Obamacare Premium Vs. Cost Sharing Subsidies: What's the Difference?

Obamacare Premium Vs. Cost Sharing Subsidies: What's the Difference?

December 18, 2013

While I've spent the last 17 days with my face buried in healthcare.gov - helping people sign up for health insurance using Ohio's Health Insurance Marketplace - there's so much I want to tell you from my travels, but today I want to clear up one very important (something) about the governments two tiered financial assistance plan.

Of course, the site still remains technologically challenged and has wasted more of my life than I care to admit, however the one question or problem I keep explaining is the difference between a premium subsidy and a cost sharing subsidy.

I have written about these two types of financial aid before on several occasions, however I've never dedicated a full article to the topic.

You'll have a hard time finding me, or anyone else for that matter, praising the Obama administration for their ability to effectively name any part of this law that easily communicates its intentions and what things are suppose to do.

Their marketing ineptitude aside, here's the easiest explanation of the two.

The Subsides

Premium Subsidies: Helps lower the cost of your monthly health insurance payment. The amount of money available to you is based on your total household income and your family size in relation to your age.

That means a 30 year old who makes $30,000 a year will not get the same amount of money as a 60 year-old who also makes $30,000 a year. The 60 year old will get more because the overall cost of their health insurance is greater in relation to their income.

Cost Sharing Subsidies: Helps lower your out-of-pocket cost on certain health insurance plans (silver only). You can only qualify for this subsidy if your income is between 250-133 percent of the federal poverty level.

In reality, base on the calculations I've done (in Ohio), you will only want to consider this if your income is below 200 percent. This super subsidy will turn a $2,000 deductible into a $1,000, $500 or even a $100 deductible and take your out-of-pocket max from $6,350 to, $5,000, $2,100 or even $1,000.

NOTE: It might be important to reiterate that subsidies of any kind are only available on "Marketplace Plans" which as of right now can only be purchased through healthcare.gov.

NOTE 2: Just because you are buying a plan from the governments website DOES NOT mean an independent (and marketplace certified) agent or broker can't help you. They can and it won't cost you more for that help.

Premium Subsidies Are a Game Changer

If your income qualifies you for any decent amount of subsidy, it will drastically reduce the cost of your health insurance. So much so that you will be silly and foolish for not taking advantage of them. They are available on every plan in Ohio's Health Insurance Marketplace, even if a Marketplace representative tries to tell you they are only available on silver plans (that's a true story from what one of my clients was told when they call the Marketplace).

Your subsidy amount will be fixed based on that income qualification and you can use that amount towards whatever health insurance plan you desire. Of course, some plans entire cost might be covered by your subsidy and other will leave you to pay for a couple hundred dollars. It all depends.

Modified Adjusted Gross

That is the amount of income you are supposed to use on your Marketplace application to calculate your subsidy eligibility. However it's unclear, to say the least, on the application that's the number they are after.

How Can You Estimate Your Subsidy?

It's actually pretty easy, just click here, which will take you to the Kaiser Family Foundation's calculator. It's the most accurate and the one insurance company representatives have instructed me to use.

Fill out the details on your family, state, zip code, expected 2014 MAG income, number of people in the family, age and tobacco use.

Click submit.

Scroll down and the fourth number listed is your annual subsidy amount. Simply take that number and divide it by 12 to figure out how much money the government will be paying for your health insurance each month.

Qualifying for Cost Sharing Subsidy

If you look at the very first number provide on the subsidy calculator, it will be your income's percentage on the Federal Poverty Line (FPL). If that number is between 250 and 138 you will qualify for this second "super subsidy" as I clevely like to call it. However, like I said above, it doesn't really become super for you unless you are between 200-138 percent of the FPL.

The Bottom Line

These subsidies are the only thing making the "Affordable" Care Act, affordable for some people. If they are available to you, you almost have to take them to keep your health insurance costs inline and under control.