The exchange will determine what percentage of your total household income is necessary to cover the full-price cost of the ACA benchmark plan for your spouse. | Image: StockImageFactory / stock.adobe.com
Q: I am on Medicare and Social Security, my wife recently became self-employed and needs 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, here’s the formula that’s used to calculate 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.
What are the income limits for ACA subsidy eligibility?
For 2020 coverage, the upper income limit for a household of one to receive subsidies is $49,960. (Here’s how household income is calculated under the ACA.) For a household of two, it’s $67,640.
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.
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.