Health Care subsidies

[FinanceDude]

This whole bill is a complete disaster.

 

[Gone4Good]

This whole bill is a complete disaster.

As is the status quo.

 

[samclem]

But what I think you'll find is that this isn't the result of an oversight, but the result of an attempt at giving the greatest subsidy possible to a given constituent subject to a spending constraint. A more gradual phase-out without committing more dollars would necessarily mean cutting subsidies to folks near the top of the 4x poverty threshold and either using the dollars saved to extend them to folks who make more or less. If they're given to those who make less, then we steepen the slope of the phase out, so we're really talking about relocating subsides from people who make less to folks who make more.

While I agree that it's unlikely nobody noticed this, I think in this case Congress looks better if we just say it was an oversight. Let's give the drafters of this thing the benefit of the doubt. They were busy, the bill was really long, it was important to make the numbers look right, they probably didn't have enough "help" and they were under tremendous time constraints to get it finished so it could be voted on by Christmas Eve, a traditional day for voting on important legislation.

 

[FinanceDude]

As is the status quo.

Agreed, but to ram it through without actually fixing the inherent problems is egregious...........it was done for political reasons, and had nothing to do with fixing health care, that type of legislation causes problems..........

 

[clifp]

My plan assuming the subsidies remain intact, and they use some form of AGI to calculate subsidies is to use a form of ping pong income. One year I'll qualify for the subsidies by taking all of my capital loss, increasing charitable deductions, I'll then purchase a 'gold' plan and during the year take advantage of free/lower cost test etc. The next year I won't be able to qualify for subsidies so I'll only get the bronze health plan and probably only see the doctor if I am ill.

Look at the bright side of the legislation, given the financial acumen on the forum we should have some terrific discussion of the best ways to game the system.

 

[Gone4Good]

Does anyone know what definition of income is used to calculate subsidies? I recall looking in the legislation but not actually finding it.

 

[Gone4Good]

Look at the bright side of the legislation, given the financial acumen on the forum we should have some terrific discussion of the best ways to game the system.

. . . .like a potential subsidy for moving to Hawaii (which has a higher dollar poverty threshold than the Lower 48).

 

[samclem]

My plan assuming the subsidies remain intact, and they use some form of AGI to calculate subsidies is to use a form of ping pong income.

That's a good angle. Sorta like bundling deductions, claiming the standard deduction every other year.

Look at the bright side of the legislation, given the financial acumen on the forum we should have some terrific discussion of the best ways to game the system.

Yes, but we'll be amateurs. I see a whole new industry springing up: "Health Benefit Optimization." Just like a tax advisor, you go to this guy to help you work the system. Fill out a survey of present/anticipated medical needs, bring in your tax forms and, for a price, he'll show you how to get the most medical care for the smallest out-of-pocket cost. Alternating year strategy, various health plan choices, gain/loss from staying with an employer plan vs going to the exchanges, keep an "adult-child" on your plan or have 'em go to the exchanges and get the subsidy, etc. Like the tax code, there's big money involved, the government's rules are complex with lots of interdependencies and break-points, and the game will change frequently enough to guarantee repeat customers. Yet more jobs "created" by the new law, a win-win!

 

[samclem]

Does anyone know what definition of income is used to calculate subsidies? I recall looking in the legislation but not actually finding it.

I'm still looking. A footnote in one of the CBO reports said " Subsidies would be based on enrollees' household income, as defined in the bill. "

This page at the Retire Early Homepage has some tips, I haven't confirmed any of it:

Tax, income, and health insurance planning for 2014
There are several things you can do to minimize your taxable income in retirement and increase the value of any health insurance subsidy you may be eligible for.

• 1) Limit tax-exempt income -- since tax-exempt income is included in the Modified Adjusted Gross Income calculation for the health insurance subsidy, it's best to minimize it.

• 2) Prefer dividends over taxable interest income -- as long as dividends are taxed at a lower rate than interest income, you should favor dividends.

• 3) Minimize capital gains, maximize tax-free returns of capital -- if you did any tax-loss harvesting in the market meltdown during the waning days of the Bush Administration, you should be sitting on some unrealized capital losses. By matching the sale of some winners and losers, you may be able to make a sizeable withdrawal from your portfolio without incurring any tax liabilty.

• 4) Delay taking Social Security benefits -- as an early retiree ages and enters the 59-64 age bracket, health insurance premiums reach their peak. It may make sense to delay Social Security benefits until age 65 when you qualify for Medicare so that you maximize the value of your health insurance subsidy before then.

• 5) Tap your Roth IRA -- you may be able to make tax-free withdrawals from a Roth IRA, though most financial planners advise against it to keep the tax-free compounding of investment returns intact. You should probably exhaust the first four items on this list before considering a Roth IRA withdrawal.

 

[kramer]

Thanks for the additional information. There definitely appears to be a lack of specifics out there.

I am also wondering which years are counted. For instance, due to 0% captial gains and qualified dividends tax vacation 2008-2012, I have been maxing my investment income to top of 15% bracket each year. I plan to do that soon this 2011 tax year. But I wanted to make sure that this year would not be counted as income toward qualification.

Essentially, the subsidies phase-out amount to an additional, huge marginal tax. This is a big incentive not to work or claim income or simply to work less.

 

[lets-retire]

Agreed, but to ram it through without actually fixing the inherent problems is egregious...........it was done for political reasons, and had nothing to do with fixing health care, that type of legislation causes problems..........

I seem to recall this being a major complaint on this board about the health insurance law.

 

[samclem]

Does anyone know what definition of income is used to calculate subsidies? I recall looking in the legislation but not actually finding it.

From a 28 April 2010 CRS Report (Footnote 14):

14 MAGI and household income will be used for determining the amount of premium credit assistance for the purchase
of a qualified health benefits plan under state exchanges, described in Section 1401 of PPACA. For more information
on MAGI and household income see CRS Report R40942, Private Health Insurance Provisions in PPACA (P.L. 111-
148) , by Hinda Chaikind et al.

From the CRS Report R40942 (footnote 13):

13 Household income is defined as the modified gross income of the taxpayer, plus the aggregate modified gross
income of all other individuals for whom the taxpayer is allowed a deduction for personal exemptions for the taxable
year.

Still, I think there might be more to it than outlined above. I gave up after diving into the sections, in-law cross-references, and between law cross references. I'm going to wait for a trustworthy answer to pop up on a reliable web site. For those who want to dive into the legislation and try to find what "household income" means:

Here's a link to the final version of PPACA (H.R. 3590) Here's how they define some things:

‘‘(1) FAMILY SIZE.—The family size involved with respect
to any taxpayer shall be equal to the number of individuals
for whom the taxpayer is allowed a deduction under section
151 (relating to allowance of deduction for personal exemptions)
for the taxable year.
‘‘(2) HOUSEHOLD INCOME.—
‘‘(A) HOUSEHOLD INCOME.—The term ‘household income’ means, with respect to any taxpayer, an amount equal to the sum of—
‘‘(i) the modified gross income of the taxpayer,
plus
‘‘(ii) the aggregate modified gross incomes of all
other individuals who—
‘‘(I) were taken into account in determining the taxpayer’s family size under paragraph (1),
and
‘‘(II) were required to file a return of tax
imposed by section 1 for the taxable year.
‘‘(B) MODIFIED GROSS INCOME.—The term ‘modified gross income’ means gross income—
‘‘(i) decreased by the amount of any deduction
allowable under paragraph (1), (3), (4), or (10) of section
62(a),
‘‘(ii) increased by the amount of interest received
or accrued during the taxable year which is exempt
from tax imposed by this chapter, and
‘‘(iii) determined without regard to sections 911,
931, and 933.]

Here's a link to the reconciliation bill (H.R. 4872) that followed the main law.

 

[Gone4Good]

Here's a link to the reconciliation bill (H.R. 4872) that followed the main law.

Thanks. Now I remember why I still didn't have an answer to the question after looking at the legislation . . .

The term ‘modified adjusted gross income’ means adjusted gross
income increased by—

But adjusted gross income isn't defined. A good guess is that it is AGI as listed on your tax form, plus tax exempt interest. But then contributions to HSAs, IRAs, Individual 401(k)s, all reduce MAGI. That could be a huge swing factor in determining weather you qualify for subsidies. Especially the Individual 401(k), which can be quite large.

 

[ziggy29]

I seem to recall this being a major complaint on this board about the health insurance law.

First and foremost, IMO, there is *very* little in the new law that addresses cost containment. And that is the 800 pound gorilla in the room which, if addressed, would make all the other related issues much easier to fix.

No "reform" will make the system sustainable, accessible and somewhat affordable if health care costs keep rising 3-4 times the rate of inflation and wage growth.

 

[lets-retire]

First and foremost, IMO, there is *very* little in the new law that addresses cost containment. And that is the 800 pound gorilla in the room which, if addressed, would make all the other related issues much easier to fix.

No "reform" will make the system sustainable, accessible and somewhat affordable if health care costs keep rising 3-4 times the rate of inflation and wage growth.

I agree.

I also like to use the old adage: "You can have something fast, cheap, or good, but not all three." The health insurance law was sold as being able to provide all three.

 

[samclem]

And that is the 800 pound gorilla in the room which, if addressed, would make all the other related issues much easier to fix.

No "reform" will make the system sustainable, accessible and somewhat affordable if health care costs keep rising 3-4 times the rate of inflation and wage growth.

Yep. And putting more money into any system is unlikely to result in lower prices.
Some reforms of the (various) health care delivery mechanisms would, in themselves, lower prices. No one talks about needing some sort of big special mechanism to lower food prices, or to mandate lower costs for houses, or to lower life insurance rates.

 

[M Paquette]

I have this sneaking suspicion that any attempt at changes oriented toward cost containment will immediately result in shrieks of "Rationing!", "They wanna kill Grandma!", "Socialism!", and the other usual noises.

Gosh, sometimes this looks like there is a Grass Roots Movement (TM) to protect the profits of the medical industry. I'm sure that would never ever happen, though, in such a pure free market economy as health care operates within.

I don't know how to fix it, so here's a bunny with a pancake on its head:

 

[Gone4Good]

No one talks about needing some sort of big special mechanism to lower food prices, or to mandate lower costs for houses, or to lower life insurance rates.

But then no one is prevented from buying any of those things because of pre-existing conditions.

"Sorry, sir, you're too old to buy that banana."

 

[Gone4Good]

I have this sneaking suspicion that any attempt at changes oriented toward cost containment will immediately result in shrieks of "Rationing!", "They wanna kill Grandma!", "Socialism!", and the other usual noises.

No need to be suspicious, sneaking or otherwise, because that is already part of the historic record.

The people who generally complain about lack of cost containment ex-post are the very same people who were [-]screaming[/-] complaining about cost containment efforts ex-ante. Jeeze, it was only three months ago that one of our grand political parties was running non-stop campaign commercials accusing the other side of passing health reform legislation that cut Medicare spending.

Disingenuous? You betcha!

I don't know how to fix it, so here's a bunny with a pancake on its head:

One of the ways things might get "fixed" is if folks like GOP Presidential Candidate Mitt Romney would come forward and support the health care legislation that he signed into law as governor, or if any Republican would step forward and support the health care legislation that they put forward as an alternative to "Hillarycare" in 1993. Because that is basically the law of the land now.

Congratulations, it may have taken 17 years, but the GOP finally got their health reform passed. You'd think they'd be more pleased.

 

[samclem]

One of the ways things might get "fixed" is if folks like GOP Presidential Candidate Mitt Romney would come forward and support the health care legislation that he signed into law as governor, or if any Republican would step forward and support the health care legislation that they put forward as an alternative to "Hillarycare" in 1993. Because that is basically the law of the land now.

Congratulations, it may have taken 17 years, but the GOP finally got their health reform passed. You'd think they'd be more pleased.

There were just 19 Republican senators who co-sponsored that bill (less than half of the GOP senators), it was hardly a unified GOP position. And, it stunk, badly (akin to the recently passed legislation). Employment linked to health care--dumb. I guess we'll be stuck with that as long as people believe they are getting their health care "for free". In 2008 one of the presidential candidates proposed breaking that link, but the other candidate used the issue effectively to bludgeon him in the campaign. At least the 1993 bill had tort/malpractice reforms stronger than the current plan.

And, would you like some quotes from leading Democrats concerning what they thought of that 1993 bill? To turn your question around: If that 1993 proposal was nearly the same as the one just passed, why didn't Democrats vote for it then, once the wheels came off "Hillarycare"? They were in the majority in both the House and Senate, and with some Republicans going along, they could easily have passed this law. Really, I hope you'll agree there's plenty of hypocrisy and "plasticity of position" on both sides. If not, how did a very similar proposal go from "unacceptable" to "a great achievement"?

In retrospect, how much better if they'd passed that mess back then. We could have been well on our way to health care nirvana 17 years ago! We'd have seen exactly where the train was going, suffered the government cost escalation and the inevitable waiting lists, and maybe reformed the thing into a market-based system by now. Instead, we have to suffer all that with an economy that is on its back.

One of the "benefits" of the present plan is the likely severance of the link between employment and health care. As the costs of the mandated care escalates, and if nothing changes, employers will eagerly pay the fines and turn their employees over to the exchanges to purchase their own policies. Once that process is complete, we'll have established a good foundation for an insurance marketplace without the unneeded and expensive "other participant" in the game. There are strong indications that the "divorce" is already underway. The number of waivers being requested and a quick look at the relative costs to companies/unions/public entities from both courses of action make it clear how things are going to turn out.

 

[M Paquette]

And, would you like some quotes from leading Democrats concerning what they thought of that 1993 bill? To turn your question around: If that 1993 proposal was nearly the same as the one just passed, why didn't Democrats vote for it then, once the wheels came off "Hillarycare"? They were in the majority in both the House and Senate, and with some Republicans going along, they could easily have passed this law. Really, I hope you'll agree there's plenty of hypocrisy and "plasticity of position" on both sides. If not, how did a very similar proposal go from "unacceptable" to "a great achievement"?

Ooooh! Ooooh! Ooooh! I know! I know!

YouTube - I'm against it!.wmv

 

[samclem]

I don't know how to fix it, so here's a bunny with a pancake on its head:

If pets had health coverage, you can bet that poor Lepus with the pancake appendage would have been through two MRIs and a Kitty scan by now.

 

[M Paquette]

Health care subsidies may become very important to folks who will be relying on Medicare soon.

Under a proposed new Medicare plan, persons currently 54 and under would receive a fixed payment voucher at age 65 to purchase individual medical insurance in the private market. The exact amount of the voucher would depend on total current Medicare spending, and would be indexed to adjust to cost of living changes.

The Medicare payment is projected to be on average $11,000, with a possible positive adjustment based on a risk assessment from the chosen health plan. Means testing is applied, with beneficiaries with incomes over 80,000 to 200,000 receiving 50% of the standard payment, and beneficiaries with incomes over 200,000 receiving 30%.

For persons under age 55 the Medicare eligibility age will be gradually raised from the current 65 years to 69 years and 6 months.

A fail safe test is applied to government funding, such that if the percentage of funding from general revenues exceeded 45% in the prior fiscal year, then on 1 July (or 2 months after the Medicare Trustees Report on funding is released) there will be an automatic 1% reduction in payments for services provided in the Medicare fee-for-service sector, the continuation of the current plan for those currently 55 and older.

Exercise: Go forth and price non-Medicare individual insurance policies for persons 65 and older. Next, figure in an additional 10 years of medical inflation. What is the possibility that the only cat scan you'll get is from Fluffy, when you're eating her Friskies?

 

[samclem]

Under a proposed new Medicare plan . . .

Wait, no scary music?

Anyway, here's a link to what Medicare's actuary said about the Ryan Roadmap plan for Medicare, and what Congressman Ryan said.

Ryan talks gooder than I write, so his words:

“There’s only going to be so much money for health care because the economy can only support so much … So is it better spent through the person in a competitive marketplace or through the government under increasing price controls and pressure?”

“If you go through the century, these entitlements consume all money. The GAO calculation assumes Congress is going to wise up and cut back on these programs because people will decide they don’t want 100 percent of their discretionary income going to health care. They want some for food and some for shelter and some for other things. So there will be a curtailment of health care spending in the future,” Ryan said. “The question is which curtailment gets you the better results at going after the cause of health inflation: consumer pressure or government price controls.”

Exercise: Go forth and price non-Medicare individual insurance policies for persons 65 and older. Next, figure in an additional 10 years of medical inflation.

Well, somebody is going to be paying for this care. The present system isn't doing much to control costs, and medical costs paid by Medicare are rising faster than costs paid by private medical insurers.

What is the possibility that the only cat scan you'll get is from Fluffy, when you're eating her Friskies?

 

[M Paquette]

Well, somebody is going to be paying for this care. The present system isn't doing much to control costs, and medical costs paid by Medicare are rising faster than costs paid by private medical insurers.

Yup. This works to reduce costs from the demand side, as in "I can't afford to see the doctor." Folks whose ER plans were to have enough to cover individual insurance, or rely on private retiree coverage to get to Medicare, and then have that pick up most of the tab may have to reconsider their plans.

That $11,000 doesn't cover a high deductible/HSA non-Medicare individual plan for a 65 year old in most parts of the US today. For example, the cheapest non-Medicare Kaiser Permanente plan for a 65 year old here is $12,672 annually, with $30 copay after a $2,700 deductible, 30% copay on hospital and emergency services, $5,200 annual out of pocket maximum.

I don't see anything coming up that will make such plans much cheaper in 10 years. Conservative planning for retirement suggests that this change in expenses, if the changes do go through, should be taken into consideration.