What is the formula for calculating the benchmark plan and premium cap for ACA subsidies?
Executive summary
The premium tax credit (PTC) is calculated by comparing the benchmark plan premium (the second‑lowest‑cost Silver plan in a Marketplaces rating area) to a household’s required contribution, which equals household income times an “applicable percentage.” The result — benchmark premium minus required contribution — is the subsidy; under the ARPA/IRA enhancements through 2025 the applicable percentage was capped at 8.5% and in many cases reduced to 0% for low incomes, while pre‑ARPA rules (reverting in 2026 unless Congress acts) used a graduated applicable‑percentage schedule and an income cap at 400% of the federal poverty level (FPL) [1] [2] [3].
1. How the formula works in plain terms — benchmark minus your share
The statute ties the PTC to a benchmark premium: the second‑lowest‑cost Silver plan in your local Marketplace. The household’s “required contribution” equals household income multiplied by an “applicable percentage.” The premium tax credit equals the benchmark premium minus that required contribution — in short, subsidy = benchmark premium − (income × applicable percentage) [1] [2].
2. Which premium is the benchmark and why it matters
The benchmark is defined administratively as the second‑lowest‑cost Silver plan available in the enrollee’s rating area. Because the subsidy is pegged to that single plan, market moves in Silver premiums drive the dollar value of subsidies across all metal levels; when benchmark premiums rise, the dollar subsidy typically rises too [1] [4].
3. The “applicable percentage” is the policy lever
The applicable percentage — the share of income an enrollee must pay toward the benchmark — is set by statute and varies with household income relative to the federal poverty level. Under the ARPA/IRA enhancements in effect through 2025, applicable percentages were lowered and capped (no one pays more than 8.5% of income for the benchmark and some low‑income households paid 0%), producing larger subsidies [3] [1]. If enhancements expire, the applicable percentages revert to pre‑ARP levels that start lower for the poorest and rise to roughly 9–10% for higher incomes, reducing subsidy amounts [2] [3].
4. Eligibility rules: income bands and the “subsidy cliff”
Pre‑ARP law included an upper eligibility limit: households above 400% of FPL generally were ineligible for PTCs. ARPA removed that cap through 2025, effectively making the subsidy available beyond 400% of FPL if premiums would otherwise exceed the applicable percentage threshold. If the enhanced rules are allowed to sunset, the 400% cap would return and many higher‑income households would lose eligibility [5] [3] [6].
5. Practical examples and the effect of market changes
Under ARPA rules a household at 150% FPL could face a $0 required contribution for the benchmark plan (benchmark − 0 = full premium covered). Under pre‑ARP rules the same household would have paid about 4% of income toward the benchmark and received a smaller credit covering the remainder. Because the subsidy equals benchmark minus the household share, increases in benchmark premiums raise the nominal subsidy even while leaving the household share determined by the statutory applicable percentage [3] [1].
6. Where debate and politics change the math
Analysts note political choices drive both the applicable percentage schedule and eligibility cutoffs. Congressional extensions or new proposals (for example, proposals to cap eligibility at some multiple of FPL) would change who qualifies and how big credits are. Recent reporting shows proposals and negotiations in late 2025 debating extensions or caps such as 700% of FPL; until lawmakers act, 2026 calculations could revert to the pre‑ARP formula [7] [8].
7. Limits of available reporting and what’s not said
Available sources describe the statutory formula and how ARPA/IRA changed applicable percentages and eligibility through 2025, but they do not provide a single numeric table of every applicable percentage by income band within this set of results. For precise year‑by‑year percentage values or an applicant‑level numeric calculator, consult IRS guidance or a Marketplace calculator; those specifics are not reproduced verbatim in the current reporting excerpts [2] [1].
8. Bottom line for consumers and policymakers
The PTC is mechanically simple: pick the benchmark Silver premium, subtract the household’s statutorily determined share of income. The political choice — what the applicable percentage schedule is and who qualifies — determines whether that subtraction leaves a big credit or a small one. Sources show the ARPA/IRA enhancements made credits larger and removed the 400% FPL cliff through 2025; if enhancements lapse, credits shrink and the cliff returns [3] [5] [6].