ACA exchanges: eligibility, premium tax credits, cost-sharing reductions, metal levels, actuarial value, and enrollment periods

What an exchange is

The Affordable Care Act created health insurance exchanges (also called marketplaces): government-run shopping platforms where individuals, and through the Small Business Health Options Program (SHOP) small employers, compare and buy qualified health plans (QHPs). A state may run its own exchange or use the federal platform, HealthCare.gov. The exchange certifies plans, presents them in a standardized way, determines who qualifies for financial help and enrolls people.

Exchanges must also fund navigators: grant-funded organizations that do public outreach and give fair and impartial information about enrolling in qualified health plans and about the availability of premium tax credits and cost-sharing reductions. Licensed agents and brokers can be among the entities that receive these grants.

Who can buy through an exchange

To enroll in a QHP through an exchange, a person must:

• live in the exchange's service area;
• be a U.S. citizen or national, or be lawfully present in the United States; and
• not be incarcerated (other than while awaiting disposition of charges).

Buying through the exchange is open to anyone who meets those tests, whatever their income. Financial help has extra conditions.

Premium tax credits

The premium tax credit is a refundable federal income tax credit that lowers the monthly premium for a QHP bought through an exchange. An applicable taxpayer is one whose household income is at least 100% and not more than 400% of the federal poverty line for the family's size. Three further rules matter on the exam:

• A married taxpayer must file a joint return to claim it.
• A person who can be claimed as someone else's dependent cannot claim it.
• A person who is eligible for affordable, minimum-value employer coverage, or for Medicaid, CHIP or Medicare, is generally not eligible for the credit.

From 2021 through 2025 a temporary rule removed the 400% ceiling and lowered the required contributions. As the statute reads now, that rule has ended, and the 100%-to-400% range applies again.

How the amount is figured. The benchmark is the second lowest cost silver plan available to the household in its rating area. The household is expected to pay an applicable percentage of its household income toward that benchmark. The percentage rises on a sliding scale as income rises, and it is indexed every year. The monthly credit is the lesser of the actual premium for the plan chosen, or the benchmark premium minus that expected contribution. The enrollee may then apply the credit to any metal level except a catastrophic plan. Choose a cheaper plan and the credit can cover most or all of the premium. Choose a richer plan and the enrollee pays the difference.

Household income is modified adjusted gross income (MAGI): adjusted gross income plus tax-exempt interest, excluded foreign earned income and non-taxable Social Security benefits. Every family member who must file a return counts toward it.

Advance payments and reconciliation. Most enrollees take the credit in advance: the exchange estimates it from projected income, and the Treasury pays it directly to the insurer each month. At tax time the taxpayer reconciles the advance payments against the credit actually earned on the year's real income. If the advance payments were too high, the excess is added to the tax owed. If they were too low, the taxpayer gets the difference.

Cost-sharing reductions

Cost-sharing reductions (CSRs) are a separate subsidy that lowers deductibles, copays, coinsurance and the out-of-pocket maximum. Apart from the special rule for American Indians and Alaska Natives below, the income-based reductions are available to people who are eligible for the premium tax credit, have household income from 100% to 250% of the poverty line, and enroll in a silver plan. The plan's actuarial value rises to about 94% for incomes up to 150% of the poverty line, 87% for 150% to 200%, and 73% for 200% to 250%. American Indians and Alaska Natives below 300% of the poverty line can have cost sharing eliminated at any metal level.

Metal levels and actuarial value

Actuarial value (AV) is the percentage of the total average cost of covered benefits that a plan pays for a standard population. Enrollees pay the rest through cost sharing. AV describes the plan's overall generosity. It does not predict any one person's bills, and it does not measure the premium.

• Bronze: about 60% AV (enrollee bears about 40%)
• Silver: about 70%
• Gold: about 80%
• Platinum: about 90%

Each tier allows only a small variation from these targets. Higher AV usually means a higher premium and lower cost sharing. A catastrophic plan has an AV below bronze. It is open to people under 30 or to people with a hardship or affordability exemption. It covers three primary-care visits and preventive care before the deductible, and the premium tax credit cannot be used on it.

Enrollment periods

Federal law requires each exchange to provide:

• an annual open enrollment period, set by HHS, each fall;
• special enrollment periods after qualifying life events, such as loss of other coverage, marriage, birth or adoption, or a permanent move. The window is generally 60 days from the event;
• monthly special enrollment for American Indians and Alaska Natives.

Outside these windows, a person cannot buy exchange coverage for that plan year. Medicaid and CHIP enrollment, by contrast, is open all year.

Exam focus: credit = second lowest cost silver benchmark minus expected contribution; 100%-400% of poverty; income-based CSRs on silver up to 250% (American Indians and Alaska Natives under 300%: any metal level); bronze 60, silver 70, gold 80, platinum 90.