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Will I be penalized for getting a subsidy if my employer offers a health plan?

Reader Q+A

My employer offers a health plan, but it's terrible and I can't afford it. My wife doesn't work and we have three kids. My employer pays 100 percent of the cost if I get health insurance but almost nothing towards my family. Can my family and I keep our Marketplace health plan and the subsidy that we are receiving? Will we be penalized?

What a tough situation. This question has come up a lot with the new laws related to health reform. We'll tackle this question in three parts. 

I can't afford my employer's plan. Can I apply for a subsidy? 

The Affordable Care Act states that individuals and families offered 'affordable' group health insurance through their jobs are not eligible for subsidies. As it turns out, the definition of affordable isn't based on personal opinion. 

An affordable group health plan, according to the ACA, means that the cost of coverage cannot be more than 9.5 percent of an employee's household income. However, affordability is only measured with respect to how much the employee-only coverage costs, according to Kaiser Health. This can prove problematic when an employer doesn't contribute much to dependent coverage. 

For someone like you with dependents, the group health plan offered by your employer puts you in a less than ideal situation. Basically, your employer is keeping you and your family from receiving a subsidy, even though they are trying to give you a benefit. 

It is worth noting that if the cost to cover your dependents (spouse and children) on the lowest cost Marketplace plan is more than 8 percent of your household income, your spouse and children won't be penalized for not having health insurance. You, however, need to purchase the health plan through your employer to avoid a penalty on your taxes. 

Can I shop for a Marketplace plan?

You can always shop for a Marketplace plan regardless of your employer's health benefits. The only catch is you won't be eligible for a subsidy to help pay for the health plan if your employer offers an affordable health plan that meets the requirements

Will I be penalized for getting a subsidy when my employer offers benefits?

The answer is a little grey because the IRS hasn't been clear on how it will handle this situation. Additionally, this is the first year that the IRS has needed to tackle what to do when people receive subsidies when their employers offer qualified health plans. Most likely, you will have to pay back some, if not all, of the subsidy amount you received on your taxes. 

You will only be responsible for the subsidy amount you received while being offered benefits from an employer with a qualified group health plan. So, if there was a 90-day waiting period for health insurance or if you didn't get the job until later in the year, you won't have to pay back the subsidy you received during those months when employer coverage wasn’t an option. 

The details will be clearer on these situations once we undergo tax season in April 2015. Don’t hesitate to leave additional questions in the comments below. 

Health insurance can be confusing and there is a lot of conflicting information available. Our mission is to be your most trusted advisor when you navigate these difficult scenarios. We'd love to answer your questions, so please leave a question in the comments below or email us at marketing@bernardhealth.com

We look forward to hearing from you! And as our teachers told us, there are no stupid questions.

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