Health insurance in the United States can be expensive, but thanks to government subsidies and income-based programs, many individuals and families qualify for reduced-cost or even free coverage. One of the most important factors that determines how much you’ll pay for health insurance — and how much financial help you can receive — is your income.
Understanding how income impacts your health insurance options, costs, and subsidies can help you make smarter decisions during enrollment, avoid penalties, and potentially save thousands each year.
Why Income Matters in Health Insurance
When you apply for health insurance — especially through the Affordable Care Act (ACA) Marketplace — your income determines:
- Whether you qualify for premium subsidies
- Whether you’re eligible for cost-sharing reductions
- If you qualify for Medicaid or other government programs
- Whether you can enroll in catastrophic coverage
- What types of plans might be best suited to your financial situation
Your income is compared to the Federal Poverty Level (FPL) to determine what kind of help you qualify for. Let’s dive into how this works.
Understanding the Federal Poverty Level (FPL)
The Federal Poverty Level is a measure used by the government to determine eligibility for various programs, including health insurance subsidies.
2025 FPL Guidelines for the 48 Contiguous States and D.C. (approximate):
- 1 person: $15,060
- 2 people: $20,440
- 3 people: $25,820
- 4 people: $31,200
Your income is expressed as a percentage of the FPL. For example, if you’re a single person earning $30,000 per year, you’re at about 199% of the FPL.
Premium Tax Credits: Help with Monthly Premiums
If your household income is between 100% and 400% of the FPL, you may qualify for premium tax credits, which lower your monthly health insurance premiums when buying a plan through the Marketplace.
In recent years (especially since the American Rescue Plan Act), these subsidies have been expanded. Now, even those earning more than 400% of the FPL may be eligible for assistance if their premiums would otherwise exceed 8.5% of their household income.
Example:
- Income: $30,000/year (roughly 200% of FPL)
- Plan premium without subsidy: $600/month
- With subsidy: You might pay only $80–$100/month, depending on your location and plan
The lower your income, the larger your subsidy, and the less you pay monthly.
Cost-Sharing Reductions (CSRs): Help with Deductibles and Copays
In addition to lowering your premiums, your income can also qualify you for cost-sharing reductions. These reduce out-of-pocket costs like:
- Deductibles
- Copayments
- Coinsurance
- Maximum out-of-pocket limits
To qualify for CSRs:
- Your income must be between 100% and 250% of the FPL
- You must select a Silver plan through the Marketplace
CSRs can make a major difference in affordability, especially if you require frequent medical care or prescriptions.
Medicaid: Free or Low-Cost Insurance for Low-Income Individuals
If your income falls below 138% of the FPL (in states that have expanded Medicaid), you may qualify for Medicaid — a joint federal and state program that offers free or low-cost healthcare to those in need.
Some states haven’t expanded Medicaid. In those states, Medicaid eligibility may depend on other factors like being pregnant, disabled, or having dependent children.
Example:
- Single adult in an expansion state
- Income under $20,783 (138% FPL) → Qualifies for Medicaid
- Same adult in a non-expansion state
- Might not qualify even if income is lower
To check eligibility, visit Medicaid.gov or your state’s health department website.
Income and CHIP (Children’s Health Insurance Program)
Even if your income is too high for Medicaid, your children may qualify for CHIP, which provides low-cost or free insurance for children up to age 19. In some states, CHIP also covers pregnant women.
CHIP income limits vary by state and are generally more generous than Medicaid limits.
What Counts as Income?
When calculating your eligibility for subsidies or Medicaid, you’ll use Modified Adjusted Gross Income (MAGI), which includes:
- Wages and salaries
- Self-employment income
- Unemployment benefits
- Social Security income (taxable portion)
- Investment income
- Alimony received (for divorces finalized before 2019)
MAGI does not include:
- Child support
- Supplemental Security Income (SSI)
- Certain veterans’ benefits
- Gifts or inheritance
It’s important to estimate your income accurately when applying. Overestimating might mean missing out on subsidies; underestimating could result in having to repay some credits during tax time.
Reporting Income Changes
Because subsidies are based on projected annual income, any significant changes should be reported to the Marketplace as soon as possible. For example:
- You get a new job
- Your hours are reduced
- You get married or divorced
- Your household size changes
By updating your application, your subsidy can be adjusted to avoid surprise tax bills or coverage gaps.
Special Enrollment Periods (SEP) for Income Changes
If you experience a major income change or gain eligibility for Medicaid or CHIP, you may qualify for a Special Enrollment Period — allowing you to enroll outside the normal Open Enrollment Period.
Common triggers for SEP:
- Loss of job-based insurance
- Drop in income that qualifies you for subsidies or Medicaid
- Moving to a new state
This helps ensure that a change in income doesn’t leave you uninsured.
How to Estimate Your Income for the Marketplace
To get the most accurate estimate:
- Start with your previous year’s income
- Adjust for any known changes (job changes, raises, bonuses, gig income)
- Add other household income sources
- Use online subsidy calculators for estimates
If your income is unpredictable (common for freelancers or seasonal workers), it’s better to overestimate slightly to avoid having to repay subsidies later.
Final Thoughts
Your income is the key to unlocking affordable health insurance in the United States. From free coverage through Medicaid to substantial savings on monthly premiums through the Marketplace, there are numerous options designed to make health insurance accessible for people at all income levels.
Here’s a quick summary:
- Under 138% of FPL: You may qualify for Medicaid
- 100%–250% of FPL: You may qualify for premium subsidies and cost-sharing reductions
- 100%–400%+ of FPL: You likely qualify for premium subsidies
- Children may qualify for CHIP, even if adult income is too high for Medicaid
If you’re unsure about your options, talk to a certified insurance navigator or use free tools like HealthCare.gov. By understanding the connection between income and insurance costs, you can make informed decisions that protect both your health and your wallet.