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 premium subsidies in the health insurance exchange 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 2020 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, HealthCare.gov 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.

Normally, however, about 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.

American Rescue Plan Makes Coverage More Affordable

Things are different in 2021 and 2022, however, due to the American Rescue Plan (ARP). This law, enacted in March 2021, makes premium subsidies larger and more widely available for people who purchase coverage in the exchange/marketplace in 2021 and 2022.

The ARP eliminated the "subsidy cliff" for those two years, so the income cap that normally applies to subsidy eligibility (400% of the poverty level) is not applicable in 2021 or 2022. Instead, a household earning more than 400% of the poverty level can qualify for a subsidy if the benchmark plan would otherwise cost more than 8.5% of the household's income.

The ARP also reduced the percentage of income that people earning less than 400% of the poverty level have to pay for their coverage, so households that were already eligible for subsidies are now eligible for larger subsidies. And it also makes $0 premium silver plans with full cost-sharing reductions available in 2021 to anyone who receives unemployment compensation at any point during the year.

So for 2021 and 2022, coverage that people purchase themselves is more affordable than it normally is.

Who Has to Pay Unaffordable Health Insurance Premiums?

Even with the American Rescue Plan in place, however, there are still some circumstances in which a person might be paying an unaffordable percentage of their household income for health coverage. 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; note that this percentage was not changed by the American Rescue Plan) 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'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—plan to expand Medicaid eligibility as of mid-2021 (Missouri's expansion may be delayed due to ongoing debates over funding in the state legislature). 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.
  • You're enrolled in a plan that isn't subsidy-eligible. This includes grandmothered and grandfathered plans, off-exchange plans, short-term health insurance plans, health care sharing ministry plans, and other similar types of coverage. Switching to an on-exchange plan might make you eligible for a subsidy, but people aren't always aware of the options available to them, and might remain with an inferior (or more expensive) plan option simply because they don't realize they could get a subsidy if they switched plans.

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.

Switch to the Exchange

If you're enrolled in a plan outside the exchange/marketplace in your state, you can't receive a subsidy. Switching to the exchange might result in much more affordable—and possibly more comprehensive—coverage. This is especially true now that the American Rescue Plan has been implemented.

Normally, you can only switch to a plan in the exchange during open enrollment in the fall or during a special enrollment period linked to a qualifying life event. But to address the COVID pandemic and the American Rescue Plan's additional subsidies, a one-time enrollment window runs through August 15, 2021 in most states. This window does not require a qualifying event, and it's a great opportunity to switch to a plan in the exchange in your state. If you're eligible for subsidies, you might be surprised to find out how affordable the coverage is.

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 or Increase Your Subsidy Amount

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. If your income ends up a little above the poverty level, the enhanced subsidies under the American Rescue Plan will allow you to obtain premium-free health insurance in the marketplace (that's applicable in 2021 and 2022 if your income is up to 150% of the poverty level). 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.

Prior to the American Rescue Plan, people on the higher end of the income scale sometimes had to adjust their income downward to avoid the "subsidy cliff" and qualify for a premium subsidy. That's no longer the case for 2021 and 2022, since there is no upper income limit for subsidy eligibility in those years. But it's still useful to understand how income is determined under the ACA, as a reduction in income can result in a larger subsidy. 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) or a pre-tax employer-sponsored retirement plan, 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).

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 increase the size of your premium subsidy (and after 2022, this is a strategy that could help you beat the "subsidy cliff," assuming the American Rescue Plan's provisions aren't made permanent). 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. 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, including income and medical conditions.

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—including people affected by the family glitch or the Medicaid coverage gap.

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.

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15 Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
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