If you lose your job, be prepared for sticker shock when shopping for your own health insurance: Premiums for a 40-year-old buying the lowest-cost silver policy (a mid-level policy) on the state insurance marketplaces averaged $442 per month in 2020, according to the Kaiser Family Foundation.

Premiums can be a lot higher for families and older buyers. But most people don’t pay that much, especially if they’ve lost their jobs. The Kaiser Family Foundation estimates that about 8.4 million people who lost their jobs between March 1, 2020, and May 2, 2020, are eligible for government subsidies to help pay their premiums. The average subsidy in 2019 was $514 per month.

If you’re looking for health insurance on your own, it’s important to understand how the subsidies work and how much you’d actually pay for the coverage. And you may need to act quickly: You generally have just 60 days after losing employer-sponsored health insurance to buy an individual policy on your state insurance marketplace or HealthCare.gov.

Here’s more information about how the subsidies are calculated, how they can lower your monthly premiums (and maybe reduce your deductibles, too) and how to avoid an unexpected bill at tax time.

To qualify for a subsidy in 2020, your income for the year must be between 100% and 400% of the federal poverty level – which is $12,490 to $49,960 if you’re single, $16,910 to $67,640 for couples and $25,750 to $103,000 for a family of four. The subsidy is based on your income for the full year, so you need to estimate how much you’ll earn in 2020.

That can be very difficult to do because you don’t know if you’ll get a new job later in the year. And the calculation is even more complicated this year because the income includes state unemployment benefits as well as the extra $600 per week in federal pandemic unemployment benefits. Those extra $600 weekly payments are currently scheduled to stop at the end of July, although Congress is debating whether to extend those payments.

To estimate your income for the year, add up how much you earned so far, then add any unemployment benefits and other income you expect to earn for the rest of the year. Karen Pollitz, senior fellow at the Kaiser Family Foundation, recommends estimating your income based on the current end date for the $600 per week in supplemental federal pandemic unemployment benefits, but keeping up with any new developments. If the payments are extended and you earn more than expected, you can update your income information with the marketplace later in the year or you can pay back some of the subsidy when you file your 2020 income tax return next spring.

The calculation is very complicated. People who qualify for the subsidy have to pay no more than 2% to 10% of their income in premiums for a silver-level (mid-level) plan on their state marketplace, with the specific percentage based on their income. The government subsidy covers the rest of the premium.

For example, a 30-year-old Baltimore couple who earn $50,000 in 2020 (194% of the poverty level) and have two children would receive about $922 per month ($11,061 per year) in subsidies. That would reduce the cost of a silver plan from $1,181 per month down to $259 per month, according to the Kaiser Family Foundation’s health insurance marketplace calculator.

Even though the amount of the subsidy is based on the price of a silver-level plan, you can use the subsidy to buy any plan on the marketplace, including bronze plans (which tend to have lower premiums but higher deductibles and copayments) and gold plans (which tend to have higher premiums but lower deductibles and copayments). For example, that Baltimore family could pay about $23 per month for a bronze plan after the subsidy is applied.

Since the calculation is so complicated and the cost of plans varies by area, it helps to run your numbers through the Kaiser Family Foundation’s calculator to quickly estimate the size of your subsidy based on your income, ZIP code, age and household size. Then you can go to your state’s marketplace to input detailed information about your income and find the specific costs for each policy (go to HealthCare.gov to find links to your state’s marketplace).

For more information about marketplace coverage, see the Kaiser Family Foundation’s Health Insurance Marketplace FAQs. You can also get help from a local assister in your area – go to the “find local help” tool at HealthCare.gov to find contact information for navigators (often nonprofit organizations) that can help you apply for coverage. Some of these navigators are only available during open enrollment in the fall, but others are still helping people apply for coverage now, especially if they lose their jobs. “It’s worth it to go to ‘find local help’ and make a couple of calls. Don’t give up on the first or second try, and see if you can find a navigator who can help you go through all of this,” says Pollitz.

The subsidy is technically an advance premium tax credit. “You can choose to have the federal government pay the insurance company the credit on your behalf to lower your monthly premium or claim the credit when you file your taxes,” says Sara Collins, vice president of health care coverage and access for the Commonwealth Fund.

The subsidy is immediately applied to your premiums when your coverage starts, based on the income estimate you provided when you applied for coverage on the marketplace.

When you file your 2020 income tax return in the spring, you’ll have to compare your actual income for the year with the amount you estimated when you applied for coverage. If you end up earning more than expected by the end of the year, you may have to pay back s
ome of the subsidy when you file your tax return. If you end up earning less than expected, you may qualify for a larger subsidy than you received and could claim the extra portion of the credit when you file your tax return.

The subsidy is based on your modified adjusted gross income, which is your AGI plus any untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest. See the Modified Adjusted Gross Income page on HealthCare.gov for more information about the income that is used to calculate your subsidy.

If you’re getting close to the 400% of the federal poverty level cut-off to qualify for the subsidy, think about things you can do to lower your income for the year, such as making tax-deductible contributions to a health savings account or a 401(k).

Also, if your income changes during the year, you can go back to the marketplace and update your income, which could change the size of your subsidy right away.

If your income is less than 250% of the federal poverty level, you can qualify for an additional subsidy to help pay out-of-pocket expenses, which can reduce your deductibles, copayments and the out-of-pocket maximum for the policy. “The dollar value of these subsidies will vary based on where your income falls in the qualifying range, and also on the plans available in your area,” says Anthony Lopez, vice president of operations for eHealth.com, which sells individual health insurance policies and can help enroll qualifying people in subsidy-eligible policies in states served by HealthCare.gov and California. “When you apply for the premium subsidies while shopping for coverage, these cost-sharing reduction subsidies are automatically applied, too, if you qualify based on your income.”

One caveat: You can only get a cost-sharing subsidy if you buy a silver-level plan. If your income is below 250% of the federal poverty level, don’t just look at bronze-level policies, which can have the lowest premiums but may also have very high deductibles. Also consider the after-subsidy premiums and cost-sharing for the silver policies, too. “Marketplace deductibles are seriously high, but if you can qualify for these cost-sharing subsidies, you can knock down the deductible to maybe a few hundred dollars a year,” says Pollitz.

You have up to 60 days after losing employer-based coverage to sign up for individual coverage on your state’s marketplace or HealthCare.gov. Otherwise, you usually have to wait until open enrollment in the fall, which generally runs from Nov. 1 to Dec. 15 for coverage to begin on Jan. 1.

Because of the coronavirus, several states temporarily reopened enrollment for all residents, even if they didn’t already have coverage through their employer. Those special-enrollment periods ended in April and May in several states but are still open in a few states: Maryland, New York and Vermont (as well as the District of Columbia) have a special enrollment period until June 15; Massachusetts is open until June 23; California is open through June 30. For more information, see the Commonwealth Fund’s COVID-19 special coverage map (click on “special enrollment period” in the dropdown menu).

You can qualify for a subsidy if your income is from 100% to 400% of the federal poverty level. If you earn less than that, you can usually get Medicaid coverage in the 36 states that have expanded coverage to low-income adults (you’ll be able to get Medicaid if your income is up to 138% of the federal poverty level in those states). Your state marketplace should show you whether you’re eligible for Medicaid or a subsidy when you enter your income information (or you can enroll in Medicaid at your state Medicaid office). You can enroll in Medicaid any time your monthly income qualifies; there’s no open enrollment or special enrollment period.

The income calculation for Medicaid is different than it is for the subsidy. Medicaid eligibility is based on your monthly income, not your annual income, so you could qualify for Medicaid even if you earned a lot in the first few months of the year and then lost your job. Also, the Medicaid calculation doesn’t include the extra $600 per week in federal pandemic unemployment benefits, while the subsidy calculation does include that income (both Medicaid and marketplace subsidies count regular state unemployment benefits in the income calculation, however).

If you earn less than 100% of the federal poverty level and you live in one of the 14 states that didn’t expand Medicaid coverage, then you may fall in a coverage gap. In most of those states, the income limits for adults are much lower. If you have children, however, they may qualify for coverage through the Children’s Health Insurance Program, or CHIP.