Health Insurance Subsidies When You Add or Subtract Family Members

The premium changes can be counter-intuitive

Family circumstances change, and so do your health insurance needs and premiums.
When your family's health insurance needs change, you might find that your premium changes are counter-intuitive. danleap/Creative RF/Getty Images

If you buy your own health insurance (as opposed to getting it from an employer), you're probably aware by now that there are premium subsidies available through the exchanges if your income is within the eligible range.

Beyond that however, there's still plenty of confusion about exactly how the subsidies work. One question that frequently comes up has to do with how premiums change when family members are added to the plan or removed from the plan.

Changes in ACA Subsidies Can Be Confusing

In some circumstances, the interaction between income, family size, and exchange enrollment creates results that can be counter-intuitive—things like a decrease in after-subsidy premiums when you add a new baby to the plan, or no change in after-subsidy premiums when one family member switches to other coverage, like Medicare.

There are a few points to keep in mind here:

  • The subsidies are designed to limit the amount you pay for your household's coverage through the exchange. But amounts you pay for other coverage outside the exchange (e.g., from an employer, or from Medicare) are not applied to the limit.
  • Your household's total income is taken into consideration, regardless of how many family members are enrolling in the exchange plan.
  • The total number of people in your household are counted in terms of determining where your income is in relation to the poverty level, regardless of how many family members are enrolling in the exchange plan.
  • For the most part, your income is what's reflected on your tax return (and in most cases, it's your adjusted gross income, although there's a specific methodology for calculating income under the Affordable Care Act, and for some enrollees, it won't match their AGI). But there's a provision to allow young adults to remain on their parents' health insurance until they turn 26, regardless of whether the parents claim them as dependents. If a young adult is included on his or her parents' health insurance plan through the exchange, the young adult's income would be added to the parents' income for subsidy eligibility determination, even if they file their own tax returns.

The Kaiser Family Foundation has a subsidy calculator that allows you to either pick a state or use the US average. For these examples, we'll use the US average, but you can play around with the calculator and get more exact numbers for your own situation.

Here are some scenarios that will help you understand how the subsidy is calculated and how it relates to your household. In all cases, the examples use the Kaiser Family Foundation calculator for 2020 health coverage, and rates are based on the US average costs, assuming the enrollees select the second-lowest-cost silver plan (i.e., the benchmark plan).

Spouse Moving Onto Medicare

Bob and Sally Smith are 60 and 64, respectively. They both have coverage in the exchange under the benchmark plan in their area, and their household income is $50,000. Using the U.S. average costs, their subsidy in 2020 is $1,657 per month, and their after-subsidy premium for the second-lowest-cost silver plan (ie, the benchmark plan) is $402 per month (9.65% of their household income; $50,000 is between 250% and 300% of the poverty level for a household of two, and 9.65% is the applicable percentage for that income level).

[Note that the percentage of income that subsidy-eligible enrollees have to pay for the benchmark plan was lower in 2018 than it was in 2017, which was the first time the percentage declined from one year to the next. It then increased for 2019, but decreased again for 2020. People who earn the same amount in 2020 that they earned in 2019 will have a slight reduction in after-subsidy premiums for the benchmark plan in 2020.] 

Now let's say Sally turns 65 and moves onto Medicare. She'll likely qualify for premium-free Medicare Part A, but she'll have a monthly premium for Medicare Part B, and if she opts for supplemental coverage, she'll also have a premium for a Medigap plan and Part D prescription drug coverage.

But even though she'll be paying premiums for some parts of her Medicare coverage, those premiums will not be counted towards the 9.65% of household income that the Smiths are expected to pay for the benchmark plan in the exchange.

So when you run the numbers again, with a household of two but only one person (Bob) enrolling in coverage through the exchange, you still come up with an after-subsidy premium of $402 per month for the second-lowest-cost silver plan. The total subsidy amount will only be $576 per month, however, instead of the $1,657 per month subsidy that the Smiths were getting when Bob and Sally were on the exchange plan together.

This is because they still have a household of two people, and a household income of $50,000. That puts them at 296% of the poverty level (2019 poverty level guidelines are used to determine subsidy eligibility for plans with 2020 effective dates; this is always the case, since open enrollment for a given year's coverage occurs before the poverty level numbers for that year have been published).

Since the household's income is at 296% of the poverty level, the household's maximum total after-subsidy premium for the benchmark plan in the exchange is 9.65% of the household's income (this percentage is calculated based on this household's position on the income spectrum, under the terms of IRS regulations for 2020 marketplace premiums). It doesn't matter how many members of the household are actually enrolled in the exchange plan, or how much the household spends in premiums for other plans outside the exchange.

Adding Your Spouse to Your Plan

Amy is 51 and Bill is 53. Amy has had her own health insurance from her employer. Her employer doesn't offer coverage for spouses, so Bill has been getting coverage in the exchange since 2014 (note that if Amy's employer did offer coverage to spouses, Bill would not have been eligible for a subsidy in the exchange as long as Amy's insurance was affordable for just her own coverage—this is known as the family glitch, but it doesn't apply in this case since Bill wasn't eligible to join Amy's plan).

Amy and Bill's household income is $48,000 per year. Based on the US average, Bill pays $372 per month in 2020 for the benchmark plan in the exchange, and the remaining $363 per month is covered by his subsidy.

Now let's say Amy's employer stops offering health insurance. Loss of coverage is a qualifying event, which means Amy can enroll in a plan in the individual market. If she joins Bill on his benchmark plan, the after-subsidy cost of the plan will still be $372 per month, but the subsidy will jump to $1,035 per month. Amy and Bill are still a household of two, and their income is still the same 284% of the poverty level that it was before. So they still have to pay the same percentage of their income for the benchmark plan in the exchange—it just covers two of them now, instead of one.

This scenario would be different, however, if Amy and Bill were newlyweds. Getting married is also a qualifying event, and assuming Amy didn't have coverage from her employer, she'd be eligible for subsidies in the exchange. But prior to getting married, Bill would have been a household of one, with only his own income counted for subsidy-eligibility determination. Once a couple gets married, their income is counted together, and they're a household of two (assuming they don't have other dependents) in terms of comparing that income to the poverty level.

Let's say Bill's income is $20,000 and Amy's is $28,000, and neither of them has access to an employer's plan. Prior to getting married, Bill pays $77 per month for the benchmark plan in 2020, and a subsidy of $658 per month pays the rest of his premium. Amy pays $172 per month, and her subsidy is $500 per month.

Once they get married, their household income is $48,000. Their total after-subsidy premium for the benchmark plan for the two of them is now $372 per month, and their total subsidy is $1,035 per month.

The reason they're paying higher total after-subsidy premiums after they get married is that their total household income is a higher percentage of the poverty level for a household of two than either of them had for a household of one. In order to receive subsidies, married couples must file joint tax returns—they do not have the option to file separately and claim the higher total subsidy that they had prior to getting married.

Adding a Child

In 2013, the federal government finalized rules for setting rates in the new ACA-compliant insurance market. The final rule states that for a single household, no more than three children under the age of 21 will be counted for the purpose of determining the family's premium.

Children from the ages of 21 to 25 are all counted, regardless of how many there are, or how many additional children younger than 21 are in the household.

Tom and Renee are 40 and 39, and they have three kids, ages two, four, and seven. They earn $80,000 per year, and have their family enrolled in the benchmark plan through the exchange. Based on the US average rates, they're paying $583 per month for their coverage, after a subsidy of $1,159 per month picks up the remaining premium.

But if Tom and Renee have a fourth child, they will actually end up paying a smaller after-subsidy premium for their health insurance each month after they add the baby to the plan (a new baby is a qualifying event). Their total health insurance premium for the family will still be $1,742 per month, since the insurer isn't allowed to add any additional premium for the fourth child. But they will only be responsible for $508 of it, and their subsidy will grow to $1,234 per month.

This is because their household has grown from five people to six people, which means they've dropped a little bit on the percentage-of-the-poverty-level scale (assuming their income remains at $80,000). When they had five family members, their $80,000 income put them at 265% of the poverty level. But once they're a family of six, they're only earning 231% of the poverty level. Because the percentage of income that people have to pay for the benchmark plan is based on income, they end up having to pay a slightly smaller percentage of their income for the benchmark plan after the new baby is born.

If Tom and Renee initially have two children and then add a third, their total monthly premium (ie, the amount they pay plus the amount that's covered by their subsidy) will increase, since the insurer adds an additional premium to cover the third child. But because the increase in family size results in the family's household income ending up at a lower percentage of the poverty level, the after-subsidy amount they pay will drop, just as it did in the previous scenario.

Initially, they are a family of four, and their after-subsidy premium is $652 per month, with a subsidy of $814 per month picking up the rest (note that premiums for kids used to only vary based on age once the kid turned 21, but as of 2018, kids' premiums start to increase once they turn 15. For Tom and Renee, this isn't a factor, as their kids are younger than 15).

Once the third baby is born, they're a family of five, and their after-subsidy premium is $583 per month, after a subsidy of $1,159 per month. Their after-subsidy premium goes down when they add a third child, because their income is now a smaller percentage of the poverty level, since they've become a household of five instead of four (here's a chart that shows how family size affects the percentage of poverty level at varying incomes)

But let's imagine that Tom and Renee have an income of $140,000 per year—well above the threshold for subsidy eligibility, even with five family members. In that case, they would be paying the full premium themselves. If they go from three children to four, they won't pay any additional premiums. But if they go from two children to three, their total family premium for the benchmark plan will rise from $1,466 per month to $1,742 per month. With a subsidy-eligible income, the subsidy picks up the extra cost to add the third baby, and then some, since the family ends up at a lower percentage of the poverty level. But with an income above the subsidy eligibility threshold, they'll have to pay the extra premium themselves.

Seek Help If You Have Questions

If you have questions about how your premiums will change based on various life changes, you can use a subsidy calculator, or reach out to the exchange in your state for help. A trusted broker or local navigator in your community will also be able to help you make sense of it all, and there won't be any charge for their services (note that in a few areas around the country, brokers are allowed to charge fees. But very few brokers have chosen to do so, and they're required to disclose any fees upfront).

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Article Sources

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  2. Internal Revenue Service. Revenue Procedure 2019-29.

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  4. Centers for Medicare and Medicaid Services, Center for Consumer Information and Insurance Oversight, Overview: Final Rule for Health Insurance Market Reforms

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