New ACA Subsidy In Relief Package?

[jim584672]

I agree with your "Not in this bill" as I looked and could not find that the Gold is replacing the SLSCP. What are you referring to when you say "This is only a temporary measure that gives more subsidies?"

It is only for 2021 and 2022.

 

[Z3Dreamer]

It is only for 2021 and 2022.

I hate to be so dense, but are you saying the 8.5% is only temporary?

 

[jim584672]

I hate to be so dense, but are you saying the 8.5% is only temporary?

Yes.

 

[Ian S]

I'm curious to see if anyone has read or heard how the COBRA subsidies will work? My husband lost his job late last year and has been on COBRA which is running about $1000 a month. It would be helpful to know if we have to wait until 2021 tax filing or will subsidies be available prior to that?

 

[cathy63]

I'm curious to see if anyone has read or heard how the COBRA subsidies will work? My husband lost his job late last year and has been on COBRA which is running about $1000 a month. It would be helpful to know if we have to wait until 2021 tax filing or will subsidies be available prior to that?

The bill says:

(A) REDUCTION OF PREMIUMS PAYABLE.—In the case of any premium for a period of coverage during the period beginning on the first day of the first month beginning after the date of the enactment of this Act, and ending on September 30, 2021, for COBRA continuation coverage with respect to any assistance eligible individual described in paragraph (3), such individual shall be treated for purposes of any COBRA continuation provision as having paid the amount of such premium if such individual pays (or any person other than such individual’s employer pays on behalf of such individual) 15 percent of the amount of such premium.

This sounds to me like your premiums would immediately be reduced by 85% through September. I didn't read far enough to see whether there's some reimbursement process that the insurance company (or employer in the case of a self-insured company) would go through to be repaid for the 85% discount.

 

[GTFan]

Speaking of Gold plans, wouldn't they be a no-brainer now for anyone over the cliff? You're only on the hook for 8.5% no matter which plan you get, unless I'm missing something. If I had an AGI of say $100k I'd be happy as a clam to only pay $8500 for a Gold (for two).

This provision really needs to stay in some form after 2022, the cliff was one of the biggest complaints about the ACA.

 

[RunningBum]

Speaking of Gold plans, wouldn't they be a no-brainer now for anyone over the cliff? You're only on the hook for 8.5% no matter which plan you get, unless I'm missing something. If I had an AGI of say $100k I'd be happy as a clam to only pay $8500 for a Gold (for two).

This provision really needs to stay in some form after 2022, the cliff was one of the biggest complaints about the ACA.

That's not how it works. They calculate your subsidy based on you only having to pay 8.5% of the second lowest cost silver plan, and you can apply that subsidy to any plan. So in your example you would only have to pay $8500 for the SLCSP. If that plan costs $14.5K, you would be a $6000/yr subsidy, or $500/month. You get up to $500/month subsidy on any plan you choose. If the plan is $500/month or less, you pay $0.

 

[pb4uski]

Question: Catastrophic plan impact with this?

As I think about this, I suspect this change, while for the greater good, may eliminate my ability to use the catastrophic plan in my state. Where I live Catastrophic plans are about 1/2 the cost of bronze plans and about the same coverage. I qualify because the bronze premiums are usually >8.5% of my projected income, but I am over the subsidy cliff.

Since the subsidy cliff no longer exists, does this mean Catastrophic exemptions for those over 30 on the basis of income no longer exist?

if so, it actually increases my costs in a bizarre way.

Interesting. We took advantage of that loophole for 9 years and bought unsubsidized catastrophic coverage rather than manage our income to receive a subsidy.. that gave us the freedom to do Roth conversions without worrying about going over the cliff.

Luckily, we are both now on Medicare so it is not an issue for us in 2021. If it were, I would just keep paying premiums for my cat plan and take my chances.

 

[Ian S]

I didn't read far enough to see whether there's some reimbursement process that the insurance company (or employer in the case of a self-insured company) would go through to be repaid for the 85% discount.

The COBRA payments are handled through a third party so maybe they will deal with the paperwork.

 

[littleb]

If this passes and the cliff is removed this would be a good time to convert a large amount from Traditional IRA to ROTH.

I have been converting small amounts over the past few years in order to receive an ACA subsidy.

To clarify the provision: This is only for tax years 2021 and 2022. The cliff will be removed and ACA premiums will be calculated at 8.5% of AGI.

Is this correct?

 

[RunningBum]

See post #82 above for how the subsidy is calculated.

Roth conversion is primarily about comparing current tax rate to projected future rate. For the current rate, add 8.5% for the subsidy rejected, and also consider if you are pushing qualified dividends or LTCGs into being taxed.

While I'd love to make a large conversion this year, I'm only converting to the point at which QDivs get taxed. That's 12% on regular income and 8.5% subsidy loss for 20.5% on converted dollars. If I convert any more, I'm at 20.5%+15% QDiv tax for 37.5% until all of my QDivs are taxed, which is right about where the 22% tax bracket begins, for a 30.5% rate. Those aren't favorable to me so I'll stop at 20.5%.

 

[Freedom56]

For those who did not qualify for subsidies and elected to buy plans directly from an insurance company, they will be forced to buy equivalent exchange plans (from the same insurance company in many cases) if they qualify for subsidies under the new bill. My understanding is that you can only get subsidies either monthly or from a tax credit when you file your taxes if you buy an on-exchange plan unless there is a rule change with the relief bill.

 

[tgotch]

Anyone know why this is only for 2 years?

 

[zinger1457]

The relief package is being sold as a temporary measure to deal with the effects of the pandemic, would be harder to sell/justify if permanent changes were in there.

 

[newmillionaire]

Anyone understand CHIP. My teenagers are forced to be on CHIP than regular health insurance plan where you can get a subsidy. So my wife and I pay for a plan where we get a subsidy and then my 2 kids are on a state CHIP plan. How would the 8.5% come into play?

 

[SecondCor521]

Anyone understand CHIP. My teenagers are forced to be on CHIP than regular health insurance plan where you can get a subsidy. So my wife and I pay for a plan where we get a subsidy and then my 2 kids are on a state CHIP plan. How would the 8.5% come into play?

Depends on the state, I think, but in my state kids get put on CHIP below 185% of FPL.

So if you don't want your kids on CHIP, you probably need to raise your income estimate that you provide to your exchange.

The 8.5% thing is for higher incomes - above 400% FPL, so probably twice what your income estimate currently is - so wouldn't affect you directly.

 

[newmillionaire]

What you said really helps me. Thanks! In PA the CHIP program says the maximum income level for a family of 4 is $82,268. The reason why I ask is I want to sell an investment in a few weeks that should give me a gain of 90K so my total income in 2021 could be about 150K. So knowing this, do you have anymore information about how the 8.5% would work?


Response to self: Well that would mean my kids are no longer eligible for CHIP. They then get put on my health plan which receives subsidies. Problem is my income is too high to receive subsidies...in comes the 8.5% to the rescue.

 

[SecondCor521]

What you said really helps me. Thanks! In PA the CHIP program says the maximum income level for a family of 4 is $82,268. The reason why I ask is I want to sell an investment in a few weeks that should give me a gain of 90K so my total income in 2021 could be about 150K. So knowing this, do you have anymore information about how the 8.5% would work?


Response to self: Well that would mean my kids are no longer eligible for CHIP. They then get put on my health plan which receives subsidies. Problem is my income is too high to receive subsidies...in comes the 8.5% to the rescue.

That's a pretty general question, so I'll suggest a general answer - google and read articles about it, they're out there. My basic understanding is that those over 400% FPL would be able to pay 8.5% of their AGI for an ACA plan like what you're currently on, but only for 2021 and 2022 so far.

If you update your income estimate mid-year, you may be able to get your kids off CHIP. But you also might temporarily lose your subsidies until the law is enacted (later today or tomorrow probably) and your state marketplace decides how to implement it. Not sure how all that will work though - check with your state marketplace folks.

 

[catotx]

See post #82 above for how the subsidy is calculated.

Roth conversion is primarily about comparing current tax rate to projected future rate. For the current rate, add 8.5% for the subsidy rejected, and also consider if you are pushing qualified dividends or LTCGs into being taxed.

While I'd love to make a large conversion this year, I'm only converting to the point at which QDivs get taxed. That's 12% on regular income and 8.5% subsidy loss for 20.5% on converted dollars. If I convert any more, I'm at 20.5%+15% QDiv tax for 37.5% until all of my QDivs are taxed, which is right about where the 22% tax bracket begins, for a 30.5% rate. Those aren't favorable to me so I'll stop at 20.5%.

Exactly right. I modeled the marginal bracket versus the Roth conversion amount for a family with $60k in dividends ($45k QDI) and $10k in interest income.

The Federal marginal bracket starts at 8.5%. The first jump takes it to 18.5%, then 20.5% and then 35.5%.

 

[Agapostemon]

From what I understand, the reconciliation rules don't allow for permanent changes. Reconciliation is supposed to allow annual budgets to be passed without the threat of filibuster.

Anyone know why this is only for 2 years?

 

[sengsational]

All very confusing to me wrt the Roth conversion amount! I think I'll do what I always do: buy the tax software in November and build the marginal tax graph (like the one in post 94), and then decide on my conversion amount.

 

[jim584672]

What you said really helps me. Thanks! In PA the CHIP program says the maximum income level for a family of 4 is $82,268. The reason why I ask is I want to sell an investment in a few weeks that should give me a gain of 90K so my total income in 2021 could be about 150K. So knowing this, do you have anymore information about how the 8.5% would work?


Response to self: Well that would mean my kids are no longer eligible for CHIP. They then get put on my health plan which receives subsidies. Problem is my income is too high to receive subsidies...in comes the 8.5% to the rescue.

Most states lock in CHIP in 12 month blocks, even if income has gone up.

 

[oscar1]

I’m for the subsidy changes as managing to the cliff takes too many hours away from my retirement. ��. But it is definitely a handout to the insurance cos. They will just raise their rates to accommodate the new gov reimbursements and we’ll all be right back into deficit subsidy again. I would have preferred more legislation around transparency in pricing so we all would have a better chance to compare apples and oranges. And a comparison of what similar charges run in other countries. Hopefully some day.

 

[GLM]

agreed

I’m for the subsidy changes as managing to the cliff takes too many hours away from my retirement. ��. But it is definitely a handout to the insurance cos. They will just raise their rates to accommodate the new gov reimbursements and we’ll all be right back into deficit subsidy again. I would have preferred more legislation around transparency in pricing so we all would have a better chance to compare apples and oranges. And a comparison of what similar charges run in other countries. Hopefully some day.

1+

Almost makes me glad I'll turn 65 on 3/10/2023 when the cliff may return.

 

[jimbee]

I’m for the subsidy changes as managing to the cliff takes too many hours away from my retirement. ��. But it is definitely a handout to the insurance cos. They will just raise their rates to accommodate the new gov reimbursements and we’ll all be right back into deficit subsidy again. I would have preferred more legislation around transparency in pricing so we all would have a better chance to compare apples and oranges. And a comparison of what similar charges run in other countries. Hopefully some day.

The insurance companies are required to pay out at least 80% of premiums received as claim payments. If they charge too much, the excess is paid back.