Affording Health Insurance Without Subsidized Coverage

American health insurance is expensive. Government-sponsored coverage (Medicare, Medicaid, and CHIP), employer subsidies (and the massive tax breaks that go along with employer-sponsored health coverage), and premium tax credits (premium subsidies) in the health insurance exchange make coverage affordable for most people But what if you’re not getting any subsidies? Do you have any options for affordable coverage? 

This article will explain how various subsidies make coverage affordable for most Americans, which groups aren’t helped by those subsidies, and how to find affordable coverage.

How Much Does Health Coverage Cost?

The average employer-sponsored health insurance plan cost $703/month for a single employee in 2023 and $1,997/month for a family. Most employers pay the majority of this cost, leaving employees with a more manageable portion—but that’s not always the case when you’re adding family members to your plan.

For people who buy their own health insurance, the average full-price cost of a plan purchased through the Marketplaces/exchanges nationwide was $603/month per enrollee in 2024. But most people who buy coverage in the exchange qualify for premium subsidies (premium tax credits) that covered an average of $536/month—the majority of the full premium cost.

The American Rescue Plan and Inflation Reduction Act have increased the number of people eligible for subsidies in the marketplace (more details below). However, there is still a small minority of exchange enrollees nationwide who do not qualify for premium subsidies and have to pay full price for their coverage. In addition, everyone who enrolls off-exchange (ie, buying coverage directly from an insurance company) is paying full price, as there are no premium subsidies available outside the exchange.

American Rescue Plan Makes Coverage More Affordable

The American Rescue Plan (ARP), enacted in March 2021, has made premium subsidies larger and more widely available for people who purchase coverage in the exchange/marketplace. This was originally only for 2021 and 2022, but the Inflation Reduction Act extended these subsidy enhancements through 2025.

The ARP and Inflation Reduction Act have temporarily eliminated the “subsidy cliff.” So the income cap that normally applies to subsidy eligibility (400% of the poverty level) is not applicable from 2021 through 2025. Instead, a household earning more than 400% of the poverty level can qualify for a subsidy if the benchmark plan would otherwise cost more than 8.5% of the household’s income.

The ARP also reduced the percentage of income that people earning less than 400% of the poverty level have to pay for their coverage, so households that were already eligible for subsidies are now eligible for larger subsidies. This provision was also extended through 2025 by the Inflation Reduction Act.

As of 2024, more than nine out of ten marketplace enrollees nationwide were receiving premium subsidies to offset the cost of their coverage. And for the time being, coverage that people purchase themselves is more affordable than it normally is.

Who Has to Pay Unaffordable Health Insurance Premiums?

Even with the American Rescue Plan in place, however, there are still some circumstances in which a person might be paying an unaffordable percentage of their household income for health coverage. Let’s take a look at what they are:

• You’re in the Medicaid coverage gap. There are ten states where Medicaid has not been expanded under the ACA. In nine of those ten states (all but Wisconsin), there’s a coverage gap, which blocks access to affordable health coverage for people who earn less than the poverty level but don’t qualify for Medicaid (including all non-disabled, non-pregnant adults who don’t have dependent children). If you’re in this situation, you have to pay full price for health insurance, which generally isn’t realistic for people living below the poverty line.
• You’re enrolled in a plan that isn’t subsidy-eligible. This includes grandfathered and grandmothered/transitional plans (i.e. health plans that were already in existence before the ACA was enacted or implemented), off-exchange plans, short-term health insurance plans, health care sharing ministry plans, and other similar types of coverage. Switching to an on-exchange plan might make you eligible for a subsidy, but people aren’t always aware of the options available to them, and might remain with an inferior (or more expensive) plan option simply because they don’t realize they could get a subsidy if they switched plans.
• You’re not lawfully present in the U.S. A person who isn’t lawfully present in the U.S. generally cannot enroll in a health plan through the exchange/marketplace, or any type of government-run health program in most states. (Some states do provide Medicaid coverage for certain undocumented immigrant populations, most often children and/or people who are pregnant. Washington state received federal permission to allow undocumented immigrants to enroll through the exchange starting in the fall of 2023, and Colorado debuted a new program in 2023 that allows undocumented immigrants to enroll in state-subsidized health insurance.)
  Undocumented immigrants can purchase coverage directly from a health insurance company, and may be eligible for employer-sponsored coverage in some circumstances. And recent immigrants with a lawfully present immigration status are eligible for premium subsidies in the marketplace even if their income is below the poverty level.

Prior to 2023, households affected by the “family glitch” were also unable to obtain affordable health coverage. The family glitch existed because the affordability of an employer-sponsored health plan was based on the cost of just the employee’s coverage, without considering the cost to add family members to the plan. But if family members were eligible to be added to a plan that was considered affordable for the employee—regardless of the cost to add the family members—they were ineligible for subsidies in the exchange/marketplace.

Fortunately, the IRS fixed the family glitch as of 2023, creating separate affordability tests for employee-only and family coverage. If the employee’s coverage is considered affordable but the family’s is not, the family members are potentially eligible for subsidies in the exchange.

(For reference, employer-sponsored coverage is considered affordable in 2024 if the premium isn’t more than 8.39% of the household’s income.)

It’s important to note that some families that were previously affected by the family glitch may still find that they are not eligible for subsidies, even with the new rules in place.

This is because premium subsidy eligibility is based on how the family’s total on-exchange premiums compare with the family’s total household income. The amount that the family pays for other non-exchange coverage is not taken into consideration. If some members of the household have coverage elsewhere (an employer’s plan, for example, or Medicare), the on-exchange premiums for the remaining family members might not be enough to trigger a subsidy, depending on the household’s total income. Here’s more about how this works.

What Can You Do If You’re Facing Unaffordable Premiums?

Most Americans get coverage from a subsidized government-run program (Medicare, Medicaid, or CHIP), an employer-sponsored plan that includes significant employer subsidies and tax breaks, or a subsidized individual market plan through the exchange.

So the people who have to pay full price for their coverage are sometimes lost in the shuffle. But if you’re faced with a premium bill that amounts to a substantial portion of your income, you’re not alone. Let’s take a look at what you can do in this situation.

First, understand why you’re not eligible for financial assistance with your premiums. In most cases, you’ll be in one of the three scenarios described above.

Switch to the Exchange

If you’re enrolled in a self-purchased plan outside the exchange/marketplace in your state, you can’t receive a subsidy. Switching to the exchange might result in much more affordable—and possibly more comprehensive—coverage.

This is especially true while the American Rescue Plan / Inflation Reduction Act subsidy enhancements are in effect. If you’re eligible for subsidies, you might be surprised to find out how affordable the coverage is.

You can switch to a plan in the exchange during open enrollment, which runs from November 1 through January 15 in most states (some state-run exchanges have different deadlines, so be sure to check the rules in your state).

Outside of open enrollment, you’ll need a special enrollment period to switch plans. In most cases, this will require a qualifying life event.

Adjust Your Income to Qualify for Subsidies or Increase Your Subsidy Amount

Adjusting your income to qualify for premium subsidies in the exchange can work on both the high and the low ends of the subsidy eligibility spectrum.

If your income is too low for subsidies and you’re in a state that has expanded Medicaid (that’s DC plus 40 states as of 2024), you’re eligible for Medicaid, so you’ll still have coverage. But if you’re in a state that has not expanded Medicaid, you may find that the eligibility guidelines for Medicaid are very strict (with the exception of Wisconsin).

And you can’t get premium subsidies in the exchange unless you earn at least the poverty level. That’s $14,580 for a single person enrolling in 2024 coverage in the continental U.S., and $35,140 for a family of five. (Note that kids are eligible for Medicaid or CHIP in all states with household incomes well above these levels, so it’s just adults who are stuck in the coverage gap.)

If your income is below the poverty level, make doubly sure that you’re reporting every bit of income. Things like babysitting income or farmers’ market proceeds might be enough to push your income over the poverty level, making you eligible for significant premium subsidies. This article explains more about how you can avoid the coverage gap in a state that hasn’t expanded Medicaid.

Depending on your age and where you live, premium subsidies can amount to many thousands of dollars per year. If your income ends up a little above the poverty level, the enhanced subsidies under the American Rescue Plan and Inflation Reduction Act will allow you to obtain premium-free health insurance in the marketplace (that’s applicable through at least 2025, if your income is up to 150% of the poverty level). So it’s well worth your while to see if there’s a little bit of side income you could earn that would push you into the subsidy-eligible range.

Before the American Rescue Plan, people on the higher end of the income scale sometimes had to adjust their income downward to avoid the “subsidy cliff” and qualify for a premium subsidy. That’s no longer the case through at least 2025, since there is no upper income limit for subsidy eligibility in those years.

However, it’s still useful to understand how income is determined under the ACA, as a reduction in income can result in a larger subsidy. The IRS uses modified adjusted gross income (MAGI), but it’s a formula that’s specific to the ACA, so it’s different from MAGI that’s used in other situations.

This chart published by the University of California, Berkley is useful in seeing how MAGI is calculated for subsidy eligibility. In a nutshell, you’ll start with your AGI from your tax return, and for most people, MAGI will be the same as AGI. But there are three income sources that—if you have them—must be added back to your AGI to get your MAGI (foreign earned income, tax-exempt interest, and non-taxable Social Security benefits).

But the deductions listed in Part II of your 1040 Schedule 1 will serve to lower your AGI, and they don’t have to be added back in when you’re calculating your MAGI for subsidy eligibility determination. This is different from MAGI calculations for other purposes.

So if you make contributions to a traditional IRA (including SEP or SIMPLE IRAs if you’re self-employed) or a pre-tax employer-sponsored retirement plan, the amount that you contribute will lower your income for subsidy eligibility determination. The same is also true if you make contributions to a health savings account (note that you can only make HSA contributions if you have coverage under an HSA-qualified high deductible health plan).

None of this should be considered tax advice, and you should consult with a tax advisor if you have questions about your specific situation. But the takeaway point here is that there are steps you can take to reduce your ACA-specific MAGI and possibly increase the size of your premium subsidy (after 2025, this is a strategy that could help you beat the “subsidy cliff,” if the American Rescue Plan’s provisions aren’t extended again).

The best part is that if you’re using IRA contributions and/or HSA contributions to lower your MAGI, you’re also improving your financial future at the same time.

Consider Coverage Options That Aren’t ACA-Compliant

For some people, there simply won’t be a way to get ACA-compliant coverage with a premium that could be considered a reasonable percentage of their income.

The threshold of what can be considered affordable will obviously vary from one person to another. From an official perspective, the IRS considers coverage to be unaffordable if the premiums for the cheapest plan in your area (after any available subsidies) would cost you more than 7.97% of your household income in 2024.

But some people who don’t qualify for premium subsidies might be willing to pay more than that—it generally depends on the circumstances, including income and medical conditions.

Premiums in the ACA-compliant market have been fairly stable in most areas since 2019, although there have been single-digit percentage increases in the last couple of years. But premiums are significantly higher than they were in 2014, when ACA-compliant plans were first offered for purchase. As premiums grew in the ACA-compliant individual market, people who don’t qualify for premium subsidies became increasingly less likely to purchase coverage, due in large part to the premiums consuming an ever-increasing percentage of their income.

If you’re truly unable to afford your health insurance, you can apply for an affordability exemption from the ACA’s individual mandate penalty. Even though there is no longer a federal penalty for non-compliance with the individual mandate (and thus people don’t need exemptions to avoid a penalty unless they’re in a state that has its own penalty), a hardship exemption—which includes affordability exemptions—will allow you to purchase a catastrophic health plan.

Catastrophic plans are fully compliant with the ACA, but they’re less expensive than bronze plans. Premium subsidies cannot be used to purchase them, but affordability exemptions generally only apply to people who don’t qualify for subsidies—including people in the coverage gap, and people who find that family coverage is still unaffordable, despite the new IRS rules to fix the family glitch.

But for some people, even catastrophic health plans are too expensive. If you find yourself unable to afford ACA-compliant coverage, you’ll want to consider some of the alternatives. These include:

• Healthcare sharing ministries. This coverage is not compliant with the ACA and is not considered health insurance, meaning that most state insurance departments don’t regulate it. It doesn’t include the sort of guarantees that insurance provides, but is generally better than nothing at all. People with healthcare sharing ministry coverage sometimes combine it with a direct primary care plan, which can add a little more peace of mind for day-to-day medical needs (but direct primary care plans are also not considered health insurance, and it’s important to read the fine print carefully).
• Association health plans. The Trump administration revised the rules to make association health plan coverage more available to self-employed people, although the rules were overturned by a federal judge in 2019 and have remained overturned ever since (as a result, association health plans are not typically available to self-employed people without employees, but some states have established their own rules to allow this). Plan availability varies by area and type of industry. To some extent, these plans are subject to the ACA, but only as it applies to large group plans, with regulations that aren’t as strict as those that apply to individual and small group plans.
• Short-term health insurance plans. The Trump administration finalized new rules in 2018 that allow short-term plans to have initial terms of up to 364 days and total duration, including renewals, of up to three years. But states can impose more stringent regulations, and the majority have done so. Plan availability thus varies considerably by area. And the Biden administration finalized new rules in 2024 that will sharply limit the allowable duration of short-term health plans. For issue dates starting in September 2024, short-term health plans will be limited to no more than three months for their initial term, and no more than four months of total duration, including renewal. These rules will apply in every state unless the state has more restrictive rules in place. So short-term plans will generally be ineffective as a coverage option unless you’re just bridging a short gap between two other health plans.

There are other options, such as fixed indemnity plans, accident supplements, and critical illness plans, along with direct primary care coverage. These generally aren’t designed to serve as stand-alone coverage, although you may find that they pair well with one of the other types of coverage, giving you additional peace of mind.

In Tennessee, Iowa, Indiana, South Dakota, Texas, and Kansas, Farm Bureau plans that aren’t regulated by the ACA—or by the state insurance departments—are available to healthy enrollees who can meet the medical underwriting requirements.

If you’re considering coverage that’s not ACA-compliant, be sure to read the fine print and really understand what you’re buying. The plan might not cover prescription drugs at all. It might not cover maternity care or mental health treatment. It will almost certainly have annual or lifetime limits on the amount it will pay for your care.

With the exception of association health plans, the alternative coverage options are unlikely to fully cover pre-existing health conditions. These are all things that you’ll want to understand before you purchase the coverage, as you don’t want to find out about the drawbacks of the coverage while you’re in a hospital bed.

As long as you understand the downsides, the upside is that coverage that isn’t regulated by the ACA is going to be considerably less expensive than ACA-compliant coverage (for people who aren’t subsidy-eligible), and is typically available for purchase year-round, as opposed to just during an open enrollment period.

You get what you pay for, however, so it’s going to have a lot more gaps and potential pitfalls than an ACA-compliant plan. But some coverage is better than no coverage, so one of these options is likely to be far better than going uninsured altogether.

If you opt for alternative coverage, keep checking back each year to see if an ACA-compliant plan might be a realistic option.

Summary

Most Americans are eligible for heavily subsidized health insurance coverage, either from an employer, the government, or the health insurance exchange in their state. But some people aren’t eligible for financial assistance with their health coverage, for a variety of reasons. In some cases, there are steps they can take to become eligible for affordable coverage, but there are also less-regulated plans available that may fit their needs.

But before you give up on subsidized coverage, be sure you’ve discussed your options with a Navigator or licensed insurance broker in your area. They may be able to point you toward coverage you didn’t realize was an option.