The Affordable Care Act (ACA) provides financial assistance to individuals purchasing health insurance through the Health Insurance Marketplace. This assistance comes in two forms: the premium tax credit and the cost-sharing reduction (CSR). The premium tax credit reduces an individual’s monthly insurance payments, while the CSR reduces out-of-pocket costs such as deductibles and copayments.
There are four “metal” levels of coverage available through the Marketplace: bronze, silver, gold, and platinum. Bronze plans have the lowest premiums but the highest deductibles, while platinum plans have the highest premiums but the lowest out-of-pocket costs. Catastrophic health plans are also available, but these are generally only available to individuals under the age of 30 and do not qualify for premium tax credits.
Eligibility for Premium Tax Credits
To be eligible for a premium tax credit, an individual must have a household income between 100% and 400% of the Federal Poverty Level (FPL). They must also not have access to an employer-sponsored plan that meets minimum value and is considered affordable. In 2027, the threshold for an affordable employer plan is a premium that is equal to or less than 10.22% of an individual’s household income.
If married, they must file taxes jointly. The premium tax credit is calculated based on an individual’s Modified Adjusted Gross Income (MAGI) and the cost of the “benchmark” plan, which is the second-lowest cost silver plan in their Marketplace.
The amount of the premium tax credit varies based on income level. In 2027, individuals with incomes below 133% FPL are required to contribute 2.15% of their income towards their premium, while those with incomes between 300% and 400% FPL are required to contribute 10.22% of their income. The premium tax credit can be applied to any metal level of coverage, except for catastrophic plans.
Cost-Sharing Reductions
Cost-sharing reductions are available to individuals with incomes between 100% and 250% FPL who are eligible for premium tax credits. These reductions lower out-of-pocket costs such as deductibles and copayments. Cost-sharing reductions are only available through silver plans and are determined on a sliding scale based on income.
For example, individuals with incomes between 100% and 150% FPL are eligible for the most generous cost-sharing reductions, which can reduce deductibles and copays to levels similar to those of a platinum plan. Those with incomes between 150% and 200% FPL are eligible for somewhat less generous reductions, while those with incomes between 200% and 250% FPL are eligible for modest reductions.
The ACA requires maximum annual out-of-pocket spending limits on cost sharing under Marketplace plans, with reduced limits for CSR plans.
Insurers have flexibility in how they set deductibles and copays to achieve actuarial value benchmarks set by the ACA for Marketplace plans, including CSR plans. As a result, actual deductibles may vary from the average deductibles for each level of cost-sharing reduction.
The actual deductible will depend on the specific plan and insurer chosen by the individual.
In 2026, the average annual deductible for a silver plan with the most generous level of cost-sharing reductions was just over $92, while the average annual deductible for a silver plan with modest cost-sharing reductions was about $3,700. These deductibles are subject to change and may vary depending on the insurer and plan chosen.
The ACA’s cost-sharing reductions and premium tax credits are designed to make health insurance more affordable for individuals with lower incomes. By reducing out-of-pocket costs and premiums, these programs can help make health care more accessible to those who need it most. The Health Insurance Marketplace provides more information on these programs and how to apply for them.
In 2027, the maximum out-of-pocket limit for all Qualified Health Plans (QHPs) will be $12,000 for individual plans and $24,000 for family plans. Insurers can set lower out-of-pocket maximums, but these limits provide a ceiling for out-of-pocket costs under the ACA.
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Insurers offering plans through the Marketplace must meet specific requirements, including providing substantial coverage for physician services and inpatient hospital care. The plan must also have an annual out-of-pocket limit on cost sharing of no more than $12,000 for self-only coverage and $24,000 for family coverage in 2027.
People who are offered employer-sponsored coverage that fails to meet either the affordability threshold or minimum value requirements can qualify for Marketplace subsidies if they meet the other criteria. The Marketplace will look at both the required employee contribution for self-only and family coverage to determine affordability.
Immigration Status and Eligibility
Lawfully present low-income immigrants who are ineligible for Medicaid will not qualify for tax credits starting in the 2026 plan year. Only people with certain immigration statuses can qualify for Marketplace financial assistance, including Lawful Permanent Residents, Cuban or Haitian entrants, and Compact of Free Association migrants.
Immigrants who do not hold an eligible immigration status, including DACA recipients, cannot enroll in health insurance through the Marketplace or receive tax credits. They are also ineligible for non-emergency Medicaid and CHIP.
Plan Details and Eligibility
Household income is defined as the Modified Adjusted Gross Income of the taxpayer, spouse, and dependents.
The employer’s coverage must meet a minimum value standard.
Catastrophic plans have lower premiums and higher cost sharing compared to bronze plans.
Immigration status affects eligibility for Marketplace financial assistance.
The tax credit cannot be applied to certain components of a Marketplace plan premium.
People must apply for coverage through the Marketplace and provide information about their age, address, and estimated income.
The advance premium tax credit option allows consumers to have their tax credit paid directly to their insurer each month.
Consumers who underestimate their income must repay excess tax credit when they file their tax return.
