State-Funded Health Insurance Subsidies: How Do They Work?

Several states subsidize premiums or out-of-pocket costs

Filling out insurance paperwork in hospital or clinic

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For millions of Americans who purchase their own health insurance through their state’s health insurance exchange, the monthly premiums are subsidized by the federal government in the form of a premium tax credit. And millions of enrollees also receive cost-sharing reductions. The federal government no longer pays insurers to provide this benefit, but it’s still available to all eligible enrollees.

The federally funded subsidies are available nationwide, but some states also offer their own state-funded subsidies that are available in addition to the federal subsidies. Some predate the Affordable Care Act (ACA) which created the federal subsidies, and some have been created more recently in an effort to enhance the affordability that the ACA provides.

This article will provide an overview of which states provide state-funded subsidies, how they work, and who is eligible to receive them. Note that when we talk about income-based subsidy eligibility, this is how household income is calculated for health insurance subsidy purposes.

State Subsidies That Predate the ACA’s Subsidies

The ACA’s premium tax credits became available starting in January 2014. But Massachusetts and Vermont already had programs in place to subsidize the cost of health coverage and medical care for state residents with modest income.

Massachusetts

In Massachusetts, the program debuted in 2006, when the state implemented extensive healthcare reforms. Those reforms are widely regarded as a blueprint for the subsequent federal legislation that created the ACA.

At that point, Massachusetts began requiring state residents to maintain health coverage—a requirement that’s still in place today. To make this feasible for lower-income residents, the state created a program called Commonwealth Care, which provided premium subsidies to state residents with household income up to 300% of the poverty level.

The subsidies were funded with a combination of state dollars and federal matching funds. When the ACA was implemented, the program became known as ConnectorCare. It continues to provide additional subsidies to residents who earn no more than 300% of the poverty level.

ConnectorCare plans are provided by private health insurance companies, just like the other health plans offered for sale through the health insurance exchange in Massachusetts.

As of 2023, premiums for ConnectorCare plans range from $0 to $137 per month, depending on income. The rest of the premium is subsidized via a combination of state subsidies and the federal premium tax credits provided by the ACA.

The ConnectorCare plans also have lower cost-sharing than other self-purchased plans available in Massachusetts. They do not have deductibles, and most services are covered with fairly low copays.

Massachusetts residents can access ConnectorCare plans through Massachusetts Health Connector, the state’s health insurance exchange. For 2023 coverage, 300% of the poverty level is equal to $40,770 for a single adult and $83,250 for a family of four.

Vermont

Vermont also debuted a state-funded health insurance subsidy program in 2006, called Catamount Health. This program was designed to provide health coverage on a sliding fee scale to residents who would otherwise be uninsured.

When the ACA’s premium subsidies became available in 2014, Vermont transitioned Catamount Health enrollees to subsidized coverage offered through Vermont Health Connect (the state’s exchange). But the state continues to fund additional premium subsidies and cost-sharing reductions for enrollees who earn up to 300% of the poverty level.

The ACA’s cost-sharing reductions extend to households with income up to 250% of the poverty level. Vermont’s additional cost-sharing reductions make this benefit more robust for applicants with income between 200% and 250% of the poverty level.

The state also provides cost-sharing reductions to people who earn between 250% and 300% of the poverty level. These applicants would not be eligible for cost-sharing reductions at all without the state’s program.

As is the case with the ACA’s cost-sharing reductions, Vermont’s cost-sharing reductions are only available if eligible applicants select a silver plan through Vermont Health Connect.

Vermont also provides a state-funded premium subsidy that supplements the ACA’s premium tax credit. It’s available to Vermont Health Connect applicants with household income up to 300% of the poverty level. You can use Vermont Health Connect’s plan comparison tool to see how this works.

New State-Funded Subsidy Programs

California

California debuted a state-funded premium subsidy program in 2020 through Covered California (the state’s health insurance exchange). It was primarily aimed at providing subsidies to people with income between 400% and 600% of the poverty level, as these applicants weren't eligible for any federal premium subsidies at that point.

But the American Rescue Plan temporarily eliminated the income cap for premium subsidy eligibility, and the Inflation Reduction Act extended that provision through 2025. As a result, many households with income well above 400% of the poverty level are eligible for federal premium subsidies from 2021 through 2025.

The American Rescue Plan and Inflation Reduction Act also increased the size of premium subsidies for people who already qualified for subsidies. The result is that after-subsidy premiums are lower with just the federal subsidies than they would have been with the previous federal and state subsidies.

So California opted to mostly stop providing additional premium subsidies. However, the state does pay $1 per month in premiums for everyone enrolled in a plan through Covered California. This is because at least $1/month in premiums cannot be covered by federal premium subsidies, since all of the plans for sale through California's exchange are required to cover abortion, and that cost cannot be paid with federal subsidies. To address this, California covers that cost for all of its exchange enrollees.

New Jersey

New Jersey created a state-funded premium subsidy program that debuted in 2021, called New Jersey Health Plan Savings. This program, available through the state’s exchange (Get Covered NJ) was initially designed to provide premium assistance to applicants with income up to 400% of the poverty level.

But once the American Rescue Plan eliminated the income cap for federal subsidy eligibility, New Jersey expanded the state-funded subsidy program so that it helps applicants with income up to 600% of the poverty level.

New Jersey's state-funded premium subsidies are added to the federal subsidies, making the cost of coverage through New Jersey's exchange less expensive than it would otherwise be for most enrollees. You can use Get Covered NJ’s plan comparison tool to see how the subsidy program works. Let’s consider the same example we used for Vermont.

Washington

Washington state lawmakers have been working on a state-funded premium subsidy program since 2019. The new subsidy became available as of 2023, providing additional premium assistance to applicants who earn up to 250% of the poverty level.

The program is available through the state’s exchange, Washington Healthplanfinder. And applicants will have to enroll in either a silver or gold standardized plan in order to access the state’s additional subsidies. (Washington’s exchange debuted standardized plans as a purchase option as of 2021.)

Colorado

Colorado also enacted legislation to create state-funded premium reductions that supplement the federal government’s premium tax credits. As is the case in other states, this program is only available through the exchange, Connect for Health Colorado.

Colorado’s program debuted in two stages: Starting in 2022, the state began providing funding directly to health insurance companies to reduce after-subsidy premiums and/or out-of-pocket medical costs for applicants with fairly low incomes (between 150% and 200% of the poverty level).

Then in 2023, Colorado began providing additional state-funded premium subsidies for undocumented immigrants who earn up to 300% of the poverty level, but for whom federal premium tax credits are not available due to their immigration status (the state also initially intended this program to help people affected by the ACA’s “family glitch,” but the Biden administration fixed the family glitch in late 2022, making federal subsidies newly available for some families).

Colorado created a separate enrollment portal for undocumented immigrants to use, since federal rules prevent people from using the ACA-created health insurance exchanges if they are not lawfully present in the US. (Washington state is seeking federal permission for a waiver that would allow undocumented immigrants to use the exchange in Washington and be eligible for state-funded subsidies.)

Connecticut

Covered Connecticut, which debuted in 2021 and was expanded in 2022, provides state-funded premium subsidies and cost-sharing assistance to adults under age 65 who aren't eligible for Medicaid or Medicare, and who have household income up to 175% of the poverty level.

To get the state-funded subsidies, eligible applicants need to enroll in a silver-level plan through Access Health CT, the state-run exchange. Applicants at this income level are eligible for significant federal premium subsidies and cost-sharing reductions. But Connecticut's program covers all of their remaining premiums and cost-sharing, meaning that they get $0-premium coverage and $0 out-of-pocket costs as well.

Maryland

Under the terms of legislation that Maryland enacted in 2021, state funds are being used to provide additional premium subsidies to young adults, aged 18 - 34, with income up to 400% of the poverty level.

Young adults tend to be more likely to be uninsured than older adults, and Maryland's subsidy program is an effort to make health coverage more affordable and financially realistic for them. The program began as a temporary pilot, but could be made permanent in the future.

New Mexico

Starting in 2023, New Mexico created a state-funded subsidy program that provides both premium subsidies and cost-sharing assistance. The state's premium subsidies are available to applicants with income up to 400% of the poverty level, and can be used for plans at any metal level. The state's extra cost-sharing assistance is available to applicants with income up to 300% of the poverty level, and is only available on silver-level plans.

(Note that in New Mexico, enhanced silver-level plans that include federal or federal and state cost-sharing assistance are called "Turquoise" plans, in an effort to make them obvious to consumers.)

Summary

Most people who enroll in health coverage through the ACA-created exchange/marketplace are eligible for federal premium subsidies, and roughly half also receive federal cost-sharing reductions.

In addition, a growing number of states that run their own health insurance exchanges have created various types of state-funded subsidies. The eligibility criteria for these subsidies varies from one state to another.

Additional states may also opt to create their own state-funded health insurance assistance programs in the future.

A Word From Verywell

If your state offers state-funded health insurance subsidies and you buy your own health insurance, you may find that your coverage and/or health care are less expensive than you expected. And most people who are eligible for state-funded subsidies are also eligible for federal subsidies.

Although the federal subsidies have been available since 2014, they became larger and more widely available starting in 2021. And most of the states that offer state-funded subsidies have only started doing so in the last couple of years. So if it's been a while since you checked your health insurance options, you'll want to double check to see what's available now. You might be surprised to find out how affordable your coverage could be.

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.
  1. Kaiser Family Foundation. Massachusetts health care reform: six years later.

  2. MassHealth. The MassHealth waiver: amendment and extension, 2017–2022.

  3. Massachusetts Health Connector. ConnectorCare health plans: affordable, high-quality coverage from the Health Connector.

  4. Connecticut General Assembly. Vermont health care legislation.

  5. Department of Vermont Health Access. 2021 eligibility tables.

  6. Covered California. Covered California announces American Rescue Plan roadmap to lower premiums and help millions get covered.

  7. California Legislature. AB133, 2021 Legislative Session.

  8. Get Covered NJ. Lower your monthly premiums with the NJ Health Plan savings.

  9. Washington State Senate. Letter to Governor Jay Inslee.

  10. Norris, Louise. healthinsurance.org. Colorado's new Health Insurance Affordability Enterprise law: Additional state-funded cost-sharing reductions available as of 2022; premium subsidies and cost-sharing reductions for undocumented immigrants as of 2023.

  11. Norris, Louise. healthinsurance.org. Covered Connecticut Program expanded to cover all adults with eligible incomes (previously only available to parents).

  12. Norris, Louise. healthinsurance.org. Maryland's pilot program to subsidize young adults' health coverage.

  13. Norris, Louise. healthinsurance.org. New Mexico replaces the ACA’s health insurance tax; uses revenue to make coverage and care more affordable in state.

  14. beWellnm. Extra Savings.

  15. Centers for Medicare and Medicaid Services. Effectuated Enrollment: Early 2022 Snapshot and Full Year 2021 Average.

By Louise Norris
 Louise Norris has been a licensed health insurance agent since 2003 after graduating magna cum laude from Colorado State with a BS in psychology.