Obamacare Tax Shock

[Chuckanut]

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Originally Posted by clifp I definitely feel sorry for the self-employee contractor healthy folks in their late 20s who previously didn't have insurance, cause it was too expense. Imagine a 28 year old woman making $25K a year, she reluctantly signed up for $140/month silver plan, thanks in part for a $1100/year subsidy. At the end of the year she gets a $5,000 contract causing her to have to work through the holidays. As a reward she is hit with $750 in Federal tax $700 in FICA, say 5% $250 in state income tax,and whooping $800 in ACA subsidy reduction. Congrats she hit the 50% marginal tax bracket. If she had been savvy she would have insisted they pay her next year, but she is too busy to hang around on forums like this..

Here is an alternative.

Imagine that 28 year old diagnosed with a kidney tumor. The cost of removing it is $50,000 and she has no insurance. Congrats, she is on the hook for over twice her yearly income.

Just saying.....

[clifp]

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Originally Posted by Chuckanut Here is an alternative. Imagine that 28 year old diagnosed with a kidney tumor. The cost of removing it is $50,000 and she has no insurance. Congrats, she is on the hook for over twice her yearly income. Just saying.....

I am not saying that having insurance is a bad thing, just that the ACA create some perverse incentives because of the subsidies.

As a practical matter, the $1,700 medical insurance, plus the $6,600 deductible, plus the lost wage for being out of work for the cancer treatments, will more than likely push most self-employed 28 year olds making 25K into bankruptcy. It really doesn't matter if the cancer cost $50K or 200K almost nobody ends up paying that.

[2B]

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Originally Posted by clifp I agree. I was toying around with trying to game the system to qualify for a subsidy every other year. As a matter of principal, I don't think retired 55 year multi millionaire should get subsidy. As practical matter, one of my investment is paying off and will be generating substantial, but highly variable income which will make a mockery of any attempts to tax plan. This is definitely a first world problem so I am not complaining.

On "principal" I disagree with a whole slew of our laws. I'd list them but somebody might think that's too political.

What I do believe is that there is no moral or ethical problem with taking advantage of laws to give someone the most benefit. The ACA subsidy is one of those opportunities. Unfortunately, it is a real tricky one to use. There are so many things that can derail even the best laid plans.

[2B]

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Originally Posted by Chuckanut Here is an alternative. Imagine that 28 year old diagnosed with a kidney tumor. The cost of removing it is $50,000 and she has no insurance. Congrats, she is on the hook for over twice her yearly income. Just saying.....

Without insurance, it is unlikely she would have found any hospital to treat her. She would die.

It's irresponsible to not have catastrophic medical insurance. We can argue what types of insurance should be available and how things should be priced. That train has, unfortunately, left the station and we don't know when or if it will return. I've certainly known people that worked at jobs for the insurance. This was frequently for poor and costly insurance but the goal was to protect against total disaster.

[jwkde]

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Originally Posted by scrabbler1 I did decide to bunch my deductible expenses for 2014, something I had to decide way back in January (2014), as it appears I will come out ahead by a few hundred dollars. Ask me next year if it paid off.

But deductions do not affect your ACA subsidy because that is driven off MAGI - not taxable income.

[photoguy]

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Originally Posted by clifp I am not saying that having insurance is a bad thing, just that the ACA create some perverse incentives because of the subsidies.

It seems reasonable to me that premium subsidies decrease as your income goes up. Do you think it should be structured in a qualitatively different manner? Or perhaps that the increase should just be less steep on marginal income?

I do agree that the cliff at 400% can be a huge distortion.

Quote:

As a practical matter, the $1,700 medical insurance, plus the $6,600 deductible, plus the lost wage for being out of work for the cancer treatments, will more than likely push most self-employed 28 year olds making 25K into bankruptcy.

The cost sharing reductions of deductible / max OOP are supposed to address this (which start at 250% of FPL). However I think the decrease isn't significant until 200% where it is around 2k and unfortunately she is above that threshold.




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[travelover]

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Originally Posted by 2B Without insurance, it is unlikely she would have found any hospital to treat her. She would die...........

Is this right? I was under the impression that hospitals were required to provide care regardless of the patient's ability to pay - pre and post ACA.

[scrabbler1]

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Originally Posted by jwkde But deductions do not affect your ACA subsidy because that is driven off MAGI - not taxable income.

But as I wrote earlier in that same post, bunching my deductions does affect my MAGI because I have to add back the state property tax rebate which counts as income (MAGI). If I don't bunch my deductions, I'd be taking the standard deduction every year and would not have to add back any state property tax rebate and increase my MAGI.

[NW-Bound]

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Originally Posted by photoguy It seems reasonable to me that premium subsidies decrease as your income goes up. Do you think it should be structured in a qualitatively different manner? Or perhaps that the increase should just be less steep on marginal income?

The cut-out of ACA subsidy should be more gradual, such as a linear fade-out as one's income rises. I cannot fathom how they came up with a cliff. It's simply idiotic.

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Originally Posted by travelover Is this right? I was under the impression that hospitals were required to provide care regardless of the patient's ability to pay - pre and post ACA.

As I understand, they are only required to stabilize the patient to prevent instant death or suffering, such as traumas from accidents, gunshots, appendicitis, etc... I do not know how acute medical conditions are defined, but they are not required to provide long-term care for chronic conditions like diabetes, high-blood pressure, etc... For example, if you have a stroke, they will do their best to keep you alive, but rehab for stroke debilitation is not included. Cancer treatment is a long process. Cancer is not treated in regular hospitals anyway.

PS. My state, and I assume all others, has a program where the indigent can apply for free care in cases like cancer. You will have to deplete your resources first though. Sell your home, empty all your accounts first to pay for your care, then the state will help.

[travelover]

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Originally Posted by NW-Bound .....As I understand, they are only required to stabilize the patient to prevent instant death or suffering, such as traumas from accidents, gunshots, appendicitis, etc... I do not know how acute medical conditions are defined, but they are not required to provide long-term care for chronic conditions like diabetes, high-blood pressure, etc... For example, if you have a stroke, they will do their best to keep you alive, but rehab for stroke debilitation is not included. Cancer treatment is a long process. Cancer is not treated in regular hospitals anyway. PS. My state, and I assume all others, has a program where the indigent can apply for free care in cases like cancer. You will have to deplete your resources first though. Sell your home, empty all your accounts first to pay for your care, then the state will help.

So, I think it is fair to say that she (the kidney tumor patient) would not die. She might get choppy intervention, though.

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Originally Posted by 2B Without insurance, it is unlikely she would have found any hospital to treat her. She would die.........

[jim584672]

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Originally Posted by NW-Bound PS. My state, and I assume all others, has a program where the indigent can apply for free care in cases like cancer. You will have to deplete your resources first though. Sell your home, empty all your accounts first to pay for your care, then the state will help.

We have two Medicaids since the ACA.

The original which still exists, which was for Disabled, Blind, and Elderly (>=65). This has resource tests, income tests, spend downs. Long term care also falls in this.

MAGI Medicaid includes the expanded group, (18-64), which has only an income test. You do not need to become destitute before being eligible in this group.

[MRG]

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Originally Posted by NW-Bound ....snip..... Cancer treatment is a long process. Cancer is not treated in regular hospitals anyway. PS. My state, and I assume all others, has a program where the indigent can apply for free care in cases like cancer. You will have to deplete your resources first though. Sell your home, empty all your accounts first to pay for your care, then the state will help.

Agree cancer can require long term treatments. A mentor of mine recently lost his 40 something wife to the disease. They spent over a year in a cancer treatment place. From the start they were told hers was 100% terminal. The treatments extended her life, hopefully made it higher quality.

One thing he noticed was many patients making a choice to eat or get treatment. He told me many folks would choose to only eat once a day so they could afford treatments. To that end he's started an organization to assist people in that situation. Most of the people there were not indigent, had insurance, just not enough resources, they didn't want to leave the family broke. Tough situation.

Edit to add: So we stay on topic, I'm going to get bit this year too. My plan was perfect, till KMP got pulled into KMI. It's the guy in the mirrors fault. I didn't understand everything I should have. Live and learn.

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[photoguy]

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Originally Posted by NW-Bound The cut-out of ACA subsidy should be more gradual, such as a linear fade-out as one's income rises. I cannot fathom how they came up with a cliff. It's simply idiotic.

Below the cliff at 400% of the FPL, the decrease in premium subsidy is basically linear with income. For example, I took a few data points from covered CA to generate the below plot.

I agree that the cliff at 400% is very stupid though. However, the person in Clifp's example is in the middle of the range and is not hitting the 400% limit. Now I might also buy the argument that the slope of the line is too steep though.

[2B]

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Originally Posted by travelover Is this right? I was under the impression that hospitals were required to provide care regardless of the patient's ability to pay - pre and post ACA.

Quote:

Originally Posted by NW-Bound The cut-out of ACA subsidy should be more gradual, such as a linear fade-out as one's income rises. I cannot fathom how they came up with a cliff. It's simply idiotic. As I understand, they are only required to stabilize the patient to prevent instant death or suffering, such as traumas from accidents, gunshots, appendicitis, etc... I do not know how acute medical conditions are defined, but they are not required to provide long-term care for chronic conditions like diabetes, high-blood pressure, etc... For example, if you have a stroke, they will do their best to keep you alive, but rehab for stroke debilitation is not included. Cancer treatment is a long process. Cancer is not treated in regular hospitals anyway. PS. My state, and I assume all others, has a program where the indigent can apply for free care in cases like cancer. You will have to deplete your resources first though. Sell your home, empty all your accounts first to pay for your care, then the state will help.

Our imaginary tumor patient needs to get on Medicaid. She is in the interesting position where her working will keep her off Medicaid and from getting cancer treatment anywhere in Texas. Everyone I've talked with says that before treatment starts the hospital verifies coverage. I know one person that was told their insurance wouldn't cover the full treatment cost and a $100,000 payment was required before they would start. I can't speak for other states.

Every country in the world rations medical care in some way or fashion. The "universal coverage-single payer" systems put some sort of "social value" on people based on the treatment needed. Government run health care seems happy to let you see a doctor for a rash but become more stingy when major treatments are needed. I would predict that if the US ever converted to a single payer system there would be a massive shock as to what would have to be done to change peoples' expectations of coverage. Right now, for better or worse, the US rations health care on the basis of employment coverage or the personal ability to pay for it and/or the insurance needed.

[jim584672]

She should shop for a state that has expanded Medicaid and move there. Apply immediately. If she stays in Texas they will deplete all her assets and spend down any income before they start paying for anything.

[audreyh1]

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Originally Posted by travelover So, I think it is fair to say that she (the kidney tumor patient) would not die. She might get choppy intervention, though.

She would not have had her cancer treated until she eventually got on Medicaid. So, yes, I think she would likely die without timely intervention. Treating cancer is a race against the clock.

[mickeyd]

It is great for me to not have to worry about ACA subsidy issues. All we have to do is pay for other peoples health insurance as well as our own healthcare.

[travelover]

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Originally Posted by mickeyd It is great for me to not have to worry about ACA subsidy issues. All we have to do is pay for other peoples health insurance as well as our own healthcare.

You must have missed out on the deal I got. When I was w*rking, I got my healthcare tax free, while other suckers that paid for their own health insurance had to buy it with after tax money.

[mickeyd]

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You must have missed out on the deal I got.

Congratulations. I'm happy for you.

[NW-Bound]

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Originally Posted by photoguy Below the cliff at 400% of the FPL, the decrease in premium subsidy is basically linear with income. For example, I took a few data points from covered CA to generate the below plot. I agree that the cliff at 400% is very stupid though. However, the person in Clifp's example is in the middle of the range and is not hitting the 400% limit. Now I might also buy the argument that the slope of the line is too steep though.

In late 2013 when ACA first came online and there was a lot of discussion at this forum and I was paying attention to learn about it from more informed posters, I remember that someone, MichaelB or perhaps Paquette, posted a link to the following Congressional Research Paper: http://www.healthreformgps.org/wp-co...redit-7-18.pdf.

There's a lot of details in that paper, and I admit that I only glanced through it, but what caught my eyes was the following graph near the end. The plot shows the subsidy indirectly in the form of premium as a percentage of income, hence it takes some thinking to comprehend and to compare it with a graph that shows dollar amounts.

It is easy to see that the cliff is much more pronounced for a married couple; yet another marriage penalty in the US tax code.