Signing Up for Health Insurance Outside of Open Enrollment

I’m planning to retire later this year, after I turn 62, and I won’t have retiree health insurance. Can I sign up for coverage on my state’s exchange, even though it will be after the open-enrollment deadline? Also, my income will be much lower after I stop working. Can I qualify for a subsidy?

You can buy health insurance from your state’s exchange outside of open enrollment if you lose your employer health coverage. You can also buy coverage if you have a baby, move to a new area, or experience one of a few other life changes. See the special enrollment period fact sheet at Healthcare.gov for more information. Go to www.healthcare.gov for a link to your state’s exchange.

If your income drops after you retire, you may qualify for a subsidy. To get a subsidy to help with premiums, your income must be between 100% and 400% of the federal poverty level (up to about $46,000 for singles and $62,000 for couples). If you earn less than 250% of the federal poverty level, you could also qualify for an extra subsidy to help with your deductibles and co-payments, but that cost-sharing subsidy applies only if you buy a silver plan on the exchange. See How to Qualify for a Government Health Insurance Subsidy for more information about how the subsidy is calculated. Also see this table from Families USA for the specific income cut-offs based on family size.

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The subsidy is based on your full year’s income, so the calculation will include the amount you earned both before and after you retire. If you earned a lot before retirement, you may not qualify for the subsidy even if your income drops in the last few months of the year.

You can buy insurance on the exchange even if you are eligible to continue your employer’s health insurance through COBRA, the law that requires employers with 20 or more employees to let you continue coverage after you leave your job. With COBRA, you keep the same coverage and provider networks you had while you were working, but you have to pay the full cost yourself.

Insurance on the exchange may be a lot less expensive than COBRA, especially if you qualify for a subsidy to help reduce the premiums. You won’t qualify for a subsidy if you keep your coverage through COBRA; you can get a subsidy only if you buy insurance through your state’s exchange.

You’ll need to estimate your income for the full year when you apply for coverage on the exchange, and you can apply the subsidy immediately to help reduce your premiums. If you earn less than you estimated, you could end up getting back some money when you file your 2014 taxes next year. But if you earn more than you estimated, you may have to pay back money when you file your taxes. You can contact your state’s exchange during the year to adjust the numbers if your income changes. For more information, see the IRS fact sheet about the premium tax credit.

The modified adjusted gross income used in the subsidy calculation is based on the bottom line of the first page of your Form 1040, plus any tax-exempt interest, nontaxable Social Security benefits and some other items. Taxable withdrawals from traditional IRAs, 401(k)s and other retirement plans count toward calculating your MAGI; Roth withdrawals don’t.

If you’re close to the cut-off, consider adding more money to your employer’s 401(k) or other pretax retirement-savings plan (up to the maximum contribution limit, which is $23,000 in 2014 if you’re 50 or older) while you’re still working over the next few months. Selling losing investments, qualifying for extra tax credits, reducing self-employment income (such as by buying business equipment), and contributing to a self-employed retirement-savings plan if you have any freelance income can also help reduce your modified AGI. (Converting a traditional IRA or 401(k) to a Roth would boost your modified AGI.)

If you have a high-deductible health insurance policy, you can also reduce your MAGI by making tax-deductible contributions to a health savings account, says Carrie McLean, of eHealthInsurance.com. To be HSA-eligible, the policy must have a deductible of at least $1,250 for individual coverage or $2,500 for family coverage, as well as meet a few other requirements. See Contributing to a Health Savings Account in 2014 for more information.