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ACA income estimates and cost sharing with Silver plans
Old 05-30-2018, 11:59 AM   #1
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ACA income estimates and cost sharing with Silver plans

There was an older thread from 2014 with the exact same title. Basically, it asked if there were any penalties for selecting a Silver ACA plan with cost subsidies and then having an income that was too high for the cost savings subsidy selected. The answer seemed to be 'no penalty' unless the IRS catches you deliberately cheating somehow. The last post more or less said; 'time will tell'.

(Note: I tried to just add to that thread, but the Forum robot denied my post with the reason that the thread was too old.)

Sooo, after being FIRE'd for 5 years now and paying full price for ACA plans; I finally think I can engineer my income to qualify for a subsidy! There are so many moving parts to this calculation with changes to the tax law and talk about repeal and/or removal of the cost sharing subsidies my head is spinning.

Anyway, does anyone have any new insight about the ramifications of missing income estimate when purchasing a Silver ACA plan with cost sharing subsidies (same question as OP)?
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Old 05-30-2018, 01:38 PM   #2
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I do know that missed income estimates for subsidies are adjusted at tax time up or down.
Not 100% sure, but don't think that the cost sharing reductions from the Silver plans are adjusted at year end if actual MAGI is over the estimate.
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Old 05-30-2018, 02:47 PM   #3
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Originally Posted by kite_rider View Post
There was an older thread from 2014 with the exact same title. Basically, it asked if there were any penalties for selecting a Silver ACA plan with cost subsidies and then having an income that was too high for the cost savings subsidy selected. The answer seemed to be 'no penalty' unless the IRS catches you deliberately cheating somehow. The last post more or less said; 'time will tell'.

(Note: I tried to just add to that thread, but the Forum robot denied my post with the reason that the thread was too old.)

Sooo, after being FIRE'd for 5 years now and paying full price for ACA plans; I finally think I can engineer my income to qualify for a subsidy! There are so many moving parts to this calculation with changes to the tax law and talk about repeal and/or removal of the cost sharing subsidies my head is spinning.

Anyway, does anyone have any new insight about the ramifications of missing income estimate when purchasing a Silver ACA plan with cost sharing subsidies (same question as OP)?
We adjust our income accordingly. We do have cash that's not invested to offset income. Can also go to Roth to cover the difference, I believe the income MAGI is $61,000. If you go over, you're screwed. I'm nervous about 2019 and what the ramifications will be. There are insurance specialists out there that are covered by the HI companies. We were lucky to find her, she's a gem and knows everything about HI, which plan to get. We got a high deductible policy that is HSA approved. The healthcare.gov website will tell you the subsidy you qualify for.
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Old 05-30-2018, 03:14 PM   #4
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Appreciate that quick responses on the question. However, I think people are confusing subsidies with the cost sharing. One helps you pay for the insurance premium and the other helps reduce the deductible and co-pay.

I know that the subsidies get re-adjusted at tax time. But I'm not clear if you have to re-pay reduced deductibles and co-pays that you may have enjoyed when you underestimated your income.

Here is the original post:

http://www.early-retirement.org/foru...ans-74396.html

Silver plans with cost sharing -
100-150 FPL Actuarial value for cost sharing 94%
150-200 FPL Actuarial value for cost sharing 87%
200-250 FPL Actuarial value for cost sharing 73%
FPL = (Federal Poverty Level)

When someone signs up for ACA they have to estimate income. Now if the estimate is low they may have to pay back some subsidy at tax time. From what I have read they would NOT have to pay back the cost sharing amounts. So why not just purposefully underestimate the income to say 149 FPL (when you know it will be 249 FPL in reality, for example) to get the better cost sharing and then pay back the extra subsidy amount at tax time? Would someone get in trouble for doing this?
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Old 05-30-2018, 03:22 PM   #5
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Only premium subsidies are subject to tax reconciliation, and excess credits must be repaid. Cost sharing is not reconciled.
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Old 05-30-2018, 04:34 PM   #6
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Originally Posted by kite_rider View Post
Appreciate that quick responses on the question. However, I think people are confusing subsidies with the cost sharing. One helps you pay for the insurance premium and the other helps reduce the deductible and co-pay.

I know that the subsidies get re-adjusted at tax time. But I'm not clear if you have to re-pay reduced deductibles and co-pays that you may have enjoyed when you underestimated your income.

Here is the original post:

http://www.early-retirement.org/foru...ans-74396.html

Silver plans with cost sharing -
100-150 FPL Actuarial value for cost sharing 94%
150-200 FPL Actuarial value for cost sharing 87%
200-250 FPL Actuarial value for cost sharing 73%
FPL = (Federal Poverty Level)

When someone signs up for ACA they have to estimate income. Now if the estimate is low they may have to pay back some subsidy at tax time. From what I have read they would NOT have to pay back the cost sharing amounts. So why not just purposefully underestimate the income to say 149 FPL (when you know it will be 249 FPL in reality, for example) to get the better cost sharing and then pay back the extra subsidy amount at tax time? Would someone get in trouble for doing this?
Did address subsidies and cost sharing in my response, just wasn't 100% sure on the CSR ruling, which Michael B confirmed my statement.
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Old 05-30-2018, 08:34 PM   #7
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Excellent! Thanks everyone for the quick replies. I've got till Nov before I act, but this was a grey area for me..

Now I have to figure out what the FPL is for a family of four for 2019....
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Old 05-30-2018, 11:23 PM   #8
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Originally Posted by kite_rider View Post
Excellent! Thanks everyone for the quick replies. I've got till Nov before I act, but this was a grey area for me..

Now I have to figure out what the FPL is for a family of four for 2019....
Assuming you live in the lower 48 or Washington DC, FPL for a family of four for 2019 ACA coverage is $25,100. ACA subsidies go up to 400% of FPL, or $100,400. Numbers for Hawaii and Alaska differ somewhat.

Source: https://thefinancebuff.com/federal-p...obamacare.html
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Old 05-31-2018, 10:39 AM   #9
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Assuming you live in the lower 48 or Washington DC, FPL for a family of four for 2019 ACA coverage is $25,100. ACA subsidies go up to 400% of FPL, or $100,400. Numbers for Hawaii and Alaska differ somewhat.
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Thanks! So it looks like these are my magic income numbers for 2019;

$25,100-$37,650 gets a Silver94
$37,651-$50,200 gets a Silver87
$50,201-$62,750 gets a Silver73
and $62,751-$100,400 gets a subsidy, but probably a smaller one. I guess in that case a Bronze HDHP with HSA might be the most cost effective. Oregon has a high state income tax, so there is an added bonus for the HSA here.

Hopefully the cost sharing aspect of the ACA sticks around. There was so much press around the 'repeal and replace' topic that it was hard to stay on top of it all..
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Old 05-31-2018, 10:48 AM   #10
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The CSR94, CSR87, and CSR87 subsidy numbers are mini-cliffs. You would not receive any cost sharing reduction subsidy at the $62,751 MAGI level or above.

Since you live in a Medicaid expansion state, below 138% of FPL you would be directed to Medicaid and would not be able to get an ACA policy.

Between 138% and 400% of FPL, you would also qualify for premium reduction subsidies. The premium reductions work like a reverse income tax. Between those two percentages, you are required to pay a varying percentage of your MAGI towards your health insurance (I think it's between about 3% and about 9%); the federal government takes care of the rest. The premium reduction subsidies are reconciled at income tax time between your estimated MAGI and your actual MAGI, in a similar manner to regular income taxes are between withholding and your actual tax liability.
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Old 05-31-2018, 11:32 AM   #11
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Keep in mind that even with cost sharing reduction the Bronze with HSA can be a better option. One, it gives you a little wiggle room on the income side. In my case the max out of pocket even with cost sharing was less on the Bronze plan. This is due to the way they figure your co pays and such as opposed to just hitting your deductible ..

You need to really dig into the numbers for both options.
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Old 05-31-2018, 12:46 PM   #12
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^ Agreed. I'm just mentally on autopilot as far as metal levels go because my kids' mother has historically been pro-insurance. Thus as long as I have them insured on my plan I need to stick with Silver or Gold. In a few years when my youngest graduates from high school I can look into changing things.
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Old 06-06-2018, 02:18 PM   #13
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Thanks for the Finance Buff link. Quick question, just to be sure. Can the "number of persons in household" be larger than the number of people claimed for tax filing purposes?

I will want to keep my children (in their early 20's) on the family ACA plan, but both will be earning too much money (knock on wood) to qualify as dependents for 2019 tax purposes. I think in that case our tax form will be filed as "married, filing jointly, no dependents"

In that case, is the 2019 MAGI that we will use assume a family of 4 (FPL=$25100) or a family of 2 (FPL=$16,400)?

thanks.
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Old 06-06-2018, 05:39 PM   #14
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Thanks for the Finance Buff link. Quick question, just to be sure. Can the "number of persons in household" be larger than the number of people claimed for tax filing purposes?

I will want to keep my children (in their early 20's) on the family ACA plan, but both will be earning too much money (knock on wood) to qualify as dependents for 2019 tax purposes. I think in that case our tax form will be filed as "married, filing jointly, no dependents"

In that case, is the 2019 MAGI that we will use assume a family of 4 (FPL=$25100) or a family of 2 (FPL=$16,400)?

thanks.
The answer to you first question is "No." The number of persons for your family size is equal to the number of exemptions claimed on your taxes. See Form 8962 instructions for line 1. So if you can't claim your children as your dependents, then your line 6d on your 1040 would be 2, and your FPL would be the $16,400 number.

But in looking at the Form 8962 instructions, there are situations (such as yours it sounds like) where an ACA policy is shared among tax families. I think in this situation you and your spouse count as one tax family, your first independent child counts as a second tax family, and your second independent child counts as a third tax family - basically one tax family for each 1040 filed. It seems that in these scenarios, you can allocate the PTC between your three families. See Form 8962 part IV and the instructions for allocations, specifically Allocation situations 3 and 4.
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Old 06-07-2018, 12:05 AM   #15
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Thanks! So it looks like these are my magic income numbers for 2019;

$25,100-$37,650 gets a Silver94
$37,651-$50,200 gets a Silver87
$50,201-$62,750 gets a Silver73
and $62,751-$100,400 gets a subsidy, but probably a smaller one. I guess in that case a Bronze HDHP with HSA might be the most cost effective. Oregon has a high state income tax, so there is an added bonus for the HSA here.

Hopefully the cost sharing aspect of the ACA sticks around. There was so much press around the 'repeal and replace' topic that it was hard to stay on top of it all..



Good to know this...


I had a problem in that my income projection was too low and they wanted me to sign my daughter on the CHIPS program... and they would not let me sign her up for any new plan.... but I do not think that I can put her on CHIPS.... I was fortunate that the plan that I wanted was the same I had last year so I did not have to test if I could or could not... I just let it ride... but I was worried for a few weeks trying to figure out what to do....
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Old 06-14-2018, 11:50 AM   #16
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We did cost sharing for a couple of years. We were early retired and only had income from investment income. We also had savings that was available for living expenses. Mid-year of the second year we received an income verification request requesting documentation of income like a W-2 or letter from employer, which of course we didn't have. I wrote a letter explaining our income source (dividends) and including a year-to-date statement. I also included prior the prior full-year statement, my prior year tax return and my updated best estimate of what current year dividends would be.

The Marketplace didn't seem to be able to understand non-wage income and/or didn't like my updating estimated dividend income from the time of my application to the present. After asking again for more documentation which was impossible for me to provide (each time I provided what I could), the Marketplace cancelled our health insurance which was my worst nightmare. After a couple of months without health insurance and going through an arduous and convoluted appeals process our coverage was reinstated (although we were never able to obtain the proper year-end tax documents which is another story).

After this I've never chosen to do cost sharing again. I think because the Marketplace is unable to claw back the cost sharing benefits they are much more diligent at making sure those receiving them are eligible. Unfortunately they aren't nearly as knowledgeable as they are diligent.
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Old 06-14-2018, 12:08 PM   #17
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We did cost sharing for a couple of years. We were early retired and only had income from investment income. We also had savings that was available for living expenses. Mid-year of the second year we received an income verification request requesting documentation of income like a W-2 or letter from employer, which of course we didn't have. I wrote a letter explaining our income source (dividends) and including a year-to-date statement. I also included prior the prior full-year statement, my prior year tax return and my updated best estimate of what current year dividends would be.

The Marketplace didn't seem to be able to understand non-wage income and/or didn't like my updating estimated dividend income from the time of my application to the present. After asking again for more documentation which was impossible for me to provide (each time I provided what I could), the Marketplace cancelled our health insurance which was my worst nightmare. After a couple of months without health insurance and going through an arduous and convoluted appeals process our coverage was reinstated (although we were never able to obtain the proper year-end tax documents which is another story).

After this I've never chosen to do cost sharing again. I think because the Marketplace is unable to claw back the cost sharing benefits they are much more diligent at making sure those receiving them are eligible. Unfortunately they aren't nearly as knowledgeable as they are diligent.
Big +1
The first year I had to explain multiple times how a Roth conversion from TIRA works for tax purposes.
I think I will search out an independent agent who works with the Marketplace to assist for next year.
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Old 06-14-2018, 12:12 PM   #18
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I just want to point out that due to the way subsidies are calculated when the CSR funding was removed by the current administration the insurance companies where forced to increase the prices for the Silver plans to cover the costs. The law stipulates the CSR income ranges and actuarial values. But with no funding the costs are moved back to the Silver plans pricing.

The 'silver' lining is that the subsidy calculation is based on the second lowest cost Silver plan. The higher prices for Silvers has increased the subsidy amount. The subsidy can be applied to any plan, so the Bronze and Gold should be relatively cheaper. It will cost the government more money in the end because what was saved by cutting the CSR payments is more than lost by increased subsidies.
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Old 06-14-2018, 01:49 PM   #19
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Big +1
The first year I had to explain multiple times how a Roth conversion from TIRA works for tax purposes.
I think I will search out an independent agent who works with the Marketplace to assist for next year.
I had a Roth conversion on my prior year's return as well. As you say, they seemed to be clueless about that too.

What makes the system terrible is that it's impossible to speak with anyone with any additional knowledge beyond the front line phone reps. You're told (if you're lucky) that your issue will be "escalated" and told it "may" be useful to send in additional documentation. In my case they couldn't even tell me what the documentation should be. It's a very bad system.
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Old 06-14-2018, 04:22 PM   #20
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Big +1
The first year I had to explain multiple times how a Roth conversion from TIRA works for tax purposes.
I think I will search out an independent agent who works with the Marketplace to assist for next year.
Just call it pension income since that is what is shows up as on the tax return... and if they ask tell them that you can determine how much it is each year and leave it at that.
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