Health insurance can be shockingly expensive if you don't have coverage through an employer or government aid program. The average monthly premium on Affordable Care Act (ACA) Marketplace plans is $605, according to the Kaiser Family Foundation — and that doesn't include the out-of-pocket costs due when individuals seek care.

However, due to health insurance subsidies, nearly all Americans who enroll in Marketplace plans don't have to pay the full price. In fact, many pay far less than half. For example, the average premium after the Advanced Premium Tax Credit is just $76 per month!

But how do health insurance subsidies work and can you qualify for them? Here are the basics you need to know.

What are health insurance subsidies?

Health insurance subsidies reduce the cost of health insurance coverage purchased through the ACA Marketplace and state-run exchanges. If you qualify, you can save on both your policy's upfront premiums and the out-of-pocket costs due when you get care. However, you'll need to qualify for each of these individually. Eligibility depends primarily on your household income and access to alternative forms of affordable health insurance.

How do health insurance subsidies work?

Health insurance subsidies come in two main forms: premium tax credits and cost-sharing reductions.

Premium tax credits

Premium tax credits reduce the cost of Marketplace health insurance premiums for eligible policyholders. They're based on a sliding scale, where lower income results in higher credits and vice versa. You can claim the credit when you file your federal taxes at the start of the following year or request an Advanced Premium Tax Credit (APTC) which can be applied to each of your monthly premiums.

If you prefer the advanced credit, the Marketplace will send your tax credit to your insurer, reducing the cost of your monthly premium payments. For example, if your plan comes with a monthly premium of $850 and you qualify for an APTC of $700 per month, you'd only have to pay $150 per month for coverage.

Cost sharing reductions

On the other hand, cost-sharing reduction (CSR) subsidies reduce the amount policyholders have to pay for out-of-pocket health care costs like deductibles, copayments, and coinsurance when you actually use the insurance. For example, if your plan has a $2,500 deductible, your cost-sharing reduction could reduce it to$250 or even less. CSRs can also reduce your overall out-of-pocket limit for the year, which means you can receive 100% coverage sooner.

If you're unfamiliar with out-of-pocket costs, here's a quick overview of how they work:

• An annual deductible: An amount you pay out of pocket each year before your insurer will cover any expenses.
• Copayments: A fixed dollar amount you have to pay to cover a portion of a medical service, such as $50 for every visit to urgent care.
• Coinsurance: A percentage of a medical expense you pay after you've met your deductible, such as 10% for hospital visits.
• Out-of-pocket maximum: The maximum amount you can pay out of pocket during your policy term before the insurer will cover 100% of your costs.

Who qualifies for health insurance subsidies?

To qualify for premium tax credits and cost-sharing reductions, you first have to be eligible to enroll in a Marketplace health insurance plan. Here are the requirements:

• Live in the United States
• Be a U.S. citizen or national, or be a lawfully present non-citizen in the U.S.
• Not be incarcerated
• Not have Medicare or Medicaid coverage

Premium tax credit eligibility requirements

If you qualify for Marketplace coverage, your eligibility for premium tax credits will depend on the following:

• Health plan enrollment: You or a family member must be enrolled in a qualified Marketplace health insurance plant.
• Your estimated household income: Your estimated household income for the upcoming year must generally be at least 100% and no more than 400% of the Federal Poverty Line (FPL) for your family size. In 40 States that have expanded Medicaid, you must have income above 138% FPL to qualify for ACA enroll. Also, exceptions have been made for tax years 2023 through 2025 so taxpayers with household incomes over 400% FPL may still qualify.
• Filing status: You must file your federal income tax returns, and if you're married, you must file as 'Married Jointly,' although some exceptions apply.
• Independent tax filer: You can't be claimed as a dependent on anyone else's tax return.
• Unable to get other affordable coverage: You can't have access to alternative affordable coverage through an employer-sponsored plan that provides minimum value, or a government program like Medicaid, Medicare, or the Children's Health Insurance Program (CHIP).

Cost-sharing reductions eligibility requirements

To qualify for cost-sharing reductions, you need to have an annual estimated household income that's no greater than 250% of the Federal Poverty Level for your family's size (see the chart below). Additionally, you'll need to enroll in a Silver level plan to take advantage of this — Bronze, Gold, and Platinum plans don't offer cost-sharing reductions.

Income limits for health insurance subsidies in 2024

The income limits for health insurance subsidies are based on the Federal Poverty Level (FPL) for the current year, and the size of your family. To qualify for premium tax credits, your income will need to be between 100% and 400% of the FPL for your family size. To qualify for cost-sharing reductions, your income can't be greater than 250% of the FPL for your family size. Here's a look at how that breaks down by dollar amount in 2025.

Household members generally include the main tax filer, their spouse (when applicable), and any tax dependents they have. Dependents can include children, dependent parents, siblings, other relatives, and unmarried domestic partners.

The bottom line on health insurance subsidies

The ACA marketplace and subsidies are designed to make health insurance more affordable for Americans who don't qualify for coverage through other avenues — and they've proven helpful in getting more people covered at an affordable price. Since the introduction of health insurance subsidies and the ACA Marketplace in 2010, the percentage of Americans without health insurance has dropped to 7.2% from 16%, according to the National Center for Health Statistics' National Health Interview Survey.

If you're interested in applying for an ACA health insurance plan and taking advantage of subsidies, InsureMe can help you from start to finish. You can use our website here to estimate your subsidy, compare plans, and enroll all on your ownIf you have any questions along the way, our licensed insurance Advisors are standing by ready to help. From coverage and costs to eligibility and subsidies, we're happy to discuss it all!