Is Social Security Considered Income When Purchasing a Health Insurance Plan?
Just the Essentials...
- Social Security payments are considered a source of income for determining eligibility for subsidies that can reduce the cost of the premium of a Marketplace health insurance plan.
- Social Security Disability Income (SSDI) counts as income toward Marketplace-adjusted individual or family income.
- Supplemental Security Income (SSI) does not count as income when computing the cost of a Marketplace health insurance plan.
- Affordable Care Act (ACA) Marketplace counts income from all family members, with a few exceptions for those who are not required to file a tax return.
How does Social Security Income work when it comes to health insurance plans?
If you receive payments of any type from the Social Security program and you’re looking to purchase health insurance, one question is likely on your mind at this very moment. “Is Social Security considered income when purchasing a health insurance plan?”
Health insurance providers do consider your Social Security payments as income when calculating the cost of premiums and subsidies toward a health insurance plan. Whether you’re looking at a Marketplace plan or you wish to enroll in Medicare Part B, whatever amount you earn as part of your income through Social Security will play a role in determining how much you pay for health insurance each month.
Let’s dig a little deeper to see how what income you receive via Social Security can affect how much you pay for health insurance.
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What is Modified Adjusted Gross Income (MAGI)?
To determine whether or not you’re eligible to receive subsidies that can reduce your monthly health insurance premium, the Marketplace takes into consideration your Modified Adjusted Gross Income, or MAGI. MAGI will play the biggest role in determining how much you’ll pay for health insurance.
The types of income that count toward your MAGI include:
- Social Security
- Social Security Disability Income (SSDI)
- Retirement or pension
- Self-employment income
- Unemployment compensation
- Federal Taxable Wages (if you are currently employed)
One thing to keep in mind about MAGI is that the number factored isn’t reliant on your income alone. Your MAGI includes anyone in your household, including a spouse or significant other and any tax dependents, even if they don’t need health insurance coverage.
If you, or anyone else in your household, expects other types of income and you’re curious as to whether or not they count toward your MAGI, it’s always a good idea to consult IRS standards as they relate to what counts as income.
Why Do Social Security and SSDI Count as MAGI?
There are some who mislabel Social Security income benefits as entitlements. The Social Security program is designed as a “safety net” to provide you with an income when you are of retirement age.
Social Security Disability Insurance (SSDI) is a similar type of benefit that is designed to provide you with an income should you no longer be able to work due to disability. Both are paid via payroll taxes, with the funds being deposited into a trust where they’ll be made available to you when you need them.
Because Social Security and SSDI benefits are considered income, they factor into your MAGI. Even if they aren’t major sources of income for you, these sources will still be used to determine whether or not you qualify for subsidies that can reduce your health insurance premium.
Supplemental Security Income (SSI) Does Not Count Toward MAGI
To relieve the financial burden on those who are aged (65 years or older), blind, or disabled, the government provides financial benefit through Supplemental Security Income, or SSI. The SSI program, unlike Social Security or SSDI, is not funded through money taken via payroll tax. Instead, funds for SSI come from the General Treasury.
Due to its nature, SSI income is not considered taxable income by the IRS. As SSI income is not taxable, it is not considered a part of Adjustable Gross Income (AGI) or MAGI, and therefore cannot be considered when you’re seeking subsidies to lower your health insurance premiums.
How might Social Security payments affect the way you receive Medicare?
It wouldn’t be accurate to state that Medicare comes completely at no cost. While you may receive Part A coverage for free, you’ll be required to pay a yearly premium for Part B. Your premium, also known as an income-related monthly adjustment amount (IRMAA), for Part B is calculated based on your income. Medicare Part D: Prescription Drug Coverage is priced based on where your income falls on the IRMAA scale as well.
Just as they have an effect on how much you qualify for in subsidies to lower premium costs on ACA health insurance plans, Social Security payments as a part of your income will factor into how much of a monthly premium you pay for Medicare Parts B and D as well. Generally, the lower your monthly income, the lower your premiums will be.
Social Security and the ACA Marketplace are Working Together to Make Things Easier for You
If you worry that drawing Social Security payments or SSDI payments will ruin your chance at getting an affordable health insurance plan, don’t be. ACA reforms may limit Marketplace participation for some with higher incomes, but they have made it easier for millions with low-to-moderate income levels to find a quality health insurance plan.
Remember - one of the best ways to find a health insurance plan that works for you is to comparison shop! Use our FREE tool to find affordable health insurance plans in your state.