Q. I am on Medicare and Social Security, my wife recently became self-employed and needs health insurance from the state exchange, as she’s not yet old enough to qualify for Medicare. How do we figure our household income? Does my social security count toward household income, even though I will not be buying insurance?
A. For the purpose of determining subsidy eligibility, the IRS and the health insurance exchanges use an ACA-specific version of modified adjusted gross income (MAGI). MAGI is based on household income, even if only one spouse is applying for a policy in the exchange.
Keep in mind that subsidy eligibility is a function of income related to the poverty level. Although your total household income is obviously higher than your wife’s income alone, the poverty level for a household of two is also higher than the poverty level for a household of one. So while your income is counted when determining whether she’ll qualify for a subsidy, you’re also counted as part of the household when determining how the household’s income compares with the poverty level.
Are there income limits for ACA subsidy eligibility?
Normally, subsidy eligibility only extends to households with income up to 400% of the poverty level, with no subsidies available for households with income above that point. But for 2021 and 2022, the American Rescue Plan has eliminated that income threshold. Subsidies are available for households with income above 400% of the poverty level if the cost of the benchmark plan (second-lowest-cost silver plan) would otherwise be more than 8.5% of the household’s income.
So technically there is still an income limit for subsidy eligibility, but it varies depending on the applicant’s age and location, since those determine the cost of the benchmark plan. In an area where premiums are higher than average, and if the person is on the higher end of the age range, subsidy eligibility will extend far above 400% of the poverty level. But for a younger person in an area where premiums are fairly inexpensive, subsidy eligibility will stop at much lower income levels.
Will we qualify for a subsidy?
The exchange will look to see what percentage of your total household income is necessary to cover the full-price cost of the benchmark plan for your wife. If it’s more than the percentage of income that people are expected to pay for their coverage, she’ll qualify for a premium subsidy. But the amount that you pay for your Medicare coverage will not be counted; they will only look at how much your wife’s policy costs in relation to your total household income. Here are some examples of how differing family sizes affect total subsidy amounts, as it can sometimes be a bit counter-intuitive.
In order to qualify for a subsidy, married applicants must file joint tax returns. If your wife experienced a qualifying event (for example, losing her employer-sponsored plan when she became self-employed), she can enroll in the exchange during the special enrollment period triggered by her qualifying event. If not, she’ll have access to individual market plans when open enrollment begins again on November 1 (note that due to COVID, there is significant flexibility on this in 2021, with a special enrollment period available in most of the country through at least mid-August and no qualifying event necessary).
Your wife can use your most recently filed tax return to provide income information to the exchange. But if your household income has changed significantly as a result of her recent self-employment, she can instead provide the exchange with an estimated projection of your household income, and then provide updates to the exchange later on if her income changes again.
For any year that she receives advance premium tax credits (subsidies) during the year (or if she pays full price through the exchange but ends up with a household income that makes her subsidy-eligible), she’ll need to use Form 8962 to reconcile her subsidy on your joint tax return.
Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.