subsidies will allow you to obtain health insurance that only costs you about 2% of your income. So it's well worth your while to see if there's a little bit of side income you could earn that would push you into the subsidy-eligible range.

On the upper end of the subsidy eligibility scale, there are also changes you can make to get your income into the subsidy eligibility range without actually having to scale back your earnings. Essentially, it's all about understanding what counts as income. For subsidy eligibility determinations, the IRS uses modified adjusted gross income (MAGI), but it's a formula that's specific to the ACA, so it's different from MAGI that's used in other situations.

This chart published by the University of California, Berkley is useful in seeing how MAGI is calculated for subsidy eligibility. In a nutshell, you'll start with your AGI from your tax return, and for most people, MAGI will be the same as AGI. But there are three income sources that—if you have them—must be added back to your AGI to get your MAGI (foreign earned income, tax-exempt interest, and non-taxable Social Security benefits).

But the deductions listed in Part II of your 1040 Schedule 1 will serve to lower your AGI, and they don't have to be added back in when you're calculating your MAGI for subsidy eligibility determination. This is different from MAGI calculations for other purposes.

So if you make contributions to a traditional IRA (including SEP or SIMPLE IRAs if you're self-employed), the amount that you contribute will lower your income for subsidy eligibility determination. The same is also true if you make contributions to a health savings account (note that you're required to have coverage under an HSA-qualified high deductible health plan in order to contribute to an HSA).

Let's consider an example: Raquel and Jose have two kids, and their household income is $110,000 in 2021. The limit for subsidy eligibility is $104,800 for a family of four in 2021 (keep in mind that the 2019 poverty level numbers are used to determine subsidy eligibility for 2020 plans). So at first glance, it would appear that Jose and Raquel don't qualify for any subsidies.

Let's say they live in Charleston, West Virginia, are both 45 years old, and their kids are 12 and 10. Without any premium subsidies at all, the cheapest plan they could get in 2021 is $2,344/month (that's for a bronze plan; the cheapest silver plan they could get is $2,479/month; all of this information is available on's plan browsing tool). That's almost 26% of their income, for the cheapest available plan, with a maximum out-of-pocket exposure of $17,100 for the family.

But what if their MAGI was $98,000 instead? Now they would be eligible for a premium subsidy of $1,676/month. That would bring the cost of the cheapest plan down to just $667/month. Or they could get a silver plan for $803/month (note that these amounts would be larger if the COVID relief measure being considered in 2021 is enacted).

It turns out that if Jose and Raquel each contributed the maximum allowable amount to a traditional IRA ($6,000 in 2021), their ACA-specific MAGI would drop by $12,000, from $110,000 to $98,000. That would put them into the subsidy-eligible range, and they would receive $20,112 in premium subsidies over the course of 2021. And the $12,000 that they contributed to their retirement accounts isn't gone—it's helping to grow their nest egg and ensure that they'll be able to retire someday.

If Jose and Raquel were to select an HSA-qualified health plan with their $110,000 income, the health coverage would cost $2,448/month in premiums. But if they selected that plan, contributed the maximum amount to their IRAs and also contributed the maximum allowable amount to an HSA ($72,000 in 2021 if you have family coverage under an HSA-qualified plan), their MAGI would drop to $90,800 (that's $110,000 minus $12,000 for the IRA contributions, minus $7,200 for the HSA contribution).

That would make them eligible for an even larger premium subsidy of $1,735/month. The HSA-qualified health plan would only cost them $713/month after the subsidies were applied. And again, the money they put into the HSA serves to lower their income for subsidy eligibility determination, but it's still their money. It will remain in their HSA, rolling over from one year to the next, until they need it for medical expenses (or they can use it as a backup retirement account after they turn 65).

None of this should be considered tax advice, and you should consult with a tax advisor if you have questions about your specific situation. But the takeaway point here is that there are steps you can take to reduce your MAGI and possibly qualify for premium subsidies. And the best part is that if you're using IRA contributions and/or HSA contributions to lower your MAGI, you're also improving your financial future at the same time.

Consider Coverage Options That Aren't ACA-Compliant

For some people, there simply won't be a way to get ACA-compliant coverage with a premium that could be considered a reasonable percentage of their income (again, this would change dramatically if the COVID relief bill that's under consideration in 2021 is enacted). The threshold of what can be considered affordable will obviously vary from one person to another. The IRS considers coverage to be unaffordable if the premiums for the cheapest plan in your area would cost you more than 8.27% of your income in 2021.

But some people who don't qualify for premium subsidies might be willing to pay more than that—it generally depends on the circumstances. Most people earning more than 400% of the poverty level would probably consider 10% of their income to be affordable, but premiums that eat up 30% of their income would probably be considered unaffordable.

Premiums in the ACA-compliant market have been fairly stable in most areas since 2019. But they are quite a bit higher than they were in 2014 and 2015, when the ACA's rules were first being implemented. As premiums grew in the ACA-compliant individual market, people who don't qualify for premium subsidies became increasingly less likely to purchase coverage, due in large part to the premiums consuming an ever-increasing percentage of their income.

If you're truly unable to afford your health insurance, you can apply for an affordability exemption from the ACA's individual mandate penalty. Even though there is no longer a federal penalty for non-compliance with the individual mandate (and thus people don't need exemptions to avoid a penalty unless they're in a state that has its own penalty), a hardship exemption—which includes affordability exemptions—will allow you to purchase a catastrophic health plan. These plans are fully compliant with the ACA, but they're less expensive than bronze plans. Premium subsidies cannot be used to purchase them, but affordability exemptions generally only apply to people who don't qualify for subsidies.

But for some people, even catastrophic health plans are too expensive. If you find yourself unable to afford ACA-compliant coverage, you'll want to consider some of the alternatives. These include:

  • Healthcare sharing ministries. This coverage is not compliant with the ACA and is not considered health insurance, meaning that most state insurance departments don't regulate it. It doesn't include the sort of guarantees that insurance provides, but is better than nothing at all. People with healthcare sharing ministry coverage sometimes combine it with a direct primary care plan, which can add a little more peace of mind for day-to-day medical needs (but direct primary care plans are also not considered health insurance, and it's important to read the fine print carefully).
  • Association health plans. The Trump administration revised the rules to make association health plan coverage more available to self-employed people, although the rules were overturned by a federal judge in 2019 and have remained overturned ever since (as a result, association health plans are not currently available to self-employed people without employees). Plan availability varies by area and type of industry. To some extent, these plans are subject to the ACA, but only as it applies to large group plans, with regulations that aren't as strict as those that apply to individual and small group plans.
  • Short-term health insurance plans. The Trump administration finalized new rules in 2018 that allow short-term plans to have initial terms of up to 364 days and total duration, including renewals, of up to three years. But states can impose more stringent regulations, and the majority have done so. Plan availability thus varies considerably by area.

There are other options, such as fixed indemnity plans, accident supplements, and critical illness plans, along with direct primary care coverage. These generally aren't designed to serve as stand-alone coverage, although you may find that they pair well with one of the other types of coverage, giving you additional peace of mind.

In Tennessee, Iowa, Indiana, and Kansas, Farm Bureau plans that aren't regulated by the ACA—or by the state insurance departments—are available to healthy enrollees who can meet the medical underwriting requirements.

If you're considering coverage that's not ACA-compliant, be sure to read the fine print and really understand what you're buying. The plan might not cover prescription drugs at all. It might not cover maternity care or mental health treatment. It will almost certainly have annual or lifetime limits on the amount it will pay for your care.

With the exception of association health plans, the alternative coverage options are unlikely to fully cover pre-existing health conditions. These are all things that you'll want to understand before you purchase the coverage, as you don't want to be finding out about the drawbacks to the coverage while you're in a hospital bed.

As long as you understand the downsides, the upside is that coverage that isn't regulated by the ACA is going to be considerably less expensive than ACA-compliant coverage, and is typically available for purchase year-round (as opposed to just during an open enrollment period). You get what you pay for, however, so it's going to have a lot more gaps and potential pitfalls than an ACA-compliant plan. But some coverage is better than no coverage, so one of these options is likely to be far better than going uninsured altogether.

If you opt for alternative coverage, keep checking back each year to see if an ACA-compliant plan might be a realistic option. As the poverty level increases each year, the subsidy-eligible MAGI also increases. And as more states expand Medicaid, either via legislation or via ballot initiatives, coverage will become increasingly available for low-income Americans.

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Article Sources
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