State-Funded Health Insurance Subsidies: How Do They Work? - Verywell Health
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.
Here’s an overview of how they work, including in states with subsidies that were instituted before the ACA, states that developed them afterward, and states that are proposing to start them.
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.
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.1
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.2
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 2021, premiums for ConnectorCare plans range from $0 to $133 per month, depending on income.3 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 2021 coverage, 300% of the poverty level is equal to $38,280 for a single adult and $78,600 for a family of four.3
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.4
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.5
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.
As an example, a 50-year-old applicant earning $38,280 (exactly 300% of the poverty level) will qualify for a total premium subsidy of $526/month in Vermont.
This is a combination of the ACA’s premium tax credit (which has been enhanced by the American Rescue Plan) and the Vermont Premium Assistance program. Without Vermont’s extra subsidy, the total subsidy amount would be $490, so the state is providing an additional $36/month in subsidies for this person.
After both subsidies are applied, their after-subsidy cost for the benchmark plan (second-lowest-cost silver plan) will be about $155/month. Without the state’s assistance, it would have been about $191/month.
New State-Funded Subsidy Programs
California debuted a state-funded premium subsidy program in 2020. The additional premium subsidies supplement the ACA’s premium tax credits that were already available through Covered California (the state’s health insurance exchange).
The majority of the funding for the program was allocated to provide subsidies for enrollees with income between 400% and 600% of the federal poverty level. People with income above 400% of the poverty level were ineligible for the ACA’s premium subsidies before 2021, so California’s state-funded subsidy helped make coverage more affordable for people in this income range.
But the American Rescue Plan temporarily eliminated the income cap for premium subsidy eligibility. This means that many households with income well above 400% of the poverty level are eligible for federal premium subsidies in 2021 and 2022.
The American Rescue Plan has 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.6
So California is not currently providing additional state-funded subsidies, as they’re not necessary for as long as the American Rescue Plan’s subsidy enhancements remain in place. For now, that’s through 2022, although Congress might extend those provisions with future legislation.
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.7
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.
A 50-year-old who earns $38,280 in 2021 will qualify for a federal premium tax credit in addition to a $100/month subsidy through the NJ Health Plan Savings program. This will bring the cost of the benchmark plan down to under $92/month.
Without the state’s additional subsidy program, the benchmark plan would have been about $191/month—the same as the cost for the benchmark plan in Vermont before the state’s subsidy program was applied.
State-Funded Subsidy Programs Coming Soon
Washington state lawmakers have been working on a state-funded premium subsidy program since 2019. The new subsidy will become available as of 2023 and will provide additional premium assistance and cost-sharing reductions to applicants who earn up to 250% of the poverty level.8
The new program will be available through the state’s exchange, Washington Healthplanfinder. 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 has also enacted legislation that will create state-funded premium reductions that supplement the federal government’s premium tax credits. As is the case in other states, this program will only be available through the exchange, Connect for Health Colorado.
Colorado’s program will debut in two stages: Starting in 2022, the state will provide funding directly to health insurance companies to reduce after-subsidy premiums and/or out-of-pocket medical costs for people who already receive federal premium tax credits.9
Then in 2023, Colorado will provide additional state-funded premium subsidies for enrollees who earn up to 300% of the poverty level, but for whom federal premium tax credits are not available. This includes undocumented immigrants, as well as people affected by the ACA’s “family glitch.”10
Other states may also opt to create their own state-funded health insurance assistance programs in the future. The American Rescue Plan has made premiums more affordable for millions of people who purchase their own health coverage, and Congress may decide to make these federal subsidy enhancements permanent.
But there are still concerns that out-of-pocket medical costs are unaffordable for many enrollees, and this is an area of ongoing legislative focus in several states.
If you buy health insurance on your state’s health insurance exchange, you may be eligible for a federal subsidy. In some states, you may also be eligible for a state subsidy. The requirements differ in each state.