It is now more important than ever to understand your investment income and what role it will play in your health insurance premiums. Your current income and investments play a key role in what you’ll pay for health coverage in 2015. You might save on insurance premiums if you take time to investigate available tax incentives and possibly adjust your taxable investment income accounts.
November 15 marks the open enrollment period for receiving healthcare benefits through the healthcare.gov insurance exchange. Enrollment will end December 31, 2014 for coverage beginning January 1, 2015. After December 31, the only way to sign up for health insurance through the exchange is by qualifying for a Special Enrollment Period (SEP), such as change in job. Terminating COBRA coverage is not a SEP, which means that if you are on COBRA you will have to wait until open enrollment to change insurance plans.
Here are a couple ways you might be able to save on health insurance premiums going into 2015.
Investigate the Advance Premium Tax Credit (APTC)
If you are searching for insurance, you could be eligible for an Advance Premium Tax Credit (APTC). This credit will lower your monthly premiums in advance. You must purchase insurance through the exchange in order to obtain the credit. Eligibility depends on your household size and your income. Income is calculated as modified adjusted gross income (MAGI), which is your adjusted gross income on your tax return plus tax exempt municipal bond interest and any untaxed Social Security income. For a household of one your MAGI needs to be between $11,670 and $46,680 or between $15,730 to $62,920 for a family of two to receive the credit. The J. Henry Kaiser Foundation has a useful calculator to determine the cost of a Silver plan after any subsidy at www.kff.org/calculator .
If your income is below your respective MAGI, you might consider adding income by doing Roth conversions, IRA distributions, or taking capital gains to increase income above the minimum MAGI level. If your income falls below the MAGI level, you will qualify for Medicaid in states that expanded their coverage. In states that did not expand their Medicaid program, such as Pennsylvania, APTC is not available, so the full health care insurance premium will apply.
If your actual income differs from projected income, you will need to file IRS Form 8962 to reconcile the advance credit. This may result in having to pay back the credit or increase future premiums. In this case, you might want to consider paying the full premium and then receive a full tax credit on your next tax return.
Take a Closer Look at Your Social Security and Pension Benefits
For those close to age 65, it might be a good idea to consider when to activate pensions and Social Security income in terms of how these decisions will affect your overall health insurance costs. Consider exchange traded mutual funds (ETFs) or tax efficient investments in your taxable accounts. Higher-paying large cap stocks and fixed income investments could be inside IRAs and retirement accounts shielding their income from your tax return.