This, despite the ACA’s subsidies for people earning up to 400% of poverty (about $46,000).
Has he fallen into the subsidy gap?
The latest talk about a subsidy gap into which some millennials are falling is mystifying to me. It seems to be a product of a misunderstanding about how the subsidies are calculated.
Let’s remember that the goal of the subsidies is to ensure that people earning between 100% and 400% of the federal poverty level (FPL) pay no more than a certain percentage of income on health insurance premiums.
This cap is set on a sliding scale, so that people on the higher end of the FPL scale are expected to pay a higher percentage.
The caps range from 2% for someone at poverty level up to 9.5% for someone earning between 300-400% of poverty level. That’s how the Affordable Care Act defines “affordable.”
The amount of subsidy is based on the difference between that cap and the premiums for the second-cheapest silver plan on the market. The subsidies are not an entitlement for all people earning 100%-400% of FPL, nor should they be.
They kick in only when the premium for that silver plan exceeds the stated percentage of income.
Below that cap, the premiums are considered affordable and people are not eligible for subsidies. That’s not a gap; that’s the way the law is designed.
Let’s return to our friend in Philadelphia. His $205 premium is 6.8% of his income. If his premium were $285, he would reach his limit of 9.5% of income (and then become subsidy-eligible).
But he’d be paying $80 more for insurance. And I doubt that’s an outcome anyone would wish for.