Can I pay for an ACA plan with a Medicaid-level income?

[kevink]

I apologize if this is a dumb question!

As a frugal ER living off of assets my income has fluctuated from just barely in the ACA eligibility range to pure Medicaid and I've had decent access to care in both cases in the two Medicaid expansion states I've lived in in recent years (Colorado and Arizona).

Have a decent ACA plan for 2017 which I would like to keep but expect my taxable income in 2018 to be well below subsidy levels. Can I keep paying the premiums for my ACA plan and stay in the ACA world?

 

[ziggy29]

I apologize if this is a dumb question!

As a frugal ER living off of assets my income has fluctuated from just barely in the ACA eligibility range to pure Medicaid and I've had decent access to care in both cases in the two Medicaid expansion states I've lived in in recent years (Colorado and Arizona).

Have a decent ACA plan for 2017 which I would like to keep but expect my taxable income in 2018 to be well below subsidy levels. Can I keep paying the premiums for my ACA plan and stay in the ACA world?

If your state has not expanded Medicaid, then no. You have to find some way to generate just enough income from your investments to get above the 133% ACA threshold to be eligible for subsidy. You would be in that "donut hole" for people who make too much for unexpanded Medicaid and not enough for ACA subsidies.

Some ideas might be to take some capital gains, Roth conversions, and so on. Those will hit your MAGI. And if you are in the 15% bracket or lower, your long term capital gains would be taxed at 0% *and* they add to your MAGI anyway, perhaps enough to get you eligible for ACA subsidy. Could be a win-win. (Same would be true of qualified dividends. Maybe you could change your taxable portfolio to favor dividend stocks to generate income which is currently untaxed in the 15% bracket or lower, and which hits your MAGI.)

 

[Sue J]

Maybe someone else could verify this.

Could you estimate your income high enough to be above Medicaid and qualify for an ACA plan and then when you reconcile in 2019 for 2018 you just didn't meet your estimate?

You'd pay for an ACA plan with a subsidy all year. They can't make Medicaid retroactive.

 

[kevink]

Thanks.

As I already mentioned Ziggy I have been living (and still live) in a state that HAS expanded Medicaid. What I'm hoping to continue doing is exactly what Sue J suggests: estimate my income just high enough to qualify for an ACA plan and then when I reconcile just say I didn't meet my estimate. The question is, how long can I do it?

 

[SecondCor521]

The question is, how long can I do it?

I think you can do it until your state starts reconciling estimates with actuals and creating some sort of penalty for mis-estimating. As far as I can tell there is no such penalty yet.

I hope it is a while before that starts happening as it is a useful loophole in many ways.

 

[steveark]

Ethics

I make too much income through part time side gigs to qualify for subsidies so I pay full price. Does it bother anyone else from an ethical standpoint to essentially lie to the government to get a subsidy? My multimillionaire brother was trying to hack health insurance by controlling his reportable income. I'm paying over $13k for catastrophic only coverage that pays nothing unless I get a Grey's Anatomy disease. I'm asking, not judging. I'm not sure what I'd do if it were an option for me.

 

[jim584672]

Getting more MAGI is easy, just do some Roth conversions to get yourself over the line. No need to misrepresent anything.

 

[Rianne]

I make too much income through part time side gigs to qualify for subsidies so I pay full price. Does it bother anyone else from an ethical standpoint to essentially lie to the government to get a subsidy? My multimillionaire brother was trying to hack health insurance by controlling his reportable income. I'm paying over $13k for catastrophic only coverage that pays nothing unless I get a Grey's Anatomy disease. I'm asking, not judging. I'm not sure what I'd do if it were an option for me.

Enjoy this article. I will never feel guilty for the subsidies we get on the ACA.

https://www.huffingtonpost.com/bill...-for-the-rich-and-corporations_b_4589188.html

 

[GTFan]

I make too much income through part time side gigs to qualify for subsidies so I pay full price. Does it bother anyone else from an ethical standpoint to essentially lie to the government to get a subsidy?

No, and I hate to say it but under the ACA it sucks to be you. That's why a lot of folks in your situation want to reform or replace it, and I can't really blame them.

 

[Sue J]

I make too much income through part time side gigs to qualify for subsidies so I pay full price. Does it bother anyone else from an ethical standpoint to essentially lie to the government to get a subsidy? My multimillionaire brother was trying to hack health insurance by controlling his reportable income. I'm paying over $13k for catastrophic only coverage that pays nothing unless I get a Grey's Anatomy disease. I'm asking, not judging. I'm not sure what I'd do if it were an option for me.

In this instance the OP is trying to stay off of Medicaid. He says he would rather PAY for an ACA plan. No, he would not be paying the full price but he is trying to pay something for a regular insurance plan in order to stay off of Medicaid.

My understanding is that Medicaid is free medical care, not insurance. Please correct me if I'm wrong.

 

[pb4uski]

I make too much income through part time side gigs to qualify for subsidies so I pay full price. Does it bother anyone else from an ethical standpoint to essentially lie to the government to get a subsidy? My multimillionaire brother was trying to hack health insurance by controlling his reportable income. I'm paying over $13k for catastrophic only coverage that pays nothing unless I get a Grey's Anatomy disease. I'm asking, not judging. I'm not sure what I'd do if it were an option for me.

No, and I hate to say it but under the ACA it sucks to be you. That's why a lot of folks in your situation want to reform or replace it, and I can't really blame them.

While I agree (I consiously chose low tax-cost Roth conversions over Obamacare subsidies and buy unsubsidized catastrophic coverage), I think the number of rich/multi-millionaires managing their income to get subsidies is probably a small subset of those on subsidies and the cost of providing subsidies is less than the cost of administering an asset-based means test.

 

[sengsational]

Can I keep paying the premiums for my ACA plan and stay in the ACA world?

What I go back to whenever questions like this arise is the tax code. And I'm not patient enough to read/interpret the code itself, so I just run the scenario through tax software.

As you get ready to estimate your next year's income and enter it into the ACA site, say your plan is to flip a few burgers to get a bit more income. That plan may or may not turn out to be accurate, but it's the best you have when you're executing the process they have defined.

Now, you fill-out your tax software, two scenarios: with, and without the burger flipping income. If "nothing bad happens" (i.e. no penalties are assessed and no claw backs are imposed for missing your income target), then you're good.

Now, if you really didn't have a plan for increased income, then that would constitute fraud. But if you had a plan that simply didn't come together as you once thought, there's no penalty for that.

 

[Sojourner]

I make too much income through part time side gigs to qualify for subsidies so I pay full price. Does it bother anyone else from an ethical standpoint to essentially lie to the government to get a subsidy?

It doesn't bother me, primarily because I think the entire U.S. health insurance system is so deeply flawed and the cost of HC is so astronomical that using every legal means of gaining access to more reasonably priced plans is quite justifiable.

 

[pb4uski]

I'm not sure it would be fraud... the OP would be overstating income to buy subsidized health insurance rather than being provided free health insurance via Medicaid.

To overstate your income to volunteer to buy health insurance rather than be on Medicaid doesn't seem like a huge deception to me... perhaps that is why there seems to be no penalty... but assuming that the OP has tax-deferred savings like many of us do then they could easily avoid the issue by doing some Roth conversions... in fact, given that those Roth conversions would incur no or little tax it would almost be foolish not to do them if you are buying ACA insurance.

 

[Senator]

Getting more MAGI is easy, just do some Roth conversions to get yourself over the line. No need to misrepresent anything.

The IRS is OK with reporting more income than you actually receive. You just need to pay tax on it. You do not have to cash in anything.

You can even project income based on accrual accounting. You are working on something now, that will bring in $100K in 10 years. That means $10K accrues every year, and you can report it as income.

After 10 years, if the $100K did not appear, you can probably take a $100K loss.

 

[ivinsfan]

Unless I misunderstand the penalty is for having no insurance. The rest of it is simply reconciling income to advance tax credits. In fact some would argue you overpaid by not taking Medicaid and you already paid a penalty. One could argue that you had access to better insurance but you do pay more money for it.

The easy way would be to wait until the end of 2018 and simply pull from a Roth or IRA if you meet the age for penalty free withdrawal , in fact I wonder why you wouldn't want to fill up some of your bottom tax bracket income.

 

[jim584672]

As long as the OP can convince the Marketplace people of his claim of income with documentation and they agree, then that determines whether you get a QHP (qualified health plan, metal plan) or Medicaid.

I don't think you can get a QHP with agreed estimated income under the Medicaid line.

I guess you can be optimistic in your estimates, but you potentially might be crossing the line to fraud.

 

[pb4uski]

Interesting article on the subject of this thread.

https://theincidentaleconomist.com/wordpress/one-more-comment-on-that-income-over-reporting-thing/

 

[pb4uski]

The IRS is OK with reporting more income than you actually receive. You just need to pay tax on it. ...

You've stated this before and been proven wrong. Please stop.

https://tomhodgecpa.com/2015/07/29/...may-find-out-and-there-could-be-consequences/

.... You can even project income based on accrual accounting. You are working on something now, that will bring in $100K in 10 years. That means $10K accrues every year, and you can report it as income.

After 10 years, if the $100K did not appear, you can probably take a $100K loss.

This is totally wrong.... you can't cherry-pick between cash and accrual... it is one or the other. Besides, even under accrual basis accounting you can only accrue income where you have a legal entitlement to receive it since an asset is based on legal rights so what you describe wouldn't even be proper if you could chose a hybrid cash/accrual accounting for tax purposes.

 

[cathy63]

The IRS is OK with reporting more income than you actually receive. You just need to pay tax on it. You do not have to cash in anything.

You can even project income based on accrual accounting. You are working on something now, that will bring in $100K in 10 years. That means $10K accrues every year, and you can report it as income.

After 10 years, if the $100K did not appear, you can probably take a $100K loss.

Be very careful if you're going to put inaccurate numbers on your tax return. That plan to collect $100K had better be a viable business plan when examined by an auditor, and the reason for your failure to execute had better be provable. Otherwise the penalties can be quite stiff. The IRS considers reporting excess income to be a scam. https://www.irs.gov/newsroom/irs-includes-falsifying-income-scam-in-2017-list-of-dirty-dozen

 

[ivinsfan]

Not to wander too far OT with the mythical 100K,... for one thing accrual accounting is usually done by a business. the poster has to provide an "estimated" income for 2018...in reality it could be a little higher or a little lower.

In fact one might actually earn more money then estimated and bump their income higher then expected. Decide they had enough extra cash to fund an IRA and actually have lower income then they estimated. There are a lot of moving parts and that's why they call it an estimate.

 

[Senator]

Be very careful if you're going to put inaccurate numbers on your tax return. That plan to collect $100K had better be a viable business plan when examined by an auditor, and the reason for your failure to execute had better be provable. Otherwise the penalties can be quite stiff. The IRS considers reporting excess income to be a scam. https://www.irs.gov/newsroom/irs-includes-falsifying-income-scam-in-2017-list-of-dirty-dozen

Falsifying income to claim tax credits, like EITC, is wrong. Not because of the income declared, but because of the tax credits received.

 

[pb4uski]

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

I'm not sure what is so hard to understand.

 

[Senator]

You've stated this before and been proven wrong. Please stop.

https://tomhodgecpa.com/2015/07/29/...may-find-out-and-there-could-be-consequences/



This is totally wrong.... you can't cherry-pick between cash and accrual... it is one or the other. Besides, even under accrual basis accounting you can only accrue income where you have a legal entitlement to receive it since an asset is based on legal rights so what you describe wouldn't even be proper if you could chose a hybrid cash/accrual accounting for tax purposes.

Once again, the Case Cadet, TC Summ. OP. 2015-39, is about collecting tax credits based on falsely reported income. "Unsubstantiated income, even leading to a tax, can be denied if the credit is too big."

Once again, it seems like an EITC scam.

 

[pb4uski]

The link was EITC scam related. But the second part, regarding your wacky proposed hybrid accrual accounting that isn't even proper accrual accounting was not.

I seem to also recall the IRS objecting to overstating income to pay self employment tax to qualify for SS benefits.