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

[Senator]

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.

We are getting off the OPs original question, but accrual accounting is just that. Recognizing revenue as goods or services are provided, not when the revenue is received. It is not limited to any particular business, and not limited to any particular sized business. An individual can do it.

If the revenue is never actually received, or results in a return for the full or partial amount, I am not sure what happens to the income/deductions declared in previous years. I suspect it is a loss.

Whether you are your own best customer, or someone else is your best customer, it really doesn't matter. Large businesses do it all the time, much of the inversions that have been done relate to that. Company A (in the USA) pays company B (in Ireland) a license fee. Company B is in a low tax area, like Ireland. Company A has very little, or no profit, due to the licensing fee. Both Company A and B are subsidiaries of a larger umbrella.

You have to look at the harm done. If the Government takes in more revenue, it will not be challenged. If you get a subsided ACA policy as a result of extra income, there are tax implications and the IRS will certainly care. Especially when the tax credits are more than the tax. Just like with the EITC.

Income. The final rule also addresses verification of other premium tax credit eligibility information. An applicant’s claimed income must be checked against tax and Social Security records. If an applicant claims that his or her income is greater than that shown by this data, and thus tax credits will be smaller than they otherwise would have been, the applicant’s attestation will be accepted. If available data indicates that the applicant’s income is in excess of his or her claimed income by a “significant amount” the attestation must be verified, for example by requesting documentation.

http://healthaffairs.org/blog/2013/...eligibility-determinations-part-1/#more-32799

 

[pb4uski]

You are right that an individual can use accrual accounting for tax purposes... but if they do, they must use it for everything and cannot use cash for some things and accrual for others... which is why very few individual taxayers use the accrual method.

If revenue accrued is subseqently not received, it would be a bad-debt receivable and you woud get a deduction for the bad-debt.

 

[MichaelB]

This discussion is becomming dangerously silly. Anyone who believes it is acceptable to deliberately overstate income only needs to look once again at pb4uski’s post that repeats IRS language on every 1040. Deliberate overstating is perjury.

Accounting practices allow for unintentional miscalculations, and they are either adjusted in future periods or adjusted retroactively, but they are always acknowledged and remedied. Note that the key difference between the two is “intention”. When businesses deliberately misstate revenue, the owners or execs go to jail.

 

[ivinsfan]

The sad thing is some people might actually be interested in the OP original question and not bother to read through all this off topic stuff

 

[kevink]

Thanks everyone for the many thoughtful posts and wide-ranging discussion. As the OP I just wanted to add that I have no interest in deceiving the IRS on anyone else. It is hard to know in any given year whether our income will be just barely in the ACA range or in Medicaid territory as it all depends on the taxable gains we incur from selling assets as well as unpredictable income from occasional consulting work.

I also wanted to say that in our case this is very much a state-specific issue as well. In Arizona (Tucson, specifically) the doctors and clinics I have access to are the same whether on an ACA plan or Medicaid. Medicaid offers some dental benefits and better prescription prices, but there are downsides as well: stigma attached to being on it (as a childless adult) and - much more important - Arizona state law requires that it apply for exemptions every year that would require Medicaid recipients to only receive benefits for 5 years total regardless of age AND for able-bodied adults to prove they work at least 20 hours a week. So one might say a lower-income ER resident of the state is uniquely incentivized to stay on an ACA plan.

 

[rodi]

The way we handled it was to 'estimate' a higher income when applying through CoveredCA. But we can always make roth conversions to match the estimate if needed. (note that this is not the healthcare.gov site - but the california specific aca exchange site.)

In our case we estimate a bit higher than otherwise because coveredCA is very aggressive about putting minor children into medicaid - and our preferred insurer doesn't work as well with medicaid. I had this accidentally happen last year - and it took 3 months of headache to undo the kids on medicaid... basically social services thought we made to much for medicaid (and I agreed)... but covered CA thought we made to little and insisted the kids not be on ACA - but be on medicaid. So the kids were in limbo with no clear insurance. To complicate things my son was still under follow up surgical care for a jaw surgery to remove an ameloblastoma - and we definitely wanted to keep the same maxilofacial surgeon for the follow up care.

This year I am specifically over estimating my income to avoid this 'tween' state (between medicaid for kids and ACA). At tax time - it all works out (and we DO NOT) qualify for medicaid at tax time.) If I get less premium tax credits up front - so be it.

This isn't specifically fraud IMO - because I can always Roth convert to close to the estimated amount. How much I roth convert is always decided at the end of the tax year.

 

[kevink]

Thanks rodi! One take-away from all of this for me is I really do have to look closely at the Roth conversion thing. I don't have all that much in my IRA but the conversions might be just enough to keep me in the ACA range. Really appreciate the savvy advice.

 

[jim584672]

.... Arizona state law requires that it apply for exemptions every year that would require Medicaid recipients to only receive benefits for 5 years total regardless of age AND for able-bodied adults to prove they work at least 20 hours a week....

Not a law yet. This is a pending 1115 waiver that was rejected by the previous Administration. It is yet to be approved or implemented.

 

[kevink]

Not a law yet. This is a pending 1115 waiver that was rejected by the previous Administration. It is yet to be approved or implemented.

State law requires that they apply for this waiver every year until it's approved, and the consensus view in the local AZ press is that it's almost certain to be this year, given the political climate.

Here's a very recent overview:

https://ccf.georgetown.edu/2017/03/03/arizona-medicaid-amendment-does-not-include-analysis-of-impact-on-budget-and-individuals/

 

[jim584672]

Even if it gets approved I am sure lawsuits will be filed to block it since it is an improper use of 1115 waiver.

 

[MBSC]

As far as I can tell there is no such penalty yet.

When a person starts the ACA application, they certify under penalty of perjury that the income estimate provided is reasonably accurate based on their knowledge at that time. They must click the "agree" box to proceed to the demographic questions.

"Application filers must attest to income under penalty of perjury. In addition to risking criminal charges for providing false information, applicant filers can face $25,000 civil fines for negligently reporting false information and $250,000 fines for knowingly and willingly providing false information. "

(a) Grounds for imposing civil money penalties.

(i) Failure to provide correct information under section 1411(b) of the Affordable Care Act where such failure is attributable to negligence or disregard of any rules or regulations of the Secretary with negligence and disregard defined as they are in section 6662 of the Internal Revenue Code of 1986:

(A) “Negligence” includes any failure to make a reasonable attempt to provide accurate, complete, and comprehensive information; and

(B) “Disregard” includes any careless, reckless, or intentional disregard for any rules or regulations of the Secretary.

(ii) Knowing and willful provision of false or fraudulent information required under section 1411(b) of the Affordable Care Act, where knowing and willful means the intentional provision of information that the person knows to be false or fraudulent;

(3) No penalty will be imposed under paragraph (a)(1)(i) of this section if HHS determines that there was a reasonable cause for the failure to provide correct information required under section 1411(b) of the Affordable Care Act and that the person acted in good faith.

Reference: https://www.federalregister.gov/doc...e-and-insurance-market-standards-for-2015-and

 

[ncbill]

<shrug>

It's an estimate.

There are always ways to make additional income in the coming fiscal year...

 

[GTFan]

Exactly. I highly doubt the IRS or HHS will care about estimating higher income to qualify for ACA subsidies (and avoid Medicaid) even if you later reconcile it to be less than min required. They have bigger issues to chase, this is a very small percentage of the total pop and it is indeed just an estimate.

But if you do it year after year, that's probably not a good idea.