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Obamacare’s “Wedding Tax” and the Perks of Cohabitation October 7, 2013

Posted by QUOTEBROKER in ACA, Affordable Health Insurance, California Health Insurance, Health Care Reform, Health Insurance, Individual Health Insurance, Insurance, Insurance Quotes, Obamacare.
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Wedding days are typically one of the happiest days of a couple’s new life together, and also one of the costliest.  Under the Affordable Care Act, they are about to get a whole lot costlier. While millions of families will benefit from Obamacare’s Premium Subsidy program, a little-publicized feature of the law will adversely affect married couples.  How could a government program to hand out health insurance premium assistance be a negative? The devil is in the details- specifically the mathematics of how eligibility for the premium assistance is calculated.

Under the terms of the Affordable Care Act, individuals earning under 400% of the Federal Poverty Line- $45,960 in 2013- will be eligible to receive “Advanced Premium Tax Credits,” which is just a fancy name for government money to help pay your monthly health insurance bill.  Unfortunately for those who are married, that same Federal Poverty Line guideline sets a threshold of $62,040 in combined income for the couple.

Because of the way these figures are calculated, Obamacare actually creates a disincentive to marry or remain married, a so-called “Wedding Tax.”  Unmarried cohabitating couples are given preferential treatment under the law. Let’s look at an example of a 50 year old couple without children living in Santa Clarita, with a combined income of $50,000 per year:

Combined Income Net Premium if Married Separate Incomes Combined Net Premium If Cohabitating Benefit of Cohabitation over Marriage
$50,000 $4,752 $25,000 x 2 $3,456 $1,296

*all data via CoveredCA.com, assuming “Silver” level coverage.

The married couple actually pays an additional $108 a month, or $1,296 per year than the cohabitating couple, despite both couples receiving subsidies and both couples enrolling in identical coverage.   Now let’s take a look at what happens when the couples’ income exceeds the subsidy threshold of $62,040 by even a single dollar.

Combined Income Net Premium if Married Separate Incomes Combined Net Premium If Cohabitating Benefit of Cohabitation over Marriage
$62,041 $8,772 2 x $31,020 $5,352 $3,420

*all data via CoveredCA.com, assuming “Silver” level coverage.

Once a couple’s income breaches the threshold, the difference in premium becomes much more apparent.  In this case, the married couple pays an additional $3,420 per year for identical coverage.   One way they can attempt to solve the issue is to earn a few thousand dollars less per year, mitigating the five-figure premium difference.  There are two issues with this strategy- first, encouraging workers to work less is not good for our economy and second, if either spouse’s income is difficult to keep track of precisely they could accidentally breach the threshold despite their best efforts not to, negating the strategy.  Another way to attempt to solve the issue is to use a tax-deferred vehicle like an IRA or H.S.A to reduce the couple’s income “on paper” and keep them under the subsidy line.  While this stratrgy (under the supervision of a good accountant) may work to reduce the effects of the law on the married couple, it will do nothing to change the fact that the gap with unmarried cohabitating couples still exists.  Under the Affordable Care Act, your matrimonial “I dos” turn quickly into “I dues.”

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