How I stopped worrying and learned to love Obamacare

[Mike Piper]

Excellent work, Zedd!

Also, just confirm what MichaelB has said, here is the actual Internal Revenue Code Section:
26 USC § 36B - Refundable credit for coverage under a qualified health plan | Title 26 - Internal Revenue Code | U.S. Code | LII / Legal Information Institute

For ACA purposes, MAGI is AGI, plus:
1) excluded foreign earned income,
2) tax-exempt interest income, and
3) Social Security benefits that were excluded from AGI.

A very key point here is that, as ziggy29 mentioned, MAGI has different meanings for different purposes. It's helpful to check the actual Code to see what MAGI means in a given context.

[zedd]

Numerous readers have pointed out that there are several different definitions for Modified Adjusted Gross Income (MAGI). The definition as originally stated in this post was inaccurate.

For the latest updates on what goes into the O-MAGI calculation see the UC Berkeley Labor Center whitepaper found here -> http://laborcenter.berkeley.edu/heal..._summary13.pdf

[audreyh1]

I loved Obamacare as soon as I saw how much my premiums would drop. And then that my husband's premiums would drop. And then that we both could buy HSA eligible plans and be able to use the "catch up" contribution, so that our taxes would drop!

Oh - and we're not eligible for subsidies, either, so that has nothing to do with it.

[zedd]

Now for something completely different.

Got a call this afternoon from the Healthcare.gov advanced problem resolution center, responding to an issue I had raised with them on October 2nd. Uhm yeah, October 2nd. Today is November 6th.

Anyway after explaining to them that I had resolved the original problem by myself and was able to successfully file an application, could I talk about a different issue.

But of course they seemed eager to please.

Feeling almost giddy I pointed out that since filing my original application my employment status has, er, changed and could I possibly edit my expected 2014 income and then resubmit my application.

To which they responding, no problem, we can show you from whence you can download the appropriate form and file an appeal.

So. You cant edit your application and simply resubmit it online but instead you need to download a form fill it out, submit it (snailmail?) then wait for the outcome of some appeal process.

Is this a great country or what

[MRG]

Quote:

Originally Posted by zedd Now for something completely different. Got a call this afternoon from the Healthcare.gov advanced problem resolution center, responding to an issue I had raised with them on October 2nd. Uhm yeah, October 2nd. Today is November 6th. Anyway after explaining to them that I had resolved the original problem by myself and was able to successfully file an application, could I talk about a different issue. But of course they seemed eager to please. Feeling almost giddy I pointed out that since filing my original application my employment status has, er, changed and could I possibly edit my expected 2014 income and then resubmit my application. To which they responding, no problem, we can show you from whence you can download the appropriate form and file an appeal. So. You cant edit your application and simply resubmit it online but instead you need to download a form fill it out, submit it (snailmail?) then wait for the outcome of some appeal process. Is this a great country or what

Or ceate a 'new account', different email user profile. I think thats my first plan.

Best wishes,

MRG

[Sue J]

If you haven't picked a plan and enrolled yet you may be able to open another account and submit an application with your new info. You'll need another email address to open another account.

[zedd]

Quote:

Originally Posted by MRG Or ceate a 'new account', different email user profile. I think thats my first plan. Best wishes, MRG

Yepper. Been there done that. How do you think was able to file an application

Getting to the point where I need a database to keep track of all my aliases.

[NoMoreJob]

Quote:

Originally Posted by zedd Yepper. Been there done that. How do you think was able to file an application Getting to the point where I need a database to keep track of all my aliases.

You're doing wonders for the website stats. Good work!

[zedd]

We're all in this together kid

http://youtu.be/dht_3NziwSw

[zinger1457]

One thing I've noticed as I look closer at the details of the plans being offered to me on ACA is that quite a few of them are out of network (no local providers) so of no interest to me. Don't see anyway to filter those out, the only way I've found to determine if a plan is in/out of network is to click on the 'Provider directory' link for the plan. It takes you to the insurance company site and they usually have a note that 'it's out of network and may cost you more' or a search of providers in your area shows a big 0.

[MRG]

Zinger1457,

I have similar issues, one case they threw me into BCBS but didn't fill in network, so it looked better than it was.

MRG

[47]

Quote:

Originally Posted by zedd Questions to consider: o What is the difference in terms of annual premium payments for comparable Bronze and a Silver plans (comparable in terms of deductible and out-of-pocket caps.) Note: Fundamentally there is a huge difference between Bronze and Silver plans when it comes to co-payment and prescription drug coverage. Let us not ignore this but for the time being but put it aside for later consideration. o If there is a significant difference in annual premium payments between a Bronze and a Silver plan, assuming that Bronze is cheaper,does it make sense to go with a Bronze plan and “self-insure” a portion of the expenses xxxxxxxxxx o What if I take on a part-time j*b and earn $5,000 (or $10,000) in W2 wages? How does it affect my ACA insurance premiums (Assuming my part-time empl*yment doesn't offer healthcare coverage) xxxxxxxxxxx o What if I go with a Bronze plan that is HSA-compatible? Will it reduce my O-MAGI o The difference in the premiums was consistent between the Bronze and Silver plans regardless of the O-MAGI level o At first pass Bronze edged out over Silver due to the $936 in premium savings. I'm generally healthy with no preexisting conditions. But considering the number of PT visits (26 @ $120 per) needed by me over the coming year we are leaning toward the silver plan. I'll need to have a conversation with my PT provider before making a final decision o Additional W2 wages is a suckers bet. Say I earn an additional $5000 gross. First off it won't increase my eventual social security benefit one iota. Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most . I've already met the 35 year threshold and I doubt $5000 is going to make a significant difference in the benefit payout. Secondly, that additional $5000 in earnings will have an effective tax rate of 25.18% – ouch! ; MyMath-> 7.62% FICA/Medicare plus 0% Fed plus 1% state plus 16.56% lost subsidy ($828/$5000). xxxxxxxxxxxxxxxxxx o Funding a Health Spending Account (HSA) will reduce one's O-MAGI dollar-for-dollar. HSAs are restricted to High Deductible plans like the PPACA Bronze offerings. Since I'm not going with a Bronze plan an HSA is not a consideration. Note: HSAs are a new area for me. I'm under the impression that one can fund an HSA with after-tax dollars. Doing so is not as beneficial however as compared to the W2 wage slaves out there who can fund an HSA with pre-tax dollars right out of their paycheck. Gee, had I known. Dollars in an HSA grow tax free. After retirement HSAs work a lot like an IRA. Finally, in retirement, dollars in an HSA fund can even be used to pay Medicare premiums.

Wow. That's a lot of topics. I didn't go over with a fine tooth comb -- But there are some glaring misperceptions.

The information about the part time job being a sucker's bet is wrong.
If you had a small amount of W2 wages, you can pretty much shelter the whole thing as a contributory tax deductible IRA, and have that not affect your MAGI. At an ER age, you can shelter $6,500, and for a couple $13K. That's a lot of Moolah!

If you have 1099 income, that gets even better. In addition to the above you get to take off the entire insurance premium paid by you and half the self employment tax right off of the MAGI. On top of that you can open a SEP IRA and shelter an additional 18.6% of your income.

If your premium is $300/month, a quick back of the envelope calculation says a 1099 income of $30K (Thirty Thousand Dollars) would add less than $5K to your MAGI. If you fund your HSA (see below) even that would completely go away.


I posted the following in a different forum topic, but I think it is more relevant here.

The profile of an ER is ideally suited to exploit HSA compatible plans in the ACA.

The fact that you are an ER means a) you have some reasonable amount of wealth accumulated b) You probably qualify for subsidy as earned income has tapered off c) You can control your MAGI d) You are savvy enough to do ROI calculations e) You probably qualify for accelerated amount for HSA contribution.

Don't jump at the first silver plan you get your hands on. Compare your favorite silver plan with a HSA plan.

A sample trade off calculation for amount before your reach out of pocket max on either plans may look like this:

Premium difference at same MAGI: $1800
Premium reduction due to MAGI reduction: $300
Tax savings from HSA contribution: $800
Silver deductible: $2500
Silver copay to be paid anyway: ~1000

You are looking at around $6,400 which is about the same as the out of pocket max even on the Bronze HSA plan. You are better off taking the sure money savings provided, and even in the worst case you are really no worse off.

If your prescription drug usage is high or if you are on some expensive maintenance regimen then the calculations will be different.

You have to run numbers to your specific case including your spouse etc, but the gist of the argument still is valid.

[zedd]

47Percent,

You raise the point regarding the deductibility of a contributory IRS as a way to offset a portion of W2 wages and lower one's MAGI. You're making that assertion based on what I now think is a correct interpretation of the law, specifically that deductible IRAs serve to reduce O-MAGI. My initial assessment on the benefit of W2 wages was based partially on a misinterpretation of the law, specifically that deductible IRA contributions had to be backed out. I fixed the MAGI definition in the initial post and so stated same in the revision note. I guess you missed that.

What I didn't do however was go back and revise the “lost subsidy” statement. I now stand corrected. Thank you for pointing this out.

For me personally even after correcting those facts, I'm still loath to earn another W2 dollar. That's a personal position. What anybody else does is their business.

Your 1099 ideas do sound interesting. I'll need to look into that further to better under the tax implications. Not sure how one can legally avoid the W2 taxes of FICA/Medicare. Isn't there some kind of self-employment tax that's actually even more egregious – like paying not just the employee but also the employer contributions? Maybe you can bring more clarity to your point.

One caution on the “a lot of Moolah” idea. Sheltering $13k means funding both his and her IRA with $6500 each. For me that sounds interesting. However for my spouse, as I mentioned in the post, we're exploring strategies for minimizing her eventual RMDs. I'm not trying to be obtuse but could you help me understand how adding additional funds to her IRA doesn't aggravate the situation?

Perhaps I'm just getting confused by your choice of pronouns; saying “you” when meaning the more general “one” or “anyone”.

Thanks for all of your input. I especially look forward to taking a closer look at your thoughts on an HSA in combination with a Bronze plan.

[47]

Quote:

Originally Posted by zedd Not sure how one can legally avoid the W2 taxes of FICA/Medicare. Isn't there some kind of self-employment tax that's actually even more egregious – like paying not just the employee but also the employer contributions? Maybe you can bring more clarity to your point.

As far as I know there is no way to avoid the FICA/Medicare taxes. Even the refundable tax credits do not make any dent on that. You are correct in that self employed individuals end up paying double. So it comes to about 15% in payroll taxes. My point was that the pain pretty much ends there and does not propagate by adding more in AGI to increase your income taxes or decrease your subsidy.

As to the RMD issue.. I have been converting my IRA to ROTH steadily in small batches. This whole ACA subsidy thing is going to put a crimp on that. My hope is when I reach the medicare age (or when the medicare age reaches me through "Medicare for all"!) and when the premium is not as sensitive to my AGI, I would start the ROTH conversion again. Right now my ROTH balance is close to double of my regular IRA balance.

The HSA sheltered income does not have any RMD implication. Just save your receipts so that you can drain it any time.

[zedd]

Quote:

Originally Posted by 47Percent Right now my ROTH balance is close to double of my regular IRA balance.

Sweet! Only wish we'd started ROTH conversions sooner.

[meierlde]

Quote:

Originally Posted by 47Percent As far as I know there is no way to avoid the FICA/Medicare taxes. Even the refundable tax credits do not make any dent on that. You are correct in that self employed individuals end up paying double. So it comes to about 15% in payroll taxes. My point was that the pain pretty much ends there and does not propagate by adding more in AGI to increase your income taxes or decrease your subsidy. As to the RMD issue.. I have been converting my IRA to ROTH steadily in small batches. This whole ACA subsidy thing is going to put a crimp on that. My hope is when I reach the medicare age (or when the medicare age reaches me through "Medicare for all"!) and when the premium is not as sensitive to my AGI, I would start the ROTH conversion again. Right now my ROTH balance is close to double of my regular IRA balance. The HSA sheltered income does not have any RMD implication. Just save your receipts so that you can drain it any time.

Although the part B income limits are now 85k single and 170k married, I expect these to be lowered, perhaps to the 400% limit soon. (Both sides have discussed the issue). Today you pay the full cost of part b at 214k and 428k.

[ziggy29]

Quote:

Originally Posted by 47Percent As to the RMD issue.. I have been converting my IRA to ROTH steadily in small batches. This whole ACA subsidy thing is going to put a crimp on that. My hope is when I reach the medicare age (or when the medicare age reaches me through "Medicare for all"!) and when the premium is not as sensitive to my AGI, I would start the ROTH conversion again. Right now my ROTH balance is close to double of my regular IRA balance. The HSA sheltered income does not have any RMD implication. Just save your receipts so that you can drain it any time.

Yeah, it's interesting. Some people who have incomes below 133% of the poverty line are looking for reasons to *increase* MAGI so they can get subsidies and stay off Medicaid, and some people are looking to keep it down as much as possible. So if you are in the latter camp, it may only make sense to do Roth conversions until you are about to hit a "cliff". We are used to doing this being sensitive to income tax brackets, but this adds another dimension to it.

[gauss]

Quote:

Originally Posted by 47Percent The profile of an ER is ideally suited to exploit HSA compatible plans in the ACA. The fact that you are an ER means a) you have some reasonable amount of wealth accumulated b) You probably qualify for subsidy as earned income has tapered off c) You can control your MAGI d) You are savvy enough to do ROI calculations e) You probably qualify for accelerated amount for HSA contribution.

Wouldn't the presence of any significant ER Pension income mess up this situation, subsidy-wise that is? MAGI includes 1099-R Pension income if I am not mistaken.

-gauss

[ERhoosier]

Quote:

Originally Posted by zinger1457 One thing I've noticed as I look closer at the details of the plans being offered to me on ACA is that quite a few of them are out of network (no local providers) so of no interest to me. Don't see anyway to filter those out, the only way I've found to determine if a plan is in/out of network is to click on the 'Provider directory' link for the plan. It takes you to the insurance company site and they usually have a note that 'it's out of network and may cost you more' or a search of providers in your area shows a big 0.

Unfortunately, in many areas those links are reportedly not functional (yet?).

[47]

Quote:

Originally Posted by ERhoosier Unfortunately, in many areas those links are reportedly not functional (yet?).

The story in the bay area is that even major insurance companies (Blue Cross for example) are still holding out with major provider networks (Sutter health) and will not finalize the arrangements till the end of the year.

This is not unique to or because of ACA, but one of the pleasures of market driven system. We just pay and the providers and insurance companies fight for the spoils. In the mean time, we have to buy a pig in a poke.