Q. My employer offers insurance, but I think it’s too expensive. Can I apply for a subsidy to help me buy my own insurance?
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A. Probably not. If your employer’s insurance is considered affordable and provides minimum value (ie, is comprehensive), you are not eligible for a government subsidy to help buy a policy in the exchanges.
You could still buy a health insurance plan in the exchange, but you’d have to pay full price for it, so it is unlikely that you would get better and less expensive coverage in the exchange. And it’s also important to note that the plan your employer offers will almost certainly let you pay your share of the premiums on a pre-tax basis, while that’s much less likely if you buy your own plan.
To be clear, there’s nothing preventing you from declining your employer’s insurance and buying an individual-market plan, on or off-exchange. But in most cases, you won’t be eligible for a subsidy in the exchange, which means you’d be paying full price for an individual-market plan. The plan your employer offers is funded partly by your employer, and you’ll lose that benefit if you opt for an individual market plan.
You’ll also likely lose the benefit of paying for premiums on a pre-tax basis. (You can deduct total medical expenses, including self-purchased health insurance, that exceed 7.5% of your income, but only if you itemize your deductions. Self-employed people can deduct the full cost of self-purchased health insurance, but not if they’re eligible for coverage under an employer-sponsored plan, regardless of the cost.)
If you do want to enroll in an individual market plan, the open enrollment period to buy coverage runs from November 1 to January 15 in most states, although some states have different deadlines. Outside of the open enrollment period, you’ll need to qualify for a special enrollment period in order to sign up for individual/family coverage.
How are affordability and minimum value determined?
In 2022, an employer’s policy is considered affordable if individual coverage (for just you – not including your family) costs less than 9.61% of your 2022 household income (the Build Back Better Act would reset this threshold to 8.5%, but that legislation has stalled in the Senate after passing the House in November 2021; lawmakers are likely to consider various parts of it on a piecemeal basis in 2022). Household income is Modified Adjusted Gross Income as defined by the ACA.
It’s important to note that the affordability test for employer-sponsored coverage applies only to the amount you’d have to pay to insure just yourself under your employer’s plan. If that amount is less than 9.61% of your 2022 household income, you’re not eligible for a premium subsidy in the exchange, and neither are your family members if they’re allowed to enroll in your employer’s plan, regardless of how much it would cost to actually enroll them in your employer’s plan. This is known as the ACA’s “family glitch,” and although some lawmakers — and countless consumer advocates — have proposed fixes, it’s still an issue for several million Americans. Although the House’s versions of the Build Back Better Act calls for the affordability threshold to be reduced to 8.5% of household income, the determination would continue to be based on employee-only coverage, without accounting for the cost to add family members (and again, we don’t know what aspects of the BBBA, if any, will eventually be enacted).
Your coverage is deemed to provide “minimum value” if it pays for at least 60% of covered benefits for the average population (ie, is comparable to a Bronze plan in the individual or small group market) and provides “substantial” coverage for inpatient and physician care.
The employer-sponsored insurance offered at most large companies fits these definitions of providing “minimum value” and being “affordable.” Even prior to 2014, the vast majority of large companies already provided comprehensive health insurance, often covering most of the ten essential benefits that the ACA now requires of individual and small-group plans (large group plans are not required to provide coverage for essential health benefits, but most do).
Subsidy eligibility is also based on income
It’s unusual for an employer-sponsored plan to be considered unaffordable or to fail to provide minimum value. And large group plans that fail to meet these standards are subject to the ACA’s employer mandate penalty. But as noted above, the family glitch means that some plans that are considered affordable are not actually affordable for family members.
But even if you’re eligible for a subsidy based on the coverage provided by your employer, you still have to qualify based on your household income (Modified Adjusted Gross Income, which is ACA-specific).
There’s normally an income limit equal to 400% of the federal poverty level, but the American Rescue Plan (enacted in March 2021) eliminated that income cap for 2021 and 2022. Households that are otherwise eligible for a premium subsidy can get one regardless of income, if the benchmark plan would cost more than 8.5% of the household’s income. The House’s version of the Build Back Better Act called for extending this provision through 2025.
Split family onto two plans?
If you’re covering your whole family on your employer’s plan, it’s worth finding out how much it would be to insure just yourself under your employer’s plan. If your employer subsidizes the cost of premiums for employees but not for dependents and spouses, it’s possible that the cost to cover your whole family would be lower if you split the family onto two plans, using an individual market plan for your family members and your employer-sponsored plan for yourself.
As noted above, your family members would not qualify for subsidies in the exchange (assuming your own coverage from your employer isn’t more than 9.61% of your household income in 2022), so you’d be comparing full-price exchange (or off-exchange) plans with the cost to cover your family on your employer’s plan. And as noted above, you’d almost certainly need to compare the after-tax cost of the employer-sponsored plan with the post-tax cost of the individual market plan.
Be sure to also consider the out-of-pocket costs on both options before you make a decision, and keep in mind that family deductibles and family out-of-pocket maximums only apply to all family members on a single plan; if your family is on two plans, each plan would have its own out-of-pocket limit.
Exchanges aren’t meant to replace employer-sponsored coverage
The exchanges were designed for folks who are self-employed, unemployed, or work for a company that doesn’t offer health benefits. Prior to the ACA’s premium subsidies, which are only available through the exchange, these individuals had no choice but to pay the full cost of their health insurance premiums themselves.
Now that the exchanges are in place, people who would otherwise have had to pay full price for their own coverage can get relief in the form of premium subsidies, depending on their household income. They can also get cost-sharing subsidies, if their income doesn’t exceed 250% of the poverty level. And adults under the age of 65 whose household income is between zero and 138% of the poverty level are eligible for Medicaid if they’re in one of the states that have expanded Medicaid.
Since you have benefits at work, your employer is already subsidizing your insurance. On average employers that offer health insurance pay 83% of the cost of employees’ coverage and 73% of premiums for family coverage, asking workers to pay just 17% or 27%, respectively (it varies considerably from one employer to another, however, and smaller firms are more likely to require employees to pay a significant portion of the cost to add family members to the plan; as noted above, the family glitch means that family members aren’t eligible for premium subsidies even if the employer covers none of the family members’ premium costs).
It is true that co-pays and deductibles have been rising, but that is because the underlying cost of health care has been climbing as hospital charges, specialists’ fees, and prices for drugs and medical devices rise. Your employer is likely still paying a significant share of the cost of your health insurance, and you’re receiving that as a pre-tax benefit.
And again, the pre-tax aspect of employer-sponsored coverage is a particularly important point. People who buy individual market health insurance can only deduct their premiums if they’re self-employed (and don’t have access to employer-sponsored insurance, which would eliminate the people we’re describing in this article) or if their total medical costs (including premiums) amount to more than 7.5% of their income, with only the portion above that level being eligible for the tax deduction.
But employer-sponsored health benefits are nearly always provided on a pre-tax basis: The portion that the employer pays is not included in the employee’s income, and the portion that the employee pays is taken out of their check pre-tax. The ACA’s premium tax credit for individual market enrollees helps to level this playing field a bit.
Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org.
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