ACA Strategies...

[pb4uski]

Did you do the calculations with and without subsidy I ask because when I do it the marginal tax rate is 25% and that is starting at me owing ZERO in taxes....

Basically I will owe more in income taxes at 15% marginal and get about 10% less in subsidy.... I also lose a few other small credits....

I had a relatively complex Excel spreadsheet that did a projection of our finances from now until age 100, including a simplified tax calculation for each year. I looked at two scenarios... keeping our income slightly below 400% FPL and getting the subsidy or doing Roth conversions to the top of the 15% bracket.

If I do Roth conversions my stay in the 25% tax bracket once SS and RMDs begin is relatively short whereas if I don't do Roth conversion I'm in the 25% tax bracket for a much longer time and that 10% difference in tax over all those years make a big difference. IIRC, our age 100 NW was 25% higher by forgoing ACA subsidies.

In our case, the fact that we are in good health and can get relatively affordable catastrophic health insurance (~$5,500/year for essentially bronze level coverage) did skew the result. If I limited our income to 400% FPL then our subsidized cost of a bronze plan is $4,500 a year ($9,650 gross premium), but since we can get essentially similar protection for $5,500/year unsubsidized the economic value of the subsidy is only $1,000 a year and to get the I would need to forgo roughly $40k of Roth conversions and forgo $6k of future tax savings (paying 10% now to avoid paying 25% later) so the $6k trumps $1k anyday.

While I didn't look at it I suspect even if we had a regular plan so the value of the subsidy was $5,150 it would have been a closer call but still favored the Roth conversion to the top of the 15% tax bracket.

 

[timmar]

There are three brackets or clip levels. See this, starting page 14 http://www.fas.org/sgp/crs/misc/R41137.pdf
Some people with children have found that even when they qualify for cost sharing, their children are automatically enrolled in CHIP. Also, I recall some states enrolling people in Medicaid when they are close to the minimum.

This is what happened to us. Our options are to pay the full ticket for the kids to have private insurance, raise our MAGI by 2.5X, or have the kids on CHIP. After a lot of thought, we went with the kids on CHIP and earmark the money that would be going into private insurance to cash pay for any medical that CHIP won't cover. Essentially we have a catastrophic coverage policy and it has worked better than I thought it would. Wife and I are on a subsidized exchange policy (the same one GTfan above is on. And I went to GT also, so we must have the same thought process.)

 

[Texas Proud]

I had a relatively complex Excel spreadsheet that did a projection of our finances from now until age 100, including a simplified tax calculation for each year. I looked at two scenarios... keeping our income slightly below 400% FPL and getting the subsidy or doing Roth conversions to the top of the 15% bracket.

If I do Roth conversions my stay in the 25% tax bracket once SS and RMDs begin is relatively short whereas if I don't do Roth conversion I'm in the 25% tax bracket for a much longer time and that 10% difference in tax over all those years make a big difference. IIRC, our age 100 NW was 25% higher by forgoing ACA subsidies.

In our case, the fact that we are in good health and can get relatively affordable catastrophic health insurance (~$5,500/year for essentially bronze level coverage) did skew the result. If I limited our income to 400% FPL then our subsidized cost of a bronze plan is $4,500 a year ($9,650 gross premium), but since we can get essentially similar protection for $5,500/year unsubsidized the economic value of the subsidy is only $1,000 a year and to get the I would need to forgo roughly $40k of Roth conversions and forgo $6k of future tax savings (paying 10% now to avoid paying 25% later) so the $6k trumps $1k anyday.

While I didn't look at it I suspect even if we had a regular plan so the value of the subsidy was $5,150 it would have been a closer call but still favored the Roth conversion to the top of the 15% tax bracket.

OK... if I read this right you are buying cat insurance and even though you would get over $5K subsidy on a bronze plan, the net cost to you for a cat plan is $1K...

Wished I could go cat as I basically have that right now.... even though they call it bronze.. my deductible is $6600 per person with a limit of 2x... and I pay all costs until we hit that...

I will never hit the 25% bracket again unless I go back to w*rk.... well, except for the one year when I convert my old company's stock out of the 401(k) at cost and get to convert all that gain to cap gain...

 

[anethum]

My silver PPO premiums jumped 34% in 2016, and my potential subsidy went up significantly, too. In 2014, I did a mix of LTCG harvesting and Roth conversions up to the top of the 15% bracket. My income tax situation is complicated because I itemize deductions due to my high property tax plus some state/local income tax. The upshot is that after I did some calculations in late 2015, I decided to limit my Roth conversions for both 2015 & 2016 to stay below 250% of FPL, and qualify for cost-sharing in 2016 (even though my medical bills have been minimal). I estimated that my marginal rate factoring in federal & state/local income taxes, combined with subsidy, would add up to about 35% if I were to Roth convert to the top of the 15% federal bracket from 250% of FPL.

 

[pb4uski]

OK... if I read this right you are buying cat insurance and even though you would get over $5K subsidy on a bronze plan, the net cost to you for a cat plan is $1K...

Wished I could go cat as I basically have that right now.... even though they call it bronze.. my deductible is $6600 per person with a limit of 2x... and I pay all costs until we hit that...

I will never hit the 25% bracket again unless I go back to w*rk.... well, except for the one year when I convert my old company's stock out of the 401(k) at cost and get to convert all that gain to cap gain...

You got it... my options are to limit my income to 400% FPL ($63k) and pay $4,500 for a bronze plan or limit my income to the top of the 15% tax bracket ($98k) and pay $5,500 for a cat plan. Since I believe that I'm saving ~$5k a year in tax on the extra $35k I get to convert, the extra $1k of premium cost is worth paying.

You can go cat if the lowest cost bronze plan (unsubsidized) exceeds 8.05% of your O-MAGI.

Income-related exemptions

The lowest-priced coverage available to you, through either a Marketplace or job-based plan, would cost more than 8.05% of your household income

 

[Texas Proud]

You got it... my options are to limit my income to 400% FPL ($63k) and pay $4,500 for a bronze plan or limit my income to the top of the 15% tax bracket ($98k) and pay $5,500 for a cat plan. Since I believe that I'm saving ~$5k a year in tax on the extra $35k I get to convert, the extra $1k of premium cost is worth paying.

You can go cat if the lowest cost bronze plan (unsubsidized) exceeds 8.05% of your O-MAGI.

This is sounding interesting... did you buy through the exchange or on your own? I feel like my plan is basically a cat plan anyhow, so I might want to do this a couple of years for conversion.... and I will want to do that when I convert my companies 401(k).... but I will probably have to do that before the kids go and insurance rates drop on me...

 

[Dreaming of Freedom]

Does the patient still get to pay rates for medical services that at are negotiated by the insurance company when on a catasthropic plan?

 

[pb4uski]

This is sounding interesting... did you buy through the exchange or on your own? I feel like my plan is basically a cat plan anyhow, so I might want to do this a couple of years for conversion.... and I will want to do that when I convert my companies 401(k).... but I will probably have to do that before the kids go and insurance rates drop on me...

We did our several years ago through the exchange and it was a bit of a saga because Obamacare was in its first year. It took us about 6 months to get through the process.

We felt the same that the difference in benefits was not significant since we are both healthy and have minimal claims... but we want/need health insurance to protect from an expensive illness and to gain access to negotiated rates.

I think what you need to do is apply for an exemption from the penalty based on affordability (if the lowest cost bronze plan exceeds 8.05% of your income and you'll probably have to provide income estimates and supporting documents. The CMS issues you an exemption certificate and you can use the exemption certificate to apply of catastrophic coverage.

It might be worth finding out what catastrophic coverage would cost where you are to see if it is worth the effort. Our state is not age-rated so the difference between cat and bronze is about 43% so it is worth it. We have never been asked to reapply... our policy just automatically renews each year but I do a check to make sure that we still qualify in case they ever ask.

Does the patient still get to pay rates for medical services that at are negotiated by the insurance company when on a catasthropic plan?

Yes, mine works the same as the bronze plan we previously had... same company, same network and I suspect the same negotiated rates but I have no way of verifying that. However, in other jurisdictions there may be network differences and the premium difference may not be as much as the 43% difference we get.

 

[Texas Proud]

WOW.... cannot even find a cat plan...

I went to ehealthinsurance, healthcare, BCBS and even Humana to see what they had.... BCBS said they have a plan, but it will not bring it up when I ask for price...


Humana offered only one plan and it was expensive!!


Right now I do not need it, but I am surprised it is either not available (likely for most) or I will have to jump through hoops to get info...


The more that I have to deal with this healthcare stuff the more that I am liking ACA... at least I have some options.... without it I would not have insurance....

 

[MBSC]

WOW.... cannot even find a cat plan...

I went to ehealthinsurance, healthcare, BCBS and even Humana to see what they had.... BCBS said they have a plan, but it will not bring it up when I ask for price...

Humana offered only one plan and it was expensive!!

Try the off-exchange Healthplan Finder link below, then filter for Catastrophic Plans.

HealthPlan Finder: https://finder.healthcare.gov/

 

[pb4uski]

WOW.... cannot even find a cat plan........

Yes, they don't make it easy.... you'll probably need to call.

 

[Free_at_49]

The OP has a very good point. Since ACA, when buying insurance on healthcare .gov it is to your advantage to have the lowest possible taxable income.

In my case, drawing money from IRAs would create high taxable income. So I'm using regular after-tax accounts for living expenses. They generate some dividends (not much since interest rates are low) and trivial capital gains.

My BCBS monthly premium is just over $1,000/mo but I'm only paying about 1/4 of that ~$250. It gives the impression that the Fed is throwing-in ~$750/mo to help me. I find it hard to believe that the Fed is subsidizing private insurance companies with taxpayer money. My monthly premium before ACA was ~$300, since ACA it jumped to $1,000+, so I conclude that post-ACA insurance premiums are artificial.

 

[GTFan]

I estimated that my marginal rate factoring in federal & state/local income taxes, combined with subsidy, would add up to about 35% if I were to Roth convert to the top of the 15% federal bracket from 250% of FPL.

Yep same here, and we will have to pay the piper eventually but with charitable deductions of RMDs it could be a better bet (we're not interested in leaving a large legacy anyway). And you get to keep all that money upfront on the off chance you don't live to 70 1/2, so you'll have all the compounded gains on the taxes you didn't pay.

It's really a personal choice IMO because it's dependent on quite a few factors (some of which vary by state, such as tax rates and insurance costs) to see if subsidies vs. conversions is better financially. Assuming you care about the impact of RMDs in the first place, that is.

 

[Theseus]

Yep same here, and we will have to pay the piper eventually but with charitable deductions of RMDs it could be a better bet (we're not interested in leaving a large legacy anyway). And you get to keep all that money upfront on the off chance you don't live to 70 1/2, so you'll have all the compounded gains on the taxes you didn't pay.

It's really a personal choice IMO because it's dependent on quite a few factors (some of which vary by state, such as tax rates and insurance costs) to see if subsidies vs. conversions is better financially. Assuming you care about the impact of RMDs in the first place, that is.

+1

I've been looking at this and trying to see if there is an optimum path for us, and found there are so many moving parts it becomes fairly complicated and leads one to attempting to forecast the future of things not so certain. With DW and I both having modest pensions we were able to ER with less savings than if we did not have them, so that reduces the bite of RMD's for us. My spreadsheet model takes into account inflation adjustment of tax brackets, standard deductions, personal exemptions, and HSA deductions. I've not yet verified if the IRS worksheet for determining taxable social security uses inflation adjusted amounts for determining the MAGI calculations (lines 9 & 11), but all of that of course falls into the realm of "what if" so it is at best a guess.

Through all of that I found the best course of action--for us in this YMMV world--is that running income to just below the 400% cliff through the calendar year in which we are both on Medicare, and then to the top of 10% tax bracket from then until RMDs are upon us, coupled with both of us first collecting social security in January of the calendar year after we are both on Medicare gives us a good combination of at least benefiting in ACA subsidy, but not maximizing it, and a favorable net income after taxes for the remainder of plan. That is further evidenced by a very low average of social security being taxable from now until plan horizon. I suspect we are simply in a niche level of assets where that happens to work out; I tested it by dumping another $500k into our tax deferred accounts and yes, then the tax torpedo on RMD withdrawals became somewhat ominous.

 

[rayvt]

What makes anybody think that ACA will still be here in a few years? Why turn your life upside down for something that undoubtedly be changed or eliminated soon?

 

[MichaelB]

What makes anybody think that ACA will still be here in a few years? Why turn your life upside down for something that undoubtedly be changed or eliminated soon?

This is no different than managing a portfolio for tax efficiency, which is something every member should do.

As for eliminated soon, let's not get into that here, eh?

 

[pb4uski]

What makes anybody think that ACA will still be here in a few years? Why turn your life upside down for something that undoubtedly be changed or eliminated soon?

One could turn your question around 180 and ask what makes anybody think that ACA will be gone in a few years? I don't see it being eliminated, changed perhaps depending on politics, but unlikely to be eliminated.

Besides no one is talking about turning their life upside down.... just trying to find and optimal strategy for their facts and circumstances.

 

[ziggy29]

One could turn your question around 180 and ask what makes anybody think that ACA will be gone in a few years? I don't see it being eliminated, changed perhaps depending on politics, but unlikely to be eliminated.

Even if the groups who want it "repealed" assume full control, some aspects of ACA are far too politically popular to be rolled back. In particular, the elimination of preexisting condition exclusions and underwriting, as well as being able to keep children on the policy up to age 26, are very unlikely to be undone because these enjoy widespread (and largely bipartisan) support among the public.

Much of this law can be tweaked and perhaps some of it will be backed out. I don't see these aspects of the law going away.

 

[meierlde]

Of course if it is a problem you have to consider managing for ACA issues versus managing for the income based increases in Medicare. In particular if over 85k single you pay more up to 315/month at 214k for parts B and D.

 

[rayvt]

One could turn your question around 180 and ask what makes anybody think that ACA will be gone in a few years? I don't see it being eliminated, changed perhaps depending on politics, but unlikely to be eliminated.

Maybe not gone, but surely massively changed.

Financials, if nothing else. Premiums are going up and up, as are deductibles. Co-ops are all going bankrupt or otherwise out of business. GAO now projects a very large cost in upcoming years, nowhere near the savings that were originally projected.

 

[GTFan]

ACA is changing over time for sure, but that really is OT for this thread and is not an avenue to be pursued here. Managing income for ACA vs. Roth conversions is a very valid topic here but I think it's kind of been played out over multiple threads.

I think the i-orp calculator now includes this type of what-if analysis, haven't used it myself.

 

[sengsational]

WOW.... cannot even find a cat plan...

Here's what I did to estimate the cost of a catastrophic plan:

Price a regular bronze policy for myself. Then that same policy with the fake age of 30. Then price a catastrophic plan for a 30 year old and to the math to scale-up the catastrophic price presuming it's the same age factor for the two types of policies. But the catastrophic policies I have access to are just not that much cheaper than bronze, so I'm not in the same boat as PB.

I think the i-orp calculator now includes this type of what-if analysis, haven't used it myself.

Yes it does. You can turn cliff prevention on or off. Also Roth conversion on or off. When I turn both on, that gives me the most favorable model result. The model is smart enough to undo the cliff prevention at age 65, so it has you converting up to the 15% bracket once you've hit Medicare age.

 

[Mr._Graybeard]

Maybe not gone, but surely massively changed.

Financials, if nothing else. Premiums are going up and up, as are deductibles.

My 2016 subsidized premiums are actually down quite a bit from 2015. Deductibles are up slightly, to $6000 from $5500, but the new plan is HSA eligible.