Your Guide to the ACA Marketplace: How Advanced Premium Tax Credits Work

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Obtaining health insurance is challenging for Americans as it continues to be complex and, for many, expensive. As a result of The Affordable Care Act (ACA), the ACA Marketplace—also known as the Health Insurance Marketplace—was established to streamline the process to apply for and obtain health insurance coverage online.

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Navigating the ACA Marketplace system may seem daunting at first, but with just one application, you’ll know if you and members of your family are eligible for a discounted Marketplace plan or free coverage through Medicaid or the Children’s Health Insurance Program. Ultimately, your income and the number of people in your household determine if you qualify for the Advanced Premium Tax Credit (APTC), which helps health insurance plans fit into your budget.

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What Is the Advanced Premium Tax Credit?

Through the ACA Marketplace, also referred to as the Exchange, individuals and families can apply for health insurance at a more affordable rate thanks to the Advance Premium Tax Credit. 

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According to the IRS, “the amount of the credit you will receive is “generally equal to the premium for the second lowest cost silver plan available through the Marketplace that applies to the members of your coverage family, minus a certain percentage of your household income.” However, individuals and families cannot enroll in a Marketplace plan for which the premium is less than the credit they’re eligible for. In that case, they will no longer be eligible for the credit.

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The lower your income, the larger the tax credit you will receive to help pay for health insurance coverage. For example, if you qualify for a $250 tax credit and are interested in a Marketplace plan with a $450 monthly premium, you can opt to take the full credit offered and pay only $200 in monthly premiums for the year. The alternative to using your tax credit monthly is instead to receive the entire tax credit benefit in full when you file your tax return for the year.

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Important update for 2023:

"The subsidy now fully covers the cost of enrolling in the benchmark silver plan for consumers with income up to 150% of the federal poverty level (FPL). With the original ACA subsidy structure, consumers at 150% FPL ($20,385 for a single person in 2023, or $41,625 for a family of 4) had to pay about 4% of household income for the benchmark plan. By reducing premium contributions to $0 (or near $0), the Inflation Reduction Act essentially guarantees access to silver plans with generous cost sharing reductions that substantially reduce deductibles and copays.

The Inflation Reduction Act, like the ARPA before it, extends eligibility for premium tax credits to reach people with incomes over 400% FPL ($54,360 for a single person in 2023, or $111,000 for family of 4). Now these consumers must contribute no more than 8.5% of their income toward the benchmark silver plan." - KFF

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How to Apply for the Advanced Premium Tax Credit

To apply for the Advanced Premium Tax Credit, simply enter your income, how many people are in your family, and the state you live in at Healthcare.gov to see if you're eligible. If you do qualify, there are four easy steps to apply and enroll for coverage through the Marketplace. 

People in most states will enroll for individual/family or small business coverage through HealthCare.gov, but some states, such as California, New York, and Colorado, have developed their own Marketplace to manage enrollment. You can look for your state here to know where to begin this process.

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1. Create Your Marketplace Account

To start your account, you will need to enter basic personal information including your name, physical address, and email address. You will be prompted to select a username and password so that you can log in to your account in the future.

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2. Gather Information to Be Ready to Apply

The Marketplace website provides a list of information and documents that you will need on hand to complete your application. Information for every member of your household will need to be submitted, including individuals who already have a health plan through another source and are not seeking coverage.

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3. Get Your Eligibility Results

Based on the information you provide, you will get instant eligibility results. At this point, you will be able to see if you qualify for a discounted health plan through the Marketplace and the amount of the Advanced Premium Tax Credit you will receive. During this step, you will also be able to see if you qualify for free Medicaid coverage or the Children’s Health Insurance Program.

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4. Enroll in the Health Plan You Choose

At this stage in the process, you will get a list of coverage options to compare. These options will typically span several insurance providers, and premiums will vary based on the specifics of each plan such as copays, deductibles, coinsurance, and out-of-pocket maximums. Once you choose the plan that best suits your needs, you can complete your enrollment. 

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Choosing the right plan is perhaps the most complex part of enrolling in private health insurance. A health insurance agent, health advisor, or financial advisor may be able to help you choose the plan that works best for your family based on your specific needs. If you have a financial advisor, make sure to ask them if they have access to Caribou, which provides fiduciary healthcare planning support to financial advisors and their clients. 

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Important Things to Know About Your Marketplace Health Plan

While the process to apply for and enroll in a Marketplace health plan subsidized by Premium Tax Credits may seem clear and easy to navigate, there are a few important things to know, including:

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• Open Enrollment Periods.
• First payment due dates.
• What to do if there are changes to your household or income.

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Open Enrollment Period

There is a defined window in which you can apply for healthcare coverage through the Marketplace called the Open Enrollment Period. The Open Enrollment Period for coverage obtained through the Federal ACA Marketplace is November 1st - January 15th each year. There may be some variation in Open Enrollment dates for states with their own Marketplace, so double-check the enrollment period for your specific state. 

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Certain extenuating circumstances may be grounds for enrollment outside of the Open Enrollment Period which may include, but are not limited to:

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• Marriage or divorce in the household.
• Death in the family.
• Adopting or having a baby.
• Losing workplace or other qualifying health coverage.

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You are allowed a 60-day window after one of these events to apply during what is called a special enrollment period. If you missed the open enrollment period and do not meet the criteria for the special enrollment period, you will have to wait until the next open enrollment period to obtain health insurance coverage.

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First Payment Due Date

Once you have enrolled for your Marketplace healthcare plan, it is critical to make the first payment before the day your coverage begins. Your premiums will always be paid directly to the insurance company, but payment options can be accessed through your Marketplace account. 

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In order to avoid an accidental late payment in the future, most insurance companies will allow you to set up auto-payments. It’s important to know that if you don’t make your first payment to the insurance company before your coverage begins, it’s possible they will terminate the policy.

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What to Do If There Are Changes to Your Income or Household

When any change occurs to your income or within your household, you will want to log in to your Marketplace account and report the change. Your healthcare coverage or Premium Tax Credit eligibility could be affected by these life changes.

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An event such as an increase in income might mean you qualify for less than previously awarded. If you become eligible for an employer-sponsored health insurance plan, you may not be eligible for an Advanced Premium Tax Credit at all. Failing to report an event like this may mean that you owe money back to the government when you file that year’s tax return. 

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The opposite could also occur in the event that your finances take a negative hit or you gain a household member, making you eligible for increased savings. Always err on the side of caution and report any income or household changes.

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Let Caribou Help With Marketplace Health Plans and Advanced Premium Tax Credits

At Caribou, we work with comprehensive financial advisors to help their clients engage in healthcare planning as an important part of their overall financial plan. When your advisor joins Caribou as a partner, they are able to grant their clients exclusive access to our healthcare planning software, which will help you navigate all of your healthcare options, including ACA Marketplace coverage and Advanced Premium Tax Credits. 

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If your financial advisor is unable to help you make healthcare planning decisions such as choosing a health insurance plan or taking advantage of Premium Tax Credits, make sure to ask if they currently partner with Caribou. If not, you can ask them to learn more about the support we provide or schedule a conversation with us today.

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Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.