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ACA Questions
Old 11-18-2020, 11:13 AM   #1
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ACA Questions

I have a few questions and am looking for another set of eyes to validate some assumptions I have regarding ACA benefits.

Background
I am 63 and currently using Cobra for my health care. At the start of 2021 I will have 6 months left on Cobra and then will require 9 months of self paid insurance until I qualify for Medicare. My wife is on Medicare and will begin Social Security the beginning of the year with an annual expected benefit of $22,322 a year. I am waiting to take my Social Security. This year we made Roth conversions of ~$60K to fill the 12% tax bracket as we lived off of LTCG’s in our taxable account.

I am contemplating foregoing Roth conversions this year to take advantage of the ACA since I only have a half-year of Cobra left and will have to find other health insurance during the year. We live in Washington state and the ACA income limits are approximately $24K-$68K of MAGI.

I am using this 1040 calculator to run the numbers for tax year 2021. I realize the calculator is for tax year 2020 but it should be close enough. (https://www.mortgagecalculator.org/c...calculator.php).

$4300 Dividends all qualified. I used last year’s number so it should be less next year since my taxable account is now smaller than last year.

$22,322 Wife’s social security.

$40,247 LTCG’s from taxable account. This number will also be much less since I will not need to sell as much equities due to my wife’s additional Social Security income.

So using the above numbers as a worst case (most possible income for the year) and plugging that into the calculator I come up with AGI of $59,944.

Questions
The calculator states that only $15,697 of SS is taxable. Does that mean I have to add $6,625 ($22,322-$15,697) to my AGI to come up with our MAGI?

Am I missing anything else I will need to add to my AGI to come up with the correct MAGI?

Do I have to state my MAGI for 2021 when I sign up for ACA health insurance and what will happen if I miss the number?

Any other thoughts or advice is welcome.

Thank You
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Old 11-18-2020, 11:45 AM   #2
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Do I have to state my MAGI for 2021 when I sign up for ACA health insurance and what will happen if I miss the number?
Yes. They will want "proof".
Others here report that a formal letter in reply should suffice.

payback if you guess wrong : https://www.healthinsurance.org/faqs...e-to-repay-it/
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Old 11-18-2020, 12:09 PM   #3
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This page on the federal exchange indicates you need to add the tax-exempt Social Security benefits back on top of what your 1040 Adjusted Gross Income is.

https://www.healthcare.gov/income-an...d-information/

I will add that for my 3 years of submitting ACA applications on the exchanges (2 on the federal and PA exchange for 2021), I have never had to submit any documentation about my income estimations. I gave them access to my tax returns during the application process, however. My income has varied a lot in my ACA years. However, MANY people have been asked to verify income estimates with some form of document. It may be as simple as you writing a letter stating how you arrived at your estimate. If they want more, they ask for it.

Yes, if you miss your estimate, they reconcile it when you file your taxes for the year. Not a big deal or added complexity. Happened to me for 2019. And they still didn't ask for income estimation proof for 2020 or 2021. No idea what their criteria for this is.
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Old 11-18-2020, 02:56 PM   #4
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I just signed up for next year. You need to make an estimate of income for subsidy calculation. Hard to do when one's income is dividends and capital gains. But they immediately accepted my estimate, except for DH's self-employment income. We had to provide a document for that. Since you are signing up in 2021, you will estimate your 2021 income. Your 2020 income is, in a sense irrelevant.

You will need documentation of your COBRA end date from your former employer or the COBRA administrator. The COBRA administrator pointed me to a document in my COBRA account that I successfully used. Apply 60 days or slightly less before your COBRA end date.

If your estimate is off a little, it can be squared away at tax time. If it is off a lot, update the ACA earlier and adjust the premium tax credit. The limit for the premium tax credit next year is a little over $68,000. If you're close, chose an HSA compatible plan. They're a little higher in premiums than non HSA compatible plans. Then you can open HSAs and deposit about $3,500 each, which lowers your MAGI by that amount.
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Old 11-18-2020, 03:42 PM   #5
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As an aside, access to COBRA does not prevent you from getting an ACA policy. So you could get an ACA policy starting in January during this open enrollment (not waiting for COBRA to end).

My advice is always to get the tax software, typically available around Thanksgiving, and do your 2020 taxes (with estimates) before year-end.
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Old 11-18-2020, 03:55 PM   #6
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Quote:
Originally Posted by Russ2020 View Post
Questions
[1] The calculator states that only $15,697 of SS is taxable. Does that mean I have to add $6,625 ($22,322-$15,697) to my AGI to come up with our MAGI?

[2] Am I missing anything else I will need to add to my AGI to come up with the correct MAGI?

[3a] Do I have to state my MAGI for 2021 when I sign up for ACA health insurance and [3b] what will happen if I miss the number?

[4] Any other thoughts or advice is welcome.

Thank You
1. Yup. See the instructions for line 2a of Form 8962 at the IRS website for what you have to add back. Your add back for your wife's non-taxable SS will occur on line 4 of Worksheet 1-1.

2. Tax exempt interest if you have any. Also some Form 2555 stuff if you file that.

3a. You have to estimate it for them, as others have said. You might have to write a letter to support your estimate, as others have said.

3b. You'll reconcile it, much like you do your tax withholding and actual tax liability. The reconciliation will happen on Form 8962 when you file your 2021 taxes in spring 2022. In January of 2022 you'll get a 1095-A which generally will give you the numbers to put on the 8962.

4. You can wait until COBRA's about to run out to sign up; you don't need to do it now during this ACA open enrollment. Since that will be middle of the year, you'll do what's called a special enrollment.

Since you and your wife are both over 55, you have an additional $1K each if you choose to contribute to an HSA. So $3,550 plus $1K for each of you => $9,100 total of AGI reducibility.
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Old 11-18-2020, 03:58 PM   #7
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The subsidies of the ACA are incredibly generous if you know how to present your AGI to meet the standards. It's a gift if you play it right and just too good to be true but it IS. Unfortunately this my last year and will enter Medicare.

ACA pays 65% of my healthcare premium but that's about all I can share..Great insurance also...
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Old 11-18-2020, 05:23 PM   #8
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Thanks so much for all your responses. The folks on this forum are so helpful. I have been poking around on the Washington health care plans web site. At $58K of MAGI my ACA credit would be $1468/month. At $68K of MAGI the credit is $1387/month.

Comparing apples to apples it looks like my current Cobra plan is by far the best choice. My current plan for 2021 will cost $540/month with a $0 deductible and $1500 max out of pocket. The closest plan I find on the Washington web site is $500 deductible with $5250 max out of pocket. They start at $850/month and go up from there to in excess of $1300/month. That's in addition to the credit.

I am going to meet with a broker tomorrow just for confirmation. It looks like, as suggested above, I will let Cobra run to its end June 30th. Then I will pick up an ACA plan to carry me to Medicare. I will have to find a much less generous plan to make it affordable.

Thanks again for all your responses.Ya know they couldn't make this stuff more complicated if they tried. Just wonder what I am going to do when my mind starts to go.
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Old 11-18-2020, 06:12 PM   #9
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Thanks so much for all your responses. The folks on this forum are so helpful. I have been poking around on the Washington health care plans web site. At $58K of MAGI my ACA credit would be $1468/month. At $68K of MAGI the credit is $1387/month.

Comparing apples to apples it looks like my current Cobra plan is by far the best choice. My current plan for 2021 will cost $540/month with a $0 deductible and $1500 max out of pocket. The closest plan I find on the Washington web site is $500 deductible with $5250 max out of pocket. They start at $850/month and go up from there to in excess of $1300/month. That's in addition to the credit.

I am going to meet with a broker tomorrow just for confirmation. It looks like, as suggested above, I will let Cobra run to its end June 30th. Then I will pick up an ACA plan to carry me to Medicare. I will have to find a much less generous plan to make it affordable.

Thanks again for all your responses.Ya know they couldn't make this stuff more complicated if they tried. Just wonder what I am going to do when my mind starts to go.
Since your COBRA option is so affordable and has great coverage, I don’t think it will matter, but... those ACA numbers seem high to me. Your wife is on Medicare, so it’s just you, right. Did you mistakenly enter her into the equation. Those numbers for the subsidy seem more like for 2 people. You need to count her income since they want household income. But only your information as a customer gets entered. Not both of you.

Like I said, you won’t likely beat your COBRA option. But for when You switch to ACA, you want the numbers correct.
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Old 11-18-2020, 06:15 PM   #10
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If it works out that you take Cobra for 6 months, you will have to go on ACA or the final 6 months. Not necessarily a bad choice. You will have to pay both deductibles if you have medical expenses in both halves of the year.

If you do that and your "income" is not even throughout the year, you can declare the income for the last half of the year only for ACA subsidy. I can't remember how or what form to use. It has been some years since I did that.

One thing I am not real clear on, I'm sure somebody else will know: perhaps you can do a Roth conversion in the 1st half of the year while on Cobra and still get an ACA subsidy for the 2nd half of the year. You might have to use tIRA funds to pay the tax on the conversion since it won't have to be paid as quarterly taxes. This tax payment may have been you plan anyway.

Certainly worth looking into. ACA income qualification rules are out of my expertise. Someone with more knowledge than I will have to chime in.
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Old 11-18-2020, 06:42 PM   #11
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Two other things I forgot to mention earlier:

1. Since you're only going to need a health insurance plan for 9 months between COBRA and Medicare, you could look into a short term plan. These are not sold on the exchanges; you'd have to check directly with health insurance companies in your area. They are generally cheaper because they are not required to meet the MEC requirements that ACA plans are.

2. The 400% income cliff, assuming you live in Washington (either State or DC) and you get an ACA plan and it's the two of you in your tax household (ie you're married and have no dependents), for 2021, is $68,960. This number is inflation adjusted annually.

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If you do that and your "income" is not even throughout the year, you can declare the income for the last half of the year only for ACA subsidy. I can't remember how or what form to use. It has been some years since I did that.
This is incorrect. ACA subsidies are based on the family income (well, family ACA MAGI) for the entire tax year.

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Originally Posted by CRLLS View Post
One thing I am not real clear on, I'm sure somebody else will know: perhaps you can do a Roth conversion in the 1st half of the year while on Cobra and still get an ACA subsidy for the 2nd half of the year. You might have to use tIRA funds to pay the tax on the conversion since it won't have to be paid as quarterly taxes. This tax payment may have been you plan anyway.
OP can do a Roth conversion, but if the traditional IRA is pre-tax, then the conversion would be taxable and be added to ACA MAGI and reduce their subsidy accordingly as mentioned above. OP *cannot* exclude Roth conversion income simply because it occurred before starting the ACA plan. Whether it is smart to do so is another decision that requires a complete separate conversation.

OP could pay the tax on the conversion in a number of ways - through withholding on the conversion, an estimated tax payment, withholding from his or his wife's job income. How to do so best again depends on several other things about OP's tax situation that we haven't discussed.
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Old 11-18-2020, 07:05 PM   #12
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Thanks. I don't want to give out bad info. I must be getting old(er). I seem to have remembered something about monthly income. I went thru soooo many applications in Cobra, ACA (many) and Medicare for me and DW, it is all a bad memory now. Maybe I was confusing it with the Tax form to justify inequal income and quarterly payments.

Thanks for putting this all straight.
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Old 11-18-2020, 07:21 PM   #13
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Thanks. I don't want to give out bad info. I must be getting old(er). I seem to have remembered something about monthly income. I went thru soooo many applications in Cobra, ACA (many) and Medicare for me and DW, it is all a bad memory now. Maybe I was confusing it with the Tax form to justify inequal income and quarterly payments.

Thanks for putting this all straight.
No worries. It's all very fresh in my mind for now as I am in the midst of it myself with my own situation and also being a volunteer tax preparer.

I hear you on forgetting, though. Now that my kids are older I've forgotten everything prior to about 9th grade. I don't remember anything about when kids hit various milestones and so forth - stuff I used to know but now don't need to. I also kinda have forgotten how to work!
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Old 11-19-2020, 06:27 AM   #14
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I am 63 and currently using Cobra for my health care. At the start of 2021 I will have 6 months left on Cobra and then will require 9 months of self paid insurance until I qualify for Medicare. My wife is on Medicare...
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4. You can wait until COBRA's about to run out to sign up; you don't need to do it now during this ACA open enrollment. Since that will be middle of the year, you'll do what's called a special enrollment.

Since you and your wife are both over 55, you have an additional $1K each if you choose to contribute to an HSA. So $3,550 plus $1K for each of you => $9,100 total of AGI reducibility.
The wife is not eligible to contribute to an HSA since she is on Medicare. If the husband chooses an HSA eligible individual HDHP for the second half of 2021, he can contribute 6/12 of the $3600 (2021) base amount plus 6/12 of the $1000 catch-up. This assumes the 2021 COBRA plan is not HSA eligible.

The HSA "last month rule" can't be used to make a full-year contribution since he will not meet the 12 month testing period in 2022 since he goes on Medicare during 2022.

Quote:
Testing period: If contributions were made to your HSA based on you being an eligible individual for the entire year under the last-month rule, you must remain an eligible individual during the testing period. For the last-month rule, the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month (for example, December 1, [2021] through December 31, [2022]).

Reference: https://www.irs.gov/publications/p96...link1000204050
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1. Since you're only going to need a health insurance plan for 9 months between COBRA and Medicare, you could look into a short term plan. These are not sold on the exchanges; you'd have to check directly with health insurance companies in your area.
Washington state limits STMs to 3 months and limits purchases to one STM every 12 months.

Quote:
Washington: The new [2019] rules limit short-term plans to three-months, prevent renewal, and prohibit insurers from selling short-term plans to anyone who had already had three months of short-term coverage in the prior 12 months.

Reference: https://www.healthinsurance.org/so-l...rt-term-plans/
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Old 11-19-2020, 08:39 AM   #15
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Since your COBRA option is so affordable and has great coverage, I don’t think it will matter, but... those ACA numbers seem high to me. Your wife is on Medicare, so it’s just you, right. Did you mistakenly enter her into the equation. Those numbers for the subsidy seem more like for 2 people. You need to count her income since they want household income. But only your information as a customer gets entered. Not both of you.

Like I said, you won’t likely beat your COBRA option. But for when You switch to ACA, you want the numbers correct.
I have playing around with Washingtons plan website. If I search without adding a household member (wife) the max amount of MAGI I can have is ~$51K. Adding my spouse that number increases to ~$69K. The site asks for my wife's birthdate so it must take into account she is on Medicare.

Searching plans single and at $51K of MAGI the credit is $550. Searching married and MAGI at $68.9K the credit is $1380. I can find inexpensive plans but if I want a plan even close to benefits of my Cobra plan (ACA Gold) I will be paying $850 to $1300+ a month. These plans are still not as good as my current Cobra coverage. I have a meeting today with a broker just to make sure I understand things correctly and to get some ideas of how to proceed after Cobra.

It's crazy a $1380 credit plus $1300 a month. Thats a $2400 premium and they still have a 5K max out of pocket. Looks like I will be sticking with Cobra for six more months and then I will have to take a less generous plan to make it to Medicare.
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Old 11-19-2020, 10:13 AM   #16
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It’s all a bit confusing, but here’s how I understand it. You’ll need to file a joint return to be eligible for subsidies. Your household size will be 2. Your MAGI (which includes all SS, not just taxable) will determine how much the family is expected to pay for premiums, and that is all based on FPL (and multiples) for family of two.

The actual subsidy will depend on how many members of the family are signed up for an ACA plan. If both were signed up, the amount you are expected to spend stays constant, the cost to cover two goes up, so the subsidy itself is way more.

What this basically means is that if you are, say, both on an ACA plan one year, you pay X. In the next year, if one of you goes on Medicare, assuming no price change etc (which, of course happens in the real world), you’d still pay X for the ACA plan now only covering one of you, but now you also have Medicare premiums. This is a pretty glaring flaw in the way things are calculated, but it is what it is.
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Old 11-19-2020, 10:41 AM   #17
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Another option is to pay the full amount of the ACA premiums and then just claim the credit on your tax return next year...


I did that the first 2 years.... paid with CC and got the CC rewards and then got the full amount of the credit... now the credit is a lot higher than before so I take it monthly...
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Old 11-19-2020, 12:26 PM   #18
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The wife is not eligible to contribute to an HSA since she is on Medicare. If the husband chooses an HSA eligible individual HDHP for the second half of 2021, he can contribute 6/12 of the $3600 (2021) base amount plus 6/12 of the $1000 catch-up. This assumes the 2021 COBRA plan is not HSA eligible.

The HSA "last month rule" can't be used to make a full-year contribution since he will not meet the 12 month testing period in 2022 since he goes on Medicare during 2022.

Washington state limits STMs to 3 months and limits purchases to one STM every 12 months.
Thanks for the corrections on the HSA stuff. You are correct on all of it.
Thanks also for the clarification about WA state rules on STM.
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Old 11-19-2020, 02:02 PM   #19
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Just wanted to close the loop and thank everyone who responded. I learned a lot reading all your responses.

I just finished the phone conversation I had with the insurance broker. She said the Washington state website is not smart enough to realize that my wife being over 65 is already on Medicare so the quoting is in error. She uses a different app when quoting.

Being married and applying for insurance only for me my tax credit would be as follows:
$68K of MAGI = tax credit of $375
$58K of MAGI = tax credit of $457

It looks like a catastrophic plan with a $6900 max out of pocket with basically no coverage until I hit the max out of pocket is going cost $350 -$432 a month after the tax credit. I will use a plan like this to carry me to Medicare. She said this pricing should not change between now and then.

As for Roth conversions there may be a little room to make a small conversion but I will have to wait and see.
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Old 11-19-2020, 07:27 PM   #20
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Just wanted to close the loop and thank everyone who responded. I learned a lot reading all your responses.

I just finished the phone conversation I had with the insurance broker. She said the Washington state website is not smart enough to realize that my wife being over 65 is already on Medicare so the quoting is in error. She uses a different app when quoting.

Being married and applying for insurance only for me my tax credit would be as follows:
$68K of MAGI = tax credit of $375
$58K of MAGI = tax credit of $457

It looks like a catastrophic plan with a $6900 max out of pocket with basically no coverage until I hit the max out of pocket is going cost $350 -$432 a month after the tax credit. I will use a plan like this to carry me to Medicare. She said this pricing should not change between now and then.

As for Roth conversions there may be a little room to make a small conversion but I will have to wait and see.
Yep. Those numbers sound more “normal” in today’s world. Welcome to the wonderful world of buying your own insurance.
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