Using Health Insurance Subsidies

As Seen in the Fort Bend Independent

Most individuals and families know about the new healthcare exchange that was created by the Affordable Care Act (ACA). However, most don’t realize that a premium tax credit, aka “subsidy,” to help pay for their health insurance premiums is available to many, and in particular, to those who are retired but not yet eligible for Medicare.

The health insurance subsidies are a premium tax credit, which is designed to help pay your monthly health insurance premiums. In order to be eligible, you must apply for the premium tax credit on www.healthcare.gov.

In general, those earning between 100 and 400 percent of the federal poverty level can qualify for the premium tax credit health insurance subsidy. Even if you are employed and have access to health insurance, you may qualify if your employer doesn’t offer you what is considered affordable health insurance, meaning that the plan must pay for at least 60 percent of covered benefits, or that the premiums cannot exceed more than 9.66 percent of your annual household income.

It’s important to note that qualifying for a subsidy is solely based on income, not available assets. If you qualify, you can choose to receive the subsidy as a reduction on your monthly health insurance premiums or as a lump sum tax credit.

For example, if both spouses retire at age 60, they will need health insurance to bridge the gap until they are eligible for Medicare. Depending on the makeup of their investment portfolio, their income can be structured to fund their living expenses and keep them between 100 and 400 percent of the federal poverty level, which could then qualify them for a health insurance subsidy. Assuming this couple has $40,000 of taxable income, they would qualify for approximately a $11,950 premium tax credit in 2016, which would save them around $996 per month for a “silver” health insurance plan. This is a substantial cost reduction that you should not overlook if you are in a similar situation.

This strategy works well for those who retire early and have after-tax accounts from which they can take withdrawals to fund their living expenses until turning age 65. Taking withdrawals from after-tax funds can keep their taxable income low enough to potentially qualify for the health insurance subsidies, especially since most will not yet be receiving Social Security income. If you have only IRA and/or 401(k) assets, it will be more difficult to qualify as IRA and 401(k) income is fully taxable and this income will likely be needed to fund your living expenses.

If you are considering retirement before age 65 or have retired early, please feel free to reach out to us so we can evaluate your potential opportunities for receiving health insurance subsidies.

WJ Interests, LLC, has provided fee-only financial advice to individuals, families and businesses since 1996. For more information, please contact us at wj@wjwealth.com or 281-634-9400.

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