What You Need to Know: How Cost Basis Impacts ACA Health Insurance Premiums

Understanding Cost Basis and Its Influence on ACA Health Insurance Premiums

The Affordable Care Act (ACA) established health insurance subsidies to make coverage more affordable for low- to moderate-income individuals. These subsidies are based on your Modified Adjusted Gross Income (MAGI), which is your income after certain deductions and adjustments.

In the case of a retiree, your cost basis may significantly impact your MAGI and, subsequently, your ACA health insurance premium. Cost basis is the original purchase price of an asset. When you sell an asset, such as a stock or real estate, the difference between the sale price and the cost basis determines your capital gain or loss.

How Cost Basis Affects Your MAGI

When you withdraw funds from a taxable investment account, like a brokerage account, only a portion of the withdrawal is counted towards your MAGI. The rest is considered a return of your cost basis and is not taxed.

For example, if you withdraw $10,000 from a brokerage account and $6,000 of that is a return of your cost basis, your MAGI will be $4,000.

Implications for ACA Health Insurance

A lower MAGI can qualify you for larger ACA subsidies, reducing your monthly health insurance premiums. If you have a substantial cost basis in your investments, you may be able to effectively reduce your MAGI, thereby increasing your subsidy eligibility.

Additional Considerations

Withdrawals from Traditional IRAs/401(k)s are taxed as ordinary income. This can increase your MAGI and reduce your ACA subsidy eligibility.
State Medicaid Programs: Some states expand Medicaid to cover individuals with MAGIs below certain thresholds. If your MAGI is low enough, you may be eligible for Medicaid coverage, which is typically provided at no or low cost.
Estate Recovery: Certain states have estate recovery programs that may require your estate to repay the cost of Medicaid services you received after you pass away.


Understanding the role of cost basis in ACA health insurance premiums is crucial for retirees planning for their healthcare expenses. By strategizing your withdrawals from taxable accounts, you may be able to lower your MAGI and qualify for more affordable coverage. However, it’s essential to consult with a licensed agent to determine the best approach for your specific situation.

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