Marriage Penalty Under Obamacare Premium Subsidy

Wedded Hands

If you are not married yet, and you plan to qualify for the premium subsidy under Obamacare, think twice before you tie the knot.

Marriage gets in the way of getting affordable health care in several ways.

Employer Coverage

If you don’t have health insurance and you marry someone who does, chances are you won’t qualify for the tax credit to buy health insurance any more.

Most employers offer coverage to an employee’s spouse but they don’t subsidize dependents or they subsidize dependents much less than they subsidize employees. At my employer, an employee’s cost to cover the employee plus spouse is not just 2x the cost to cover only the employee. It’s 3.2x. In other words the coverage for spouse costs more than double the coverage for the employee him- or herself.

Although covering a spouse through an employer can be expensive, the spouse won’t be eligible for the premium subsidy because the spouse has access to an employer coverage and the employee-only coverage is still affordable. This is Box B in the flowchart posted by Professor Austin Frakt at The Incidental Economist.

Afford One Policy With Two Incomes

Now suppose you are thinking of marrying someone who’s on Medicare but you are not. Medicare is an individual thing. If you are not 65 yet, you don’t qualify for Medicare just because you marry someone who does. You still have to buy your own policy.

Remember the subsidy, called the Premium Tax Credit, is calculated as the difference between the cost of the second least expensive Silver plan and a percentage of your income.

Subsidy = Cost – Income * x%

If you don’t marry, the subsidy is calculated from your own income. If you marry, it will be calculated from your two incomes combined, even if you are buying only one policy.

The cost of the second least expensive Silver plan for one person doesn’t change. Your affordability as measured by a percentage of your combined income goes up. Chances are you will no longer qualify for the subsidy when you marry. If you still qualify, the subsidy will be much less.

Afford Two Policies With Two Incomes

If you have a low income and you marry someone who has a higher income, your combined income may be over the 400% FPL cutoff. You lose the subsidy. That’s intended because we expect the higher-earning spouse to subsidize the lower-earning spouse.

Except even when the two of you each qualifies for a subsidy on your own, both of you may lose the subsidy when you marry. That’s because the subsidy’s cutoff point for two people isn’t twice as much as the cutoff point for one. The FPL for two is only 1.35x for one. When you put two incomes together, you can fall off the cliff together.

For instance suppose two of you have a MAGI of $35k each. If you don’t marry, both of you qualify for the subsidy. After you marry, neither of you will qualify for the subsidy.

Meanwhile the insurance company doesn’t care whether you are single or married. The cost to cover two people is simply the sum of the cost to cover each person.

Lower Subsidy

Even if you manage to stay on the cliff, you will still receive a lower subsidy when you marry, due to the fact that the FPL for two is much less than twice the FPL for one.

This chart shows the subsidies two people with the same income will receive when they marry versus when they stay as two singles. It’s based on quotes I see in my area for my age group.

You see two singles receive more subsidies than a married couple at all income levels. Two singles each with $20k in MAGI will receive $7,900 in subsidies between the two of them. If they marry, as a couple with $40k in MAGI, they only receive $6,700.

After the married couple drops off the cliff at ~$62k in combined income, two singles continue to receive subsidies until their income reaches $45k each for a total of $90k combined.

Married Filing Separately?

If you are thinking a simple trick of doing married filing separately will fix all these, no dice.

The law says if you file as married filing separately, you will not be eligible for any premium subsidy at all, regardless of income. Only domestic abuse, abandonment, or other special circumstances (pending divorce?) may be exempted from the requirement to file a joint return in order to qualify for the premium subsidy.

Reference

TD 9590, IRS

[Photo credit: Flickr user adamjonfuller]

See All Your Accounts In One Place

Track your net worth, asset allocation, and portfolio performance with free financial tools from Personal Capital.

Comments

  1. Rebecca @ Stapler Confessions says

    Good to know, thanks! We tied the knot 5 years ago, but we were thinking of going to the exchange for health insurance because it costs less than my husband’s employer’s plan (I was laid off, so I can’t get coverage through an employer). For some reason, I thought we could qualify for a subsidy, but I think I was using the single income x 2 formula in my head :(

  2. David C says

    There are multiple factors as to why covering a spouse typically costs more than just 2x the cost of the employee, of which lower employer subsidies are just one factor. For one thing, business have found that spouses (which are typically women) tend to have higher health costs that in turn require higher premiums from the employer and employee (http://www.forbes.com/sites/nextavenue/2013/04/25/employers-penalizing-spouses-for-health-insurance/).

    I am sure the higher spouse premium also historically existed as a nudge to encourage spouses that can get insurance elsewhere to do so. Of course now many companies are adding an additional explicit surcharge (or rarely denying coverage like UPS) to reinforce that message.

  3. Jackie says

    My small company provides me insurance & pays all the premium, & also offers spouse insurance for $675/month, which I have to pay. Because my employee only premium is affordable, my spouse is unable shop on The Exchange & get any type of subsidy – even though our income is below the $62,040 threshold for 2. If company cancelled all our insurance, we could both be insured through The Exchange, with subsidy, for around $500/month – or 9.5% of our total family income. That is less than we are paying now just for spouse coverage at work. Why would I want my company to provide me with insurance? But if it is offered, I have to take. How can this possibly be fair? Also, since my husband is over 30, he can’t opt for catastrophic insurance.

    • Jerry says

      My wife and I are in EXACTLY the same situation! Because it is “affordable” for me, it is considered “affordable” for her. THIS, EVEN THOUGH THE PREMIUM FOR “FAMILY” COVERAGE GOES UP TO 30% OF OUR MONTHLY INCOME!! This particular is getting almost NO ATTENTION IN THE PRESS! And there must be thousands of couples in the same situation.

  4. Harvey says

    one amplification might be in order here, relating to eligibility for a subsidy in a married setting. if the employer of partner #1 offers a plan that is affordable and has “minimum value” benefits, partner #1 would not be eligible for a subsidy, should he or she decide not to join the employer’s plan but instead bought a plan through the marketplace. BUT — for the spouse of partner #1, assuming partner #1 is in the employer’s plan but if that employer’s plan DOES NOT OFFER benefits to spouses, THEN the spouse (only) would POSSIBLY qualify for a subsidy through the marketplace. other eligibility standards exist for this to happen, primarily income qualification.

    having “access to” an employer plan does not mean simply that an employer plan exists. it must also be offered.

    best source on these things day in and day out is a good licensed agent who is qualified by the federal government to work with the marketplace. go to NAHU’s agent-finder.org and you can search by zip code for these agents.

Leave a Reply

Your email address will not be published. Required fields are marked *