State Subsidies: Two Flexible Paths for Expanding Affordability

Rising health care costs, combined with the end of enhanced Affordable Care Act (ACA) subsidies last year, have prompted many states to explore strategies for improving coverage affordability for their residents. One increasingly effective approach is state-funded premium subsidies. When layered on top of federal financial assistance, state subsidies can help close affordability gaps, smooth abrupt changes in assistance as income rises, and extend support to populations not fully served under federal rules.

The GetInsured platform provides two primary subsidy models for our state-based marketplaces: a gradual curve model and a flat model. Each offers distinct policy advantages, as outlined below.

1. The APTC-Like Gradual Curve Model

This approach mirrors the federal Advance Premium Tax Credit (APTC) methodology. States define a maximum household contribution curve, and the subsidy is calculated by comparing a household’s expected contribution (based on income) to the gross premium. The state covers the difference up to the defined contribution threshold.

This model allows states to:

• Define contribution percentages across income bands.
• Smooth transitions at key federal poverty level (FPL) thresholds.
• Extend subsidies below 100% FPL or above 400% FPL.
• Adjust the contribution curve annually based on legislative changes or available funding.

Because it follows APTC methodology, the gradual curve model integrates cleanly into existing eligibility, renewal, redetermination, and enrollment processes. It is particularly well-suited for states seeking precision, income-based targeting, and long-term policy flexibility.

Gradual Curve Example: The Smith Family

• Household: 2 adults, 2 children
• Income: $40,000/year (~180% FPL)
• Health insurance premium: $800/month

How It Works:

• The state sets a target maximum contribution based on income (e.g., 10% of income, which for the Smiths = $4,000/year or ~$333/month).
• The subsidy is calculated to bring the premium down to that target.
• $800 – $333 = $467/month state subsidy
• If the Smiths earn slightly more (e.g., $45,000/year), their expected contribution rises slightly, and the subsidy decreases gradually, avoiding a sudden loss of assistance.

Outcome: The Smiths’ monthly cost adjusts smoothly with income, preventing abrupt drops in support.

2. The Flat Subsidy Model

The flat model is simpler and highly predictable for both states and consumers. States set fixed dollar amounts based on income as a percentage of FPL and household size. The per-member amount is multiplied across eligible household members, following standard dependent caps consistent with federal APTC rules.

This approach provides predictability and easy-to-communicate support levels, offers administrative simplicity, and aligns with existing eligibility and enrollment workflows.

Flat Model Example: The Suarez Family

• Household: 2 adults, 2 kids
• Income: $40,000/year
• Health insurance premium: $800/month

How It Works:

• The state sets a fixed dollar subsidy per household member (e.g., $100/adult, $75/child).
• Total subsidy for the Suarezes = (2 × $100) + (2 × $75) = $350/month
• Suarez family contribution: $800 – $350 = $450/month
• If the family’s income changes slightly, the flat subsidy remains the same until the household moves into a new income bracket.

Outcome: Families receive predictable support that is simple to understand and straightforward to administer.

Operational and Policy Considerations

For both models, guardrails are in place to ensure fiscal integrity and system consistency.

• Federal APTC is applied first. State subsidies are layered on top, and the combined amount cannot exceed the gross premium.
• Distribution follows APTC rules. Subsidies are allocated proportionally across household members, including in cases where some members enroll separately.
• Subsidies do not apply to dental plans.
• Eligibility can be extended. States may align eligibility with federal rules or expand support to households at or below 100% FPL, at or above 400% FPL, or lawfully present non-citizens not eligible for federal APTC. These policy choices are configurable in the GetInsured system and can be turned on or off in alignment with legislative approval or funding.
• System integration promotes transparency. Subsidy amounts are incorporated throughout the marketplace ecosystem – including plan shopping displays, enrollment records, issuer communications (such as 834 EDI transactions), reconciliation processes, notices, and reporting – supporting transparency and operational continuity.
• Redetermination is aligned. Changes in income or household composition trigger recalculation of federal and state subsidies simultaneously.

Choosing the Right Model

The decision between the gradual curve and flat subsidy models ultimately reflects state policy priorities. States seeking granular control over affordability thresholds and income-based equity may prefer the APTC-like gradual curve. States prioritizing simplicity, predictability, and ease of administration may favor a flat model.

Both approaches allow states to expand coverage affordability strategically while maintaining alignment with federal subsidy frameworks and existing marketplace operations.

We compiled some resources for states looking to transition to an SBM – you can find those resources here or reach out to chat with one of our consultants.