Possible legislation re: ACA cliff

[EastWest Gal]

It is all such a mess now and confusing. I think it would be a lot easier just to say nobody has to pay tax in 2020, call it a muligan.

Forgive me, but I have felt that way (a mess and confusing) since my first 1040EZ return in the 1970s.

But I do think we should pay tax.

 

[erkevin]

Changes for the new law will be available on the healthcare.gov website beginning April 1. That is when you would apply. Normally, applications have to be done in the previous years, but COVID and the new law is allowing people to enroll this spring. Explanade- if the silver plan is above 8.5% of your MAGI, you would receive a subsidy for the difference.

 

[SecondCor521]

Speaking of Form 8962, I was trying to figure out how that form will change for 2021, compared to 2020.

form: https://www.irs.gov/pub/irs-pdf/f8962.pdf
instructions: https://www.irs.gov/pub/irs-pdf/i8962.pdf

Line 6 determines eligibility based on % of FPL. That test should disappear.

Line 7 gets a % of MAGI from a chart (based on where you live) in the instructions. I expect that chart to change based on the newer, lower percentages in the new law. For example, 200 (% of FPL) would be 0.0200 instead of something in the 0.0640 range. Then 250 would be 0.0400 instead of something in the 0.0820 range. I assume straight-line interpolation would cover the percentages in between (which is where my 2021 MAGI should be).

The rest of the form through Line 29 (Part III) should operate the same as before. I don't know about later sections because they are not relevant to me.

Could it be this simple?

Sounds about right. It is straight line interpolation, BTW. Or at least it was before, and all that has changed is the endpoints of the line segments. (Well, and their slope, and "elevation", of course.)

 

[sengsational]

I can push up to 463% FPL without reducing my subsidy below what pays for the bronze plan.

I didn't put that fine of a point on it, but I think you're on to something. I'll find out in 8 months when the tax software for 2021 comes out and I can iterate my conversion amount.

 

[meridiver]

I buy my insurance through the California state exchange, Covered CA. Has anyone heard whether they are going to follow the same timeline as Healthcare.gov and open up for recalculation of subsidies on 4/1/21?

By my calculations, my premium is going to drop from $900/mo to about $150/mo, so I'd much rather get my premium reduced ASAP instead of paying the higher amount all year, then applying for a rebate next year.

 

[explanade]

I buy my insurance through the California state exchange, Covered CA. Has anyone heard whether they are going to follow the same timeline as Healthcare.gov and open up for recalculation of subsidies on 4/1/21?

By my calculations, my premium is going to drop from $900/mo to about $150/mo, so I'd much rather get my premium reduced ASAP instead of paying the higher amount all year, then applying for a rebate next year.

How is it dropping that much?

 

[meridiver]

According to the KFF subsidy calculator link, the SLSCP in my area is $2,100/mo. I'm currently enrolled in the lowest cost bronze plan in my area, which has a premium of $1400/mo (I "only" pay $900/mo thanks to a state health care subsidy).

When I apply the subsidy I'll be eligible for to my Bronze plan, it reduces my monthly cost to around $150/mo. If I instead had a Silver plan, my premiums would be around $700/mo.

The numbers are all a little cuckoo crazy and I'm not counting on anything until I actually get a quote from Covered CA.

 

[cathy63]

I buy my insurance through the California state exchange, Covered CA. Has anyone heard whether they are going to follow the same timeline as Healthcare.gov and open up for recalculation of subsidies on 4/1/21?

By my calculations, my premium is going to drop from $900/mo to about $150/mo, so I'd much rather get my premium reduced ASAP instead of paying the higher amount all year, then applying for a rebate next year.

They haven't said yet. The marketplace is still open for enrollment until May 15 though, so you can always use the Shop & Compare tool in April to see if it shows the new subsidies.

 

[Freedom56]

We bought our Bronze Circle EPO through OSCAR directly off-exchange since we did not qualify for subsidies. We have been buying insurance directly since retirement in 2015 since we saw no point previously in involving a third party exchange. We wanted access to UCLA and Cedars-Sinai health care systems and only Blue Shield of CA offers a PPO that covers those two systems on Covered CA. The bronze PPO through Blue Shield would cost $1497 per month for myself and my wife. Our current OSCAR Circle EPO costs us $1304 per month. So I contacted Covered CA to find out what the second lowest cost silver plan was, and the representative did not have an answer. I did find that the second lowest cost silver HMO would cost $1356 per month for both myself and my wife. However nobody at Covered CA could tell me if that plan was the basis for subsidies. The silver PPO on the exchange is $1958 per month. The only thing that is certain (from the IRS rules) is that you have to buy your insurance from the exchanges in your state to qualify for subsidies. I contacted OSCAR and they appeared to be caught off-guard by this change. The representative from OSCAR stated that many of their customers that were purchasing off-exchange have now started to switch. Maybe the information will flow down in a few months.

 

[cathy63]

We bought our Bronze Circle EPO through OSCAR directly off-exchange since we did not qualify for subsidies. We have been buying insurance directly since retirement in 2015 since we saw no point previously in involving a third party exchange. We wanted access to UCLA and Cedars-Sinai health care systems and only Blue Shield of CA offers a PPO that covers those two systems on Covered CA. The bronze PPO through Blue Shield would cost $1497 per month for myself and my wife. Our current OSCAR Circle EPO costs us $1304 per month. So I contacted Covered CA to find out what the second lowest cost silver plan was, and the representative did not have an answer. I did find that the second lowest cost silver HMO would cost $1356 per month for both myself and my wife. However nobody at Covered CA could tell me if that plan was the basis for subsidies. The silver PPO on the exchange is $1958 per month. The only thing that is certain (from the IRS rules) is that you have to buy your insurance from the exchanges in your state to qualify for subsidies. I contacted OSCAR and they appeared to be caught off-guard by this change. The representative from OSCAR stated that many of their customers that were purchasing off-exchange have now started to switch. Maybe the information will flow down in a few months.

This page has instructions for finding your 2nd lowest cost Silver Plan on Covered CA: https://www.coveredca.com/learning-...nd-individuals-shared-responsibility-penalty/

People who don't buy insurance need that info for filling out CA tax form 3853, so it's readily available. The only tricky part is to make sure you enter your ages as of January 1, not the current date (in case you already had a birthday this year). It doesn't matter whether the 2nd lowest Silver plan is an HMO or PPO or if it includes your preferred providers -- that's the one the subsidy is based on.

 

[Finance Dave]

https://www.healthcare.gov/see-plans

You can provide family info and income there and view plans and prices.

Thanks Niven! Ours shows 2nd lowest silver is $1,784/mo.

 

[Finance Dave]

So it wanted me to put in our income..which would have calculated a subsidy...so I made up an artificially high income just to see "full price" plans...which is how I got the $1,784/mo, or $21,408/year. So...


Let's assume I want current bronze (costs $1,479/mo or $17,748/yr) and a few MAGI incomes x 8.5%:

@ $60k, $5,100, so plan cost would be $17,748 - ($21,408 - $5,100), or $1,440/yr

@ $70k, $5,950, so plan cost would be $17,748 - ($21,408 - $5,950), or $2,290/yr

@ $80k, $6,800, so plan cost would be $17,748 - ($21,408 - $6,800), or $3,140/yr

@ $120k, $10,200, so plan cost would be $17,748 - ($21,408 - $10,200), or $11,208/yr

Does this look like the right math? If so, then my decision about whether or how much to Roth convert would be based on a comparison of the incremental premiums paid vs. the benefit we'd receive later by having less RMD taxes and so on. For example, assuming we take a $50k Roth conversion, am I willing to spend an additional $8,918 in premiums to do that ($11,208 - $2,290)...which is a 17% "penalty". But only taking an additional $10k (from $70k to $80k MAGI) would only mean an additional $850 in premiums, or an 8.5% "penalty".

I'm sure I have something wrong...but I'm getting closer to understanding each time...thanks for the patience!

 

[zinger1457]

Does this look like the right math? If so, then my decision about whether or how much to Roth convert would be based on a comparison of the incremental premiums paid vs. the benefit we'd receive later by having less RMD taxes and so on. For example, assuming we take a $50k Roth conversion, am I willing to spend an additional $8,918 in premiums to do that ($11,208 - $2,290)...which is a 17% "penalty". But only taking an additional $10k (from $70k to $80k MAGI) would only mean an additional $850 in premiums, or an 8.5% "penalty".

You also need to look into what tax bracket a large ($50K) Roth conversion will place you in. If married filing jointly the 12% bracket limit is ~$81K, anything over that limit will get taxed at 22%. Would you rather pay RMD taxes in the future at 12% or pay 22% on a large Roth conversion now? I've been doing Roth conversion the last few years mainly because I expect to be in a higher tax bracket in a couple years.

 

[PaunchyPirate]

We bought our Bronze Circle EPO through OSCAR directly off-exchange since we did not qualify for subsidies. We have been buying insurance directly since retirement in 2015 since we saw no point previously in involving a third party exchange. We wanted access to UCLA and Cedars-Sinai health care systems and only Blue Shield of CA offers a PPO that covers those two systems on Covered CA. The bronze PPO through Blue Shield would cost $1497 per month for myself and my wife. Our current OSCAR Circle EPO costs us $1304 per month. So I contacted Covered CA to find out what the second lowest cost silver plan was, and the representative did not have an answer. I did find that the second lowest cost silver HMO would cost $1356 per month for both myself and my wife. However nobody at Covered CA could tell me if that plan was the basis for subsidies. The silver PPO on the exchange is $1958 per month. The only thing that is certain (from the IRS rules) is that you have to buy your insurance from the exchanges in your state to qualify for subsidies. I contacted OSCAR and they appeared to be caught off-guard by this change. The representative from OSCAR stated that many of their customers that were purchasing off-exchange have now started to switch. Maybe the information will flow down in a few months.

I'm not sure what information you hope will flow down in a few months. The exchanges are open until at least May 15th. It's possible your state will keep it open longer, I suppose. It will take a little while for the federal and state exchanges to update their data to reflect the increased subsidies. But I expect it will be ready in a week or 2. You are correct that you will need to switch to an exchange-based plan in order to get any subsidy. I'd be checking your state exchange daily to see when they update their database.

Finding the second lowest cost plan is not that difficult. It is the second lowest cost silver plan across all plan types (HMO, EPO, PPO, HSA, non-HSA, etc.) in your zip code for your age.

 

[RunningBum]

Check your math on the $120K. I come up with $6540/yr. That keeps the "penalty" at 8.5%.
Also I think at $60K a couple gets a better that 8.5% subsidy, but otherwise those numbers look right if you correct the math error. Didn't someone publish the Kaiser Foundation link? Use that to verify. or healthsherpa.com.

 

[Finance Dave]

You also need to look into what tax bracket a large ($50K) Roth conversion will place you in. If married filing jointly the 12% bracket limit is ~$81K, anything over that limit will get taxed at 22%. Would you rather pay RMD taxes in the future at 12% or pay 22% on a large Roth conversion now? I've been doing Roth conversion the last few years mainly because I expect to be in a higher tax bracket in a couple years.

Yes, I was aware of the tax bracket issue but thanks for reinforcing it. We have been "managing" in the 12% bracket, but we really need about $90-$100k/year long term for our lifestyle...so we may need to be in the 22% bracket one year and take out up to the top of that bracket, then stay in the 12% bracket for a few years until we run low on cash again...lots of moving parts. I'd rather pay 12% RMD taxes in future, but when you add SS and RMDs as we approach our late '60s it may push us into the 22% bracket regardless. I want to point out that we feel very blessed that we are in this situation when many others struggle day to day.

My SS will be around $24k/year
Wife's SS will be around $20k/year
RMDs (rough estimate) will be around $55k/year
I have a modest pension (non-COLA'd) that will pay about $14k/year
Adding these up will put us around $113k. This is both GREAT news and bad news lol. Great news in that we will have more income than we spend. Bad news in that it will push us well into the 22% bracket...and who knows what that bracket will look like in the future with any new legislation.

We also have 5 fully-paid-for rental properties that we plan to sell off slowly, starting when I'm about 64 and completing by the time I'm about 68-69. This will add to our AGI in years that we sell.

Check your math on the $120K. I come up with $6540/yr. That keeps the "penalty" at 8.5%.
Also I think at $60K a couple gets a better that 8.5% subsidy, but otherwise those numbers look right if you correct the math error. Didn't someone publish the Kaiser Foundation link? Use that to verify. or healthsherpa.com.

You are right...I messed up the math! And I understand your comment about the $60k couple, as that is under the current 4xFPL. It won't let me edit my post with the math.

Thanks to everyone for contributing to all my questions, this has been very helpful!

 

[erkevin]

Finance Dave, you will be in the 22% tax bracket, not by much. After your 24.8k standard deduction, only about 8k will be taxed at 22%

 

[Finance Dave]

Finance Dave, you will be in the 22% tax bracket, not by much. After your 24.8k standard deduction, only about 8k will be taxed at 22%

Good point, thanks!

 

[Freedom56]

I'm not sure what information you hope will flow down in a few months. The exchanges are open until at least May 15th. It's possible your state will keep it open longer, I suppose. It will take a little while for the federal and state exchanges to update their data to reflect the increased subsidies. But I expect it will be ready in a week or 2. You are correct that you will need to switch to an exchange-based plan in order to get any subsidy. I'd be checking your state exchange daily to see when they update their database.

Finding the second lowest cost plan is not that difficult. It is the second lowest cost silver plan across all plan types (HMO, EPO, PPO, HSA, non-HSA, etc.) in your zip code for your age.

Covered CA just announced today that they will be rolling in the changes due to the American Rescue Plan starting May 2021 and terminating December 2022. It doesn't look like these changes will help that much for those with PPO health plans in our market. The lowest bronze HMO offered by Covered CA is $1062 per month for two of us and the lowest bronze PPO is $1497 per month (without subsidies). The second lowest silver plan is an HMO at $1356 per month on Covered CA. Our current bronze off exchange EPO that is almost equivalent to the bronze PPO costs us $1304 per month. The problem with the HMOs offered on and off exchange is that they do not have access to the good hospital systems in California. My wife worked as a surgical O/R nurse for many years and understands the ramifications of good versus mediocre health systems. Five of the top twenty hospitals in the country are in California but those hospitals only accept PPO or EPO plans from Covered CA or off-exchange individual market insurance. I'm going to estimate our taxable income for 2021 and 2022 and determine if it's worthwhile to switch given that the first three months of premium for 2021 will not be eligible for subsidies.

 

[Freedom56]

This page has instructions for finding your 2nd lowest cost Silver Plan on Covered CA: https://www.coveredca.com/learning-...nd-individuals-shared-responsibility-penalty/

People who don't buy insurance need that info for filling out CA tax form 3853, so it's readily available. The only tricky part is to make sure you enter your ages as of January 1, not the current date (in case you already had a birthday this year). It doesn't matter whether the 2nd lowest Silver plan is an HMO or PPO or if it includes your preferred providers -- that's the one the subsidy is based on.

Thanks for the info. Covered CA announced today that they will be rolling in the changes starting May 2021 and ending December 2022. The second lowest silver plan in our market for our ages is $1356 per month. The lowest cost bronze PPO offered by Covered CA that is accepted by UCLA, Cedars Sinai, or USC Keck, is the Blue Shield bronze PPO at $1497 per month. We are currently paying $1304 per month for our bronze EPO that has the same access network as the Blueshield bronze PPO. We had BlueShield during the first year of early retirement and they had to be the worst insurance company to deal with and all we use our insurance for is our annual preventive check-ups and screening. The switch to OSCAR was a no-brainer given the lower premiums, access to the good hospitals/doctors in Southern California. I'm going to make a decision in the next few days after determining if the subsidies will offset the premium difference between the on-exchange PPO vs our current off-exchange EPO.

 

[explanade]

So you have to switch from Bronze to Silver to get the subsidy aid?

Do you apply in advance or can you claim it on the 2021 return to get a credit or something?

Is it retroactive to January or starts in May for Covered CA?

 

[erkevin]

You can have either bronze or silver to get subsidy. The SLCSP is used to determine your amount of subsidy (say, $500). You can apply that $500 to any of the ACA plans, even the lower-priced Bronze. You apply this April on the ACA website and your subsidy is immediately applied to your premium beginning May (if the Gubmint don't go screwin things up!). If you don't apply in April, your subsidies will be credited to you at tax time.
It is retroactive to January, so that amount of subsidy will be credited to you come tax time.

 

[explanade]

Thanks.

 

[Finance Dave]

Circling back to this...got a letter from our ins carrier saying due to APTC changes we can go in and reapply to lower our premiums. We don't need the extra money right now...but want to make sure we'll get it next year as a credit if we simply do nothing...is that the understanding?

We currently have a bronze plan and are paying about $213/mo. I know we could also move up to a Silver...but don't need to do that. My focus is simplicity...don't want to go through another complicated application...rather just let it fall out next year during tax time.

 

[zedd]

Helicoper money

Circling back to this...got a letter from our ins carrier saying due to APTC changes we can go in and reapply to lower our premiums. We don't need the extra money right now...but want to make sure we'll get it next year as a credit if we simply do nothing...is that the understanding?

We currently have a bronze plan and are paying about $213/mo. I know we could also move up to a Silver...but don't need to do that. My focus is simplicity...don't want to go through another complicated application...rather just let it fall out next year during tax time.

Updated my application and picked the lowest cost Silver plan. It was only $30 a month more than my previous Bronze. Additional benefit, deductible went from $4250 to $1500.

They carried over my expenses from the Bronze plan, I've already met the Silver plan annual deductible!

You had better get in on this too before they run out of other peoples' money.