What counts as "income" for PPACA subsidies?

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What counts as "income" for PPACA subsidies?

Postby freebeer » Sun Feb 03, 2013 11:12 pm

Apparently there is a substantial "cliff" for subsidies provided for starting next year as part of PPACA (Obamacare) health insurance exchanges. Below 400% of the poverty rate (~$46K for individual, ~$94K for family of 4) premiums of "silver" level plans are capped at 9.5% of income. The subsidies (or not) could be very material for someone planning retirement spending, particularly for early retirees that aren't yet Medicare eligible. Here is one purported calculator: http://healthreform.kff.org/subsidycalculator.aspx . It shows that for a family of 4 with 53-year-old head of household the cliff increases their insurance premium from $8,901 to over twice that at the un-subsidized $18,475. Crossing the cliff takes a single person aged 53 from $4,372 to $7,826 in premium.

My question is: what counts as "income" for calculating eligibility for these subsidies? Presumably withdrawals from ordinary 401Ks or IRAs would do, but withdrawals from Roth plans not? How about dividends from tax-exempt muni bonds? Cap gains offset by cap losses? This must be concisely stated somewhere in terms of the various IRS definitions of income but I couldn't google up anything specific.

I could imagine that depending on the answers that a fair bit of "gaming" to end up with an income below the cliff could end up being commonplace to save $3.5K to $9K.

(no political or sky-is-falling comments please - I'm asking a straightforward question about the law as it stands, and don't want to get this thread locked. Thanks in advance.)
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Re: What counts as "income" for PPACA (Obamacare) subsidies?

Postby furwut » Sun Feb 03, 2013 11:23 pm

I'm interested in this too. My impression from very little reading is that the threshold testing applies to taxable income. So yes, early retires with income flexibility could "game" it to gain some premium support.
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Re: What counts as "income" for PPACA (Obamacare) subsidies?

Postby kaneohe » Sun Feb 03, 2013 11:40 pm

This might be a better question than you imagined:
see p.6 here http://www.ncsl.org/documents/health/defincacamedicdprov.pdf

I don't need to know so I'll let you figure it out.
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Re: What counts as "income" for PPACA (Obamacare) subsidies?

Postby freebeer » Mon Feb 04, 2013 12:05 am

kaneohe wrote:This might be a better question than you imagined:
see p.6 here http://www.ncsl.org/documents/health/defincacamedicdprov.pdf

I don't need to know so I'll let you figure it out.


Thanks for the link, so to help answer my own question with this information, I think the answer is "Modified Adjusted Gross Income" ("MAGI") which is defined as follows in the referenced paper:

Specifically, gross income is total income minus certain exclusions (e.g., public assistance payments, employer contributions to health insurance payments). From gross income, adjusted gross income (AGI) is calculated to reflect a number of deductions, including trade and business deductions, losses from sale of property, and alimony payments. MAGI is defined as AGI plus certain foreign earned income and tax-exempt interest.


So this implies that muni bond interest is included, so no gaming things that way. Non-taxable portion of annuity payments would not be included so that would seem to favor SPIAs and other vehicles that throw off majority of early-year returns as return of principal. This would seem to be yet another plus for Roth conversion since you could take an income tax hit in year 1 and then gain subsidies in years 2..N. I believe only net of capital gains counts into gross income definition so that would imply if you have or can create lots of cap loss offsets you could realize current year capital gains without generating net income for subsidy calculation purposes.

But if anyone else has studied this and has additional/different thoughts please chime in, thanks.
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Re: What counts as "income" for PPACA (Obamacare) subsidies?

Postby snowman » Mon Feb 04, 2013 4:49 pm

freebeer,

Correct answer is MAGI. However, there are still details that may affect you but are not finalized yet. For example, if you are self-employed, and do not have access to employer sponsored plan (the group that is supposed to reap the biggest financial benefits of the law), you will be able to buy coverage on your state health exchange website. The issue is that only certain type(s) of plans will be eligible to receive subsidies, and it may not be the best option for you and your family. Also, HOW you can receive the subsidy up front has not been finalized by the IRS (you can always receive corresponding refund, if eligible, when you file your taxes the following year for the previous tax year). Finally, it APPEARS that penalty for not buying the coverage is too low, and so more people than expected may opt out of the system, which will put additional financial pressure on it, causing it to change some rules/thresholds. (Some critics of the law predict low penalties will cause it to die).

In a nutshell, I think it's great that you are starting to plan for a potential tax benefit, but there are just too many unknowns at this point to make any specific financial moves. Hence the reason there are only 2 calculators on the web as far as I am aware of.
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Re: What counts as "income" for PPACA (Obamacare) subsidies?

Postby freebeer » Mon Feb 04, 2013 5:58 pm

snowman wrote:freebeer,

Correct answer is MAGI. However, there are still details that may affect you but are not finalized yet. For example, if you are self-employed, and do not have access to employer sponsored plan (the group that is supposed to reap the biggest financial benefits of the law), you will be able to buy coverage on your state health exchange website. The issue is that only certain type(s) of plans will be eligible to receive subsidies, and it may not be the best option for you and your family. Also, HOW you can receive the subsidy up front has not been finalized by the IRS (you can always receive corresponding refund, if eligible, when you file your taxes the following year for the previous tax year). Finally, it APPEARS that penalty for not buying the coverage is too low, and so more people than expected may opt out of the system, which will put additional financial pressure on it, causing it to change some rules/thresholds. (Some critics of the law predict low penalties will cause it to die).

In a nutshell, I think it's great that you are starting to plan for a potential tax benefit, but there are just too many unknowns at this point to make any specific financial moves. Hence the reason there are only 2 calculators on the web as far as I am aware of.


Thanks for the comments snowman. But, financial moves are always made in the face of a not fully known future. It seems to me that, your issues aside, strategizing a glide path for 2014 and beyond income to fall just under the subsidy cliff threshold (if possible) rather than say a default of just above that threshold would not be amiss.

BTW re: your final point - whether or not using term "Obamacare" is deemed political on this forum, discussing potential future changes to taxes and other laws on this forum definitely seems to have been ruled political by the mods. I think we are allowed only to hypothesize based on a steady-state assumption relative to same. This does seem a bit silly to me but it's not my site and it does make for more focused discussions.
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Re: What counts as "income" for PPACA (Obamacare) subsidies?

Postby Yipee-Ki-O » Mon Feb 04, 2013 7:24 pm

Regardless of the name, I'm personally pretty excited that come October of this year I can choose among health insurance plans which should be vastly superior to my present individual coverage and its $5,000 deductible. In playing around with the Kaiser Foundation calculator, the cutoff point for a tax credit for a single person seems to be an adjusted gross income of between 46k and 47k. While I don't want to cross the line into political comments, personally I don't see much difference between my eligibility for a tax credit for the purchase of an individual health insurance policy than the tax credit someone who receives group coverage enjoys since they are not taxed on their employer's contribution to their group health insurance premium
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Re: What counts as "income" for PPACA (Obamacare) subsidies?

Postby freebeer » Tue Feb 05, 2013 10:47 am

Yipee-Ki-O wrote:Regardless of the name, I'm personally pretty excited that come October of this year I can choose among health insurance plans which should be vastly superior to my present individual coverage and its $5,000 deductible...


Yeah, in WA State current individual coverage options are terrible compared to group (employer) plans.

Yipee-Ki-O wrote: ... I don't see much difference between my eligibility for a tax credit for the purchase of an individual health insurance policy than the tax credit someone who receives group coverage enjoys since they are not taxed on their employer's contribution to their group health insurance premium


Right. Although it seems the individual tax credity subsidy under ACA will be substantially larger - for a family of 4 it's 50% of the premium and a) few employers cover 100% of a family and b) no one is at 50% marginal income tax rate.
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Re: What counts as "income" for PPACA (Obamacare) subsidies?

Postby magellan » Tue Feb 05, 2013 11:06 am

Yipee-Ki-O wrote:Regardless of the name, I'm personally pretty excited that come October of this year I can choose among health insurance plans which should be vastly superior to my present individual coverage and its $5,000 deductible.

I also have an individual $5k deductible policy, but I'm not as sure that my choices will be better in October. I'm generally supportive of the new law because the old insurance system was so badly broken. Under the old rules, insured people who got sick were very vulnerable to being gamed out of the system by insurance companies. Also, a large chunk of the population didn't have insurance, which left them vulnerable to substandard care and to financial ruin. It also caused major cost shifting onto the folks that did have insurance. PPACA has a good shot at fixing a lot of this. I think that's a really good thing and I'm very hopeful that it succeeds.

OTOH, we shouldn't expect miracles from the Rev 1.0 version of something so complicated. It's nearly certain that there will be some nasty unexpected consequences as the kinks get worked out. For most people that already have employer coverage, the impacts from PPACA will hardly be noticeable, but for folks like us with individual policies, the change and the uncertainty are huge.

Based on the current state of rule-making for the exchanges, I probably won't be able to replace my $5k deductible plan under the new system. Deductibles are likely to be capped at around $2500. All things equal, that'll translate into a big premium increase for me even if nothing else changed.

Healthy young people will almost certainly see large premium increases, because all plans will be required to include maternity coverage and because the premium spread between the youngest policyholders and the oldest is capped, which will result in younger policy holders subsidizing older folks. That's good for me, but bad for younger folks just getting started out. Also, in the majority of states that previously allowed medical underwriting, people without preexisting conditions will likely see big premium increases, since healthy people will pay the same premiums as people with serious medical issues. Again, I personally support this change, but it will come at a cost.

For now I'm watching and waiting. People with existing grandfathered policies can keep them for as long as the insurance company offers them. Of course, this means giving up subsidies from the exchanges. Still, if I can, I may stay put for the first year or two and let things settle out. Once you give up enrollment in a grandfathered plan, you can never go back. The subsidies from the exchanges are enticing, and as an early retiree I could probably do some income gaming to qualify every other year. Still, right now I'm thinking it's best to watch and wait.

Jim
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Re: What counts as "income" for PPACA subsidies?

Postby Alex Frakt » Tue Feb 05, 2013 11:50 am

several off topic responses removed
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Re: What counts as "income" for PPACA subsidies?

Postby rec7 » Tue Feb 05, 2013 1:17 pm

I would like to ask a question if we remain on our own insurance will the government give us something to do that? My income is under 10k.
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Re: What counts as "income" for PPACA subsidies?

Postby Alan S. » Tue Feb 05, 2013 1:48 pm

The link posted earlier indicates that the subsidies are limited to those purchasing coverage throught the state exchanges. However, I would not view this as necessarily final as there are still many Regulations that must be released and others that could be modified before implementation. Even after 2014, the PPACA is going to be modified to make it more workable and equitable, so stay tuned to potential changes.
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Re: What counts as "income" for PPACA subsidies?

Postby magellan » Tue Feb 05, 2013 1:56 pm

rec7 wrote:I would like to ask a question if we remain on our own insurance will the government give us something to do that? My income is under 10k.

Until the exchanges are operating and the subsidy rules are finalized, it's tough to answer with certainty.

But here's the big thing in your situation. My understanding is that the exchange subsidies are only available to people who are not eligible for medicaid. I think the income cutoffs for medicaid eligibility are state specific.

So the way it looks now, the exchange subsidies will only be available to folks earning above the medicaid income cutoff and below the 400% Federal poverty level (FPL) upper income cutoff.

Jim
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Re: What counts as "income" for PPACA subsidies?

Postby snowman » Wed Feb 06, 2013 8:57 pm

We are on the same boat, a family of 4 buying family coverage on the open market because both me and my wife are self-employed. Having worked in the industry for many years, I can honestly say the system is broken and is in desperate need of repair. I often tell people that are currently getting employer sponsored coverage that they have no idea how bad it really is until they are forced to buy the policy on the open market. Needless to say, we too are anxiously awaiting October 1, 2013.

Here is the link to IRS website describing ACA's tax provisions (last updated February 5, 2013):

http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions

If you scroll down to "Health Insurance Premium Tax Credit" section, you can select to view the final "Rules and Regulations" document regarding the tax credit:

http://www.gpo.gov/fdsys/pkg/FR-2012-05-23/pdf/2012-12421.pdf

My assumption is that only lower income individuals and families will choose up front tax credits. It gets complicated when you need to return the credit because your MAGI went up, your circumstances have changed, or you did not pay your insurance premium for 3 months, etc. It will be much easier to claim the credit on the back end, especially if you have some flexibility with MAGI (which most self-employed people, as well as early retirees, do).

I will also point out that while the silver plan (second from the bottom - bronze, silver, gold, platinum) is the one often cited as the "subsidized plan", it's actually a "benchmark plan" determining the level of tax credit. What this means is that you can apply the tax credit towards gold or platinum level plan, if you choose to do so, but obviously the premium (and benefits) associated with such plan will be higher. However, you cannot take the tax credit and apply it towards the plan that costs less than the amount of credit you are eligible for (more than likely bronze level plan).

A good article with some examples can be found here:

http://money.usnews.com/money/blogs/the ... -will-work

Another good place to check new info periodically is your state's health exchange website, if your state is creating one. They generally have pretty good FAQ section. Below are the links for WA and CO, as an example:

http://wahbexchange.org/about-the-excha ... questions/
http://www.getcoveredco.org/FAQs

Finally, if you are covered by employer-sponsored plan, congratulations. None of this really applies to you, unless your employer-sponsored plan is defined as unaffordable, or fails to provide minimum value, as defined under the law. In that case, you will be eligible to receive tax credits too. I just wonder how TT will deal with that...
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Re: What counts as "income" for PPACA subsidies?

Postby FinanceGeek » Sun Feb 10, 2013 3:58 pm

I think the one of biggest problems with the ACA is the large discontinuity of the subsidy system. Earn one more dollar above 400% of FPL and you can go from paying 9.5% of income to "sky's the limit". As insurance premiums rise I'm sure this will have to be reformed.

Overall this reform is fantastic news for ER types, esp those with pre-existing conditions who can keep their MAGI in check.
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Re: What counts as "income" for PPACA subsidies?

Postby magellan » Sun Feb 10, 2013 8:46 pm

snowman wrote:I will also point out that while the silver plan (second from the bottom - bronze, silver, gold, platinum) is the one often cited as the "subsidized plan", it's actually a "benchmark plan" determining the level of tax credit. What this means is that you can apply the tax credit towards gold or platinum level plan, if you choose to do so, but obviously the premium (and benefits) associated with such plan will be higher. However, you cannot take the tax credit and apply it towards the plan that costs less than the amount of credit you are eligible for (more than likely bronze level plan).

Lots of good info in that post. Thanks. One clarification though. My understanding is that if you're eligible for a credit but choose to go with a less expensive bronze plan, you can still apply the credit toward that plan. You just can't get anything back for any part of the credit you don't use. Is that correct?

Thanks,

Jim
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Re: What counts as "income" for PPACA subsidies?

Postby snowman » Mon Feb 11, 2013 1:27 pm

magellan,
yes, that is correct. I believe you will find this whole document (not just page 9) very useful:

http://publications.milliman.com/public ... andate.pdf
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Anyonw know how the Subsidies will be delivered

Postby Cut-Throat » Mon Feb 11, 2013 2:54 pm

I am not talking about the amounts of the subsidies but the actual 'delivery' method of the subsidies.

Some of the subsidies will be quite large in term of a larger family that is well under the poverty level. I have heard that these subsidies will be given as a 'tax credit' on the following years tax form. In this was the case, a family might have to come up with $10 Grand to pay the insurance company, while waiting a year for the tax credit. I can not imagine that the people in this situation would have the money. So, I am guessing that there is another method of the delivery of this subsidy.

Does anyone here know how this subsidy will be delivered ?
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Re: What counts as "income" for PPACA subsidies?

Postby Alan S. » Mon Feb 11, 2013 3:23 pm

Copied from an earlier posted link:

Income Eligibility for Premium Credits
Beginning in 2014, qualifying individuals will be able to receive “premium assistance credits”
toward the purchase of exchange coverage. The credit is an advanceable, refundable tax credit,
meaning taxpayers need not wait until the end of the tax year to benefit from the credit (advance
payments will actually go directly to the insurer14) and may claim the full credit amount even if
they have little or no federal income tax liability.


Shades of the former "advanced EIC payments" that were eliminated in 2010, except you can't spend money that goes direct to the exchange participants.
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Re: What counts as "income" for PPACA subsidies?

Postby orlandoman » Mon Feb 11, 2013 4:19 pm

What year's income counts?

PPACA takes effect 1/1/2014 ... what year's income is it going to be based on? If 2014, how will it work, since W2's & taxes will not have to be filed till April 2014?

Never seen any mention of what year & how?

Thanks!
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Re: What counts as "income" for PPACA subsidies?

Postby snowman » Mon Feb 11, 2013 6:17 pm

The mechanics of credits (if eligible) are outlined in one of the links above. Credits are applied towards premiums paid in the same tax year. You may choose to claim tax credits for premiums paid in 2014 when you file your taxes in April 2015. Lower income individuals and families may choose to receive the credit up front based on their MAGI in 2013 - US Treasury pays the Insurer the amount of credit, and insurer charges you the difference. The rules and options will be explained on your state exchange website when it opens in October 2013.
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Re: What counts as "income" for PPACA subsidies?

Postby freebeer » Sun Feb 24, 2013 6:39 pm

As I've read further on this it appears that contributions to 401k (both employee's, within limits, and employer's match if any) are not included in the MAGI calculation (as these don't count as part of gross wages), but contributions to regular IRAs are. Is this correct?? It's confusing because there are different definitions of MAGI for different purposes.

If this is true then it would seem there should be a land rush into 401Ks... as this deduction from gross income could make the difference in qualifying for a significant subsidy vs. being over the cliff and getting nothing. I realize the definition of MAGI already treated 401Ks and IRAs differently, but I didn't think there was a major substantive impact as a result until PPACA.
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Re: What counts as "income" for PPACA subsidies?

Postby snowman » Sun Feb 24, 2013 9:34 pm

freebeer,

I am not sure I understand your concern, so feel free to reply if I am missing something here.

The definition of MAGI is pretty stable - you take your AGI, and than you add back certain items like foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs. For most people, it's IRAs and educational cost deductions they will be adding back.

If you are getting 401k match from your employer, you are very likely covered by qualified plan already, which means you are not going to be state exchange customer, therefore you will not get any subsidy. For self-employed individuals, traditional IRA contributions are mostly a non-event, since they can contribute to solo 401k with huge deductible space - over $100K annually if both spouses are self-employed. So there will be no "rush" from TIRA to 401k.

The number of individuals playing with MAGI in order to qualify for subsidies is estimated to be rather small. Remember, about 50% of people receive their insurance through qualified plan from their employer, so nothing changes for them. Same goes for Medicare and Medicaid recipients - neither of these groups is at the cliff of subsidies. Now you are getting down to a pool of individually insured and uninsured people - that's the bulk of future state exchange's customers. When you take out population under 30 that will be allowed to purchase catastrophic plan (likely the cheapest plan available to that group), you will be left with roughly 3 million people ages 30-64 with household income of 400%-600% FPL. That's it - a very small number in the big picture, and many people in this group will either not be able to reduce their MAGI, or may not want to do it.

The one unknown are potential early retirees (generally ages 55-64), who for the very first time will have an option to quit the workforce and be guaranteed to purchase health insurance on the open market. It may very well cost them more than getting employer-sponsored plan, but they cannot be denied coverage. If you control your early retirement income well, you may even come ahead. However, nobody expects flood of early retirees to state exchanges. They would be giving up much more than employer-sponsored health plan - salary earnings (probably highest in their career), 401k matches, stock options, pensions, and other perks. But there will definitely be people in that group who will benefit greatly by being able to retire earlier than planned.
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Re: What counts as "income" for PPACA subsidies?

Postby freebeer » Mon Feb 25, 2013 12:10 am

snowman,

I don't have a "concern" per se I'm just trying to understand fully the situation under the new law. If 401K contributions (not just employer match but also employee contributions) are not part of MAGI for PPACA subsidy calculation purposes then it would seem very possible to "fine tune" 401K contributions to qualify for a pretty substantial subsidy (i.e. to avoid going over the income "cliff"). This includes catch-up contributions if eligible that might otherwise not be made. And despite Bogleheads conventional wisdom that a traditional IRA may be a better choice than 401K after employer match for someone in this situation then 401K contributions would be wildly better choice than IRA if only the former reduces MAGI.

I'm presently an employee of a very small organization that does offer a company health insurance plan but does have a 401k so this isn't just an academic concern on my part... I agree that a lot of folks with 401Ks will also have employer health plans and thus not be so concerned about subsidized exchanges.
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Re: What counts as "income" for PPACA subsidies?

Postby FinanceGeek » Mon Feb 25, 2013 12:26 am

If one has large unrealized gains, is it feasible to borrow money against the value of brokerage accounts, from a 401k, etc. to meet living expenses while retaining subsidy eligibility? This would seem more attractive than selling appreciated securities which would trigger a large tax hit and loss of subsidies.
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Re: What counts as "income" for PPACA subsidies?

Postby freebeer » Mon Feb 25, 2013 1:05 am

FinanceGeek wrote:If one has large unrealized gains, is it feasible to borrow money against the value of brokerage accounts, from a 401k, etc. to meet living expenses while retaining subsidy eligibility? This would seem more attractive than selling appreciated securities which would trigger a large tax hit and loss of subsidies.


Right! Or, just in general regardless of unrealized gains... even if all your $ were in a 401K: if you are over 59 (so can take distributions w/out penalty) but under 70 (so no RMDs yet) you could seemingly borrow from 401K for some living expenses in even years (enough to qualify for subsidy) and pay back via extra distributions in odd years (if potential increase in marginal income tax rate is substantially less than the subsidy). This assumes a 401K w/ flexible loan rules (VG 401K for example). Weird to consider paying back a 401K loan via a 401K distribution but I find anything that says that isn't kosher.
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Re: What counts as "income" for PPACA subsidies?

Postby FinanceGeek » Mon Feb 25, 2013 10:10 am

My limited knowledge of margin accounts is that they let you borrow money to buy additional securities that you could not otherwise afford given your cash balance. But can you take a margin loan to avoid having to sell appreciated securities and then withdraw the borrowed cash from your account for (say) living expenses?

Borrowing from a 401k would seem to be an especially attractive method, since the interest you pay goes back into your own account. HELOC loans may be attractive too.

To the extent 9.5% of 400% of FPL greatly exceeds the cost of an insurance policy, the subsidy system is going to be played like a stradivarius.
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Re: What counts as "income" for PPACA subsidies?

Postby magellan » Mon Feb 25, 2013 11:40 am

FinanceGeek wrote:To the extent 9.5% of 400% of FPL greatly exceeds the cost of an insurance policy, the subsidy system is going to be played like a stradivarius.

I agree there will be some income gaming. However, the actual tax math for this is pretty complicated with several moving parts. The 400% FPL cutoff is around $62k for a family of 2 (much higher in Alaska and Hawaii). Meanwhile, there's a marginal tax rate shift from 15% to 25% for couples when taxable income hits around $73k. The cliff between the 0% and 15% dividend and capital gains rate falls into the mix as well.

It's so complicated that you'll probably have to do two years of tax returns, both with and without income bunching, to compute the federal and state tax impact. Deduction bunching in the high income years could help, but it's possible that gains from qualifying for a credit every other year will be reduced by higher taxes on the "bunched" income in the off years. It sure presents a neat optimization problem to solve!

Jim

Corrected to note that the 25% tax rate starts at a taxable income of around $73K
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Re: What counts as "income" for PPACA subsidies?

Postby snowman » Mon Feb 25, 2013 11:56 am

OK, I see what you are saying. Yes, you can reduce your MAGI by $5K ($6K if over the age of 55) if you currently contribute to TIRA instead of contributing to your 401k.

However, I don't quite get this statement:

"I'm presently an employee of a very small organization that does offer a company health insurance plan but does have a 401k so this isn't just an academic concern on my part... I agree that a lot of folks with 401Ks will also have employer health plans and thus not be so concerned about subsidized exchanges."

Did you mean to say that your employer does NOT offer health insurance?
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Re: What counts as "income" for PPACA subsidies?

Postby freebeer » Mon Feb 25, 2013 2:49 pm

snowman wrote:OK, I see what you are saying. Yes, you can reduce your MAGI by $5K ($6K if over the age of 55) if you currently contribute to TIRA instead of contributing to your 401k.

However, I don't quite get this statement:

"I'm presently an employee of a very small organization that does offer a company health insurance plan but does have a 401k so this isn't just an academic concern on my part... I agree that a lot of folks with 401Ks will also have employer health plans and thus not be so concerned about subsidized exchanges."

Did you mean to say that your employer does NOT offer health insurance?


Snowman, I don't get your statement that I can only reduce MAGI by $5K/$6K by shifting contributions from TIRA to 401K... I thought 401K limits were $17,500/$23,000 (2013).

Yes, my employer does NOT offer health insurance but does provide health insurance reimbursement (although individual plans presently available in my state are expensive & c**p so it's not a particularly good deal for either party). I'm the sole U.S. based employee so it's kind of a special situation.
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Re: What counts as "income" for PPACA subsidies?

Postby snowman » Mon Feb 25, 2013 9:25 pm

I was reacting to this sentence, freebeer:

"And despite Bogleheads conventional wisdom that a traditional IRA may be a better choice than 401K after employer match for someone in this situation then 401K contributions would be wildly better choice than IRA if only the former reduces MAGI."

Yes, you are correct - if you now contribute to TIRA and are not maxing out in your 401k, than switching that contribution from TIRA to 401k is going to lower your MAGI. For example, if your 401k space is $17.5K, and you currently contribute only $10K, and than $5K to TIRA, than you are absolutely going to be better off - for MAGI calculation purposes - to put that $5K into 401k, instead of TIRA. I also took your earlier comment about "land rush into 401ks" as "switching from TIRA contributions to 401k contributions" - that's why I said you only have $5K/$6K to play with (assuming you are not maxing out in your 401k already). Maybe I misunderstood that comment, because you may have described a situation where an employee currently chooses to contribute only $5K annually in total, in which case - yes, they can lower their MAGI substantially, should they choose to increase their 401k contribution from $5K to $17.5K.

I also see that you truly are in a special situation, and I don't know how your employer will choose to comply with the new law, it's quite an interesting case. You are doing the right thing by exploring your options come 2014.
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Re: What counts as "income" for PPACA subsidies?

Postby freebeer » Mon Feb 25, 2013 11:58 pm

snowman wrote:...you truly are in a special situation, and I don't know how your employer will choose to comply with the new law, it's quite an interesting case. You are doing the right thing by exploring your options come 2014.


There are 4.6M firms with 9 or fewer employees which make up close to 10% of the U.S. annual payroll. ( http://www.census.gov/econ/smallbus.html ). I'm sure quite a number of them have a basic 401K but no health plan now that solo 401Ks are now easy to set up, whereas establishing a health plan for a one-employee business has been a PITA at least in WA State. So I think my situation isn't all that special.

I think the path forward for us will be easy: I will see what kind of health plan I can get from the state-run exchange and also check out what new offerings there are for sole-employee businesses, and then choose whatever's most cost-effective. I won't be under the cliff at this point - that's more a question for a post-job future. The main quirk is that my employment contract specifies a fixed reimbursement cap and if I were to come in at a lower $ amount I do not receive the difference in cash (or else the whole thing would be taxable income). So there's not really any personal incentive to save $ but only to get the best insurance for the family that I can at or above the reiumbursement amount (although if choosing between 2 identical plans obviously it makes sense to choose the cheapest and save the company $).
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Re: What counts as "income" for PPACA subsidies?

Postby snowman » Tue Feb 26, 2013 10:55 am

I was just responding to this comment of yours:

"I'm the sole U.S. based employee so it's kind of a special situation."
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Re: What counts as "income" for PPACA subsidies?

Postby freebeer » Tue Feb 26, 2013 7:52 pm

snowman wrote:I was just responding to this comment of yours:

"I'm the sole U.S. based employee so it's kind of a special situation."


Yeah I guess I'm just not that special after all... :x
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Re: What counts as "income" for PPACA subsidies?

Postby FrugalInvestor » Sat May 25, 2013 12:44 am

Will subsidies for 2014 policies be based on 2013 income?
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Re: What counts as "income" for PPACA subsidies?

Postby gerrym51 » Sat May 25, 2013 7:36 am

FrugalInvestor wrote:Will subsidies for 2014 policies be based on 2013 income?



actually no. it will be based on what you tell them will be your income estimate in 2014. however they WILL look at the last tax form sent in that they have 2012.

if what you enter on subsidy form is in line with 2012 they will subsidize you without follow up questions. if it's greatly differrent they will ask you follow up questions before they grant the subsidy.

if the subsidy they give you in 2014 is more then you should have gotten they will adjust it in the next years return taking it back
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Re: What counts as "income" for PPACA subsidies?

Postby frugaltype » Sat May 25, 2013 7:50 am

This is making my head hurt. I'm glad I'm on Medicare, which seems incredibly simple in contrast and is much better than my old, pre-retirement employer-provided insurance.
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Re: What counts as "income" for PPACA subsidies?

Postby FrugalInvestor » Sat May 25, 2013 12:33 pm

gerrym51 wrote:
FrugalInvestor wrote:Will subsidies for 2014 policies be based on 2013 income?



actually no. it will be based on what you tell them will be your income estimate in 2014. however they WILL look at the last tax form sent in that they have 2012.

if what you enter on subsidy form is in line with 2012 they will subsidize you without follow up questions. if it's greatly differrent they will ask you follow up questions before they grant the subsidy.

if the subsidy they give you in 2014 is more then you should have gotten they will adjust it in the next years return taking it back


Thanks. That is consistent with what I found in the following document. It doesn't mention the IRS asking me what my income will be but that makes sense as some of our incomes are inconsistent and to some degree controllable. For instance, I can choose whether or not to do a Roth conversion which can have a huge impact on my reported income.

http://www.crosslinktax.com/support/tax ... Credit.asp

So now I'm wondering - am I going to be better off using my remaining years until 65 doing Roth conversions or getting health insurance subsidies? It certainly can make one's head spin!
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Re: What counts as "income" for PPACA subsidies?

Postby lethean46 » Sat May 25, 2013 12:52 pm

magellan wrote:
rec7 wrote:I would like to ask a question if we remain on our own insurance will the government give us something to do that? My income is under 10k.

Until the exchanges are operating and the subsidy rules are finalized, it's tough to answer with certainty.

But here's the big thing in your situation. My understanding is that the exchange subsidies are only available to people who are not eligible for medicaid. I think the income cutoffs for medicaid eligibility are state specific.

So the way it looks now, the exchange subsidies will only be available to folks earning above the medicaid income cutoff and below the 400% Federal poverty level (FPL) upper income cutoff.

Jim


So what happens to the person who meets the Medicaid criteria as to low/no income but who is otherwise not eligible for Medicaid. In OH, a single adult with no children also has to be disabled using SS disability criteria to qualify for Medicaid, I believe.

Can a family member BUY insurance on the state exchange FOR this person?
Last edited by lethean46 on Sat May 25, 2013 1:15 pm, edited 1 time in total.
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Re: What counts as "income" for PPACA subsidies?

Postby FrugalInvestor » Sat May 25, 2013 1:00 pm

lethean46 wrote:
magellan wrote:
rec7 wrote:I would like to ask a question if we remain on our own insurance will the government give us something to do that? My income is under 10k.

Until the exchanges are operating and the subsidy rules are finalized, it's tough to answer with certainty.

But here's the big thing in your situation. My understanding is that the exchange subsidies are only available to people who are not eligible for medicaid. I think the income cutoffs for medicaid eligibility are state specific.

So the way it looks now, the exchange subsidies will only be available to folks earning above the medicaid income cutoff and below the 400% Federal poverty level (FPL) upper income cutoff.

Jim


It's also my understanding that to qualify for subsidy a policy must be purchased through the exchange. I'll try to find the reference for that and add a link to it here if I do.

Edit: The reference is in the following document under heading "Health Insurance Premium Assistance Subsidy."

http://www.crosslinktax.com/support/tax ... sp#health3
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Re: What counts as "income" for PPACA subsidies?

Postby bornloser » Sun May 26, 2013 7:53 am

Making a broad generalization about Bogleheads, there seems to be a large number who do or want to retire before age 65, many who do not have paid retiree medical. I think this topic is important and will be revisited often as the ACA is implemented. The ability to retire early for many hinges on the two important facets, eligibility and affordability. The first is taken care of by the law. For many, the second hinges on the ability to get a subsidy which appears to be an "all or none" type scenario. I read all the threads on the ACA b/c I would like to retire before 65, but I do find it somewhat interesting that the phrase "gaming the system" is used in regards to the ACA subsidy. I have a high current income and make use of muni bonds, but I don't consider that "gaming" the system. I use index funds in my taxable monies to minimize my taxes, but I don't consider that "gaming" the system. And I will probably work hard to keep my MAGI at a level to get a subsidy if possible, but not for a second will I consider it less than ethical.
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Re: What counts as "income" for PPACA subsidies?

Postby BolderBoy » Sun May 26, 2013 9:57 am

lethean46 wrote:So what happens to the person who meets the Medicaid criteria as to low/no income but who is otherwise not eligible for Medicaid. In OH, a single adult with no children also has to be disabled using SS disability criteria to qualify for Medicaid, I believe.

The ACA carves out a new class of potential Medicaid clients based SOLELY on income (not assets). No other qualifiers such as you list above are required.
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Re: What counts as "income" for PPACA subsidies?

Postby lethean46 » Sun May 26, 2013 11:01 am

BolderBoy wrote:
lethean46 wrote:So what happens to the person who meets the Medicaid criteria as to low/no income but who is otherwise not eligible for Medicaid. In OH, a single adult with no children also has to be disabled using SS disability criteria to qualify for Medicaid, I believe.

The ACA carves out a new class of potential Medicaid clients based SOLELY on income (not assets). No other qualifiers such as you list above are required.


Thank you for your reply.

It seems that OH is one of the states that has not acted regarding Medicaid expansion to accommodate the ACA and state insurance exchanges. And so OH's old/current Medicaid rules apply. Our governor supports Medicaid expansion, but the House stripped it out of the budget, effectively turning down $2B in Fed funding to support Medicaid expansion.
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Re: What counts as "income" for PPACA subsidies?

Postby VictoriaF » Sun May 26, 2013 11:09 am

bornloser wrote:Making a broad generalization about Bogleheads, there seems to be a large number who do or want to retire before age 65, many who do not have paid retiree medical. I think this topic is important and will be revisited often as the ACA is implemented. The ability to retire early for many hinges on the two important facets, eligibility and affordability. The first is taken care of by the law. For many, the second hinges on the ability to get a subsidy which appears to be an "all or none" type scenario. I read all the threads on the ACA b/c I would like to retire before 65, but I do find it somewhat interesting that the phrase "gaming the system" is used in regards to the ACA subsidy. I have a high current income and make use of muni bonds, but I don't consider that "gaming" the system. I use index funds in my taxable monies to minimize my taxes, but I don't consider that "gaming" the system. And I will probably work hard to keep my MAGI at a level to get a subsidy if possible, but not for a second will I consider it less than ethical.


Does "gaming the system" have a negative connotation? I think the essence of this expression is the knowledge of the applicable laws and rules and maximizing one's wealth without violating these laws and rules. Backdoor Roth contributions are another example of using current rules to one's advantage. It is frequently referred to as "gaming the system," but there is no implication of dishonesty. Paying additional taxes in order to get a refund in the form of I Bonds is still another case of "gaming."

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Re: What counts as "income" for PPACA subsidies?

Postby gerrym51 » Sun May 26, 2013 11:27 am

I don't think the PPACA was originally conceived to facilitate people who wan't to early retire. Never the less is has eliminated one hurdle for sure-the ability to get insurance at anytime regardless of your health.

but being the people we are-including me-now that we have that we also want it cheap. I think it is no worse for people at any age to manage their income to get a subsidy if they can do so.

aren't companys managing their rules to accomadate it. less than 30 hour weeks,less than 50 employees etc,etc. :mrgreen: :mrgreen:
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Re: What counts as "income" for PPACA subsidies?

Postby bornloser » Sun May 26, 2013 10:01 pm

Good point Victoria. I guess it may be my perception that the phrase connatates dishonesty. Food for thought.
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Re: What counts as "income" for PPACA subsidies?

Postby ARB57 » Sun May 26, 2013 10:37 pm

Forgive me for what may be a "silly" question: MAGI will NOT include IRA or 401-K interest or gains that are not withdrawn, correct? In other words, withdrawls from my IRA and 401K will be considered income when I actually begin to make withdrawls, but the gains/interest prior to withdrawl are not included in my MAGI...yes? Thanks.
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Re: What counts as "income" for PPACA subsidies?

Postby gerrym51 » Sun May 26, 2013 10:43 pm

ARB57 wrote:Forgive me for what may be a "silly" question: MAGI will NOT include IRA or 401-K interest or gains that are not withdrawn, correct? In other words, withdrawls from my IRA and 401K will be considered income when I actually begin to make withdrawls, but the gains/interest prior to withdrawl are not included in my MAGI...yes? Thanks.


correct :mrgreen:
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Re: What counts as "income" for PPACA subsidies?

Postby jeffyscott » Mon May 27, 2013 9:03 am

magellan wrote:The 400% FPL cutoff is around $62k for a family of 2 (much higher in Alaska and Hawaii). Meanwhile, there's a marginal tax rate shift from 15% to 25% for couples at an AGI of around $73k.


The 25% rate is at taxable income of around $73K, not gross income. With standard deduction and personal exemptions that is about $93K gross.

BTW, does anyone know how this works when one member of the family of 2 is over 65 and the other is not?
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Re: What counts as "income" for PPACA subsidies?

Postby gerrym51 » Mon May 27, 2013 9:18 am

jeffyscott wrote:
magellan wrote:The 400% FPL cutoff is around $62k for a family of 2 (much higher in Alaska and Hawaii). Meanwhile, there's a marginal tax rate shift from 15% to 25% for couples at an AGI of around $73k.


The 25% rate is at taxable income of around $73K, not gross income. With standard deduction and personal exemptions that is about $93K gross.

BTW, does anyone know how this works when one member of the family of 2 is over 65 and the other is not?



unfortunetly the subsidy is based on total family income. the amount you pay for 1 or 2 is the same-but you will also be paying separate medicare premiums-
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