ACA Subsidy

[milford]

Hi can someone help me understand if I will qualify for ACA subsidy next year (2021)? I am planing to FIRE after getting laid off earlier this month and my company is paying for COBRA for the remainder of the year. I am single and my income this year is ~100k, but next year I am expecting about 40K (based on what I read yes?) and if I do qualify is the subsidy tiered (i.e. someone with 20K income will qualify for a higher subsidy vs. someone with 40K income) or is it the same for everyone as long as you are below the maximum income amount?

 

[SecondCor521]

Whether you get a subsidy will depend on your family size, your adjusted gross income (AGI), and a little bit on where you live.

For your family size, this is you, plus any spouse, plus any dependents that you will have in 2021.

Your AGI for the ACA will probably be whatever you will have on your tax return on line 8b for 2021. It's essentially your taxable income minus some adjustments such as HSA and traditional IRA contributions.

Once you have those two numbers, you can look at this link to see where you family falls in terms of something called the federal poverty level, or FPL:

https://thefinancebuff.com/federal-poverty-levels-for-obamacare.html

ACA subsidies exist for AGIs up to 400% of the FPL, so if you were a family of two and lived in the mainland of the US, you would see the number $17,240. That's the FPL, so ACA subsidies exist up to 4 times that number, or $68,960.

The subsidy is on a sliding scale up to that 400% number. There are breakpoints in the formula at 150%, 200%, 250%, and 300% of the FPL.

You can probably find out what your subsidy will be by going to your state's ACA marketplace (it's a website - just google your state's name plus ACA marketplace and the link should be obvious, or you can start at healthcare.gov) and putting in your information.

 

[RunningBum]

It's tiered. To explain how I'd have to google to find the whole, fairly complex formula, so I'll let you do that.

https://www.kff.org/interactive/subsidy-calculator/ is a good calculator, but it won't be accurate for 2021 until those rates come out. That's also when healthcare.gov will have the same info. But meanwhile you could plug in numbers in the 2020 calculator just to get an idea, but there is no guarantee that 2021 will be anywhere close.

Since your income is high this year, you might have to write a note to explain why 2021 will be lower, but that's no big deal. There are at least a couple threads about that if you do a search.

 

[Aerides]

You'll want to look into the specifics for your situation, but in general, if your annual income is projected to be under ~$64k for two people, for example, then a subsidy will be applied to your premiums. The amount changes based on the federal poverty level, and family size, so for a single person that's probably less - google for details.

Also, $20k income may be too LOW for the ACA market plans, in some states low income places you on medicaid instead, and in some other states you can find yourself with zero options - there's a gap between the medicaid top and the ACA bottom. And again for a single person the income markers may be lower.

Remember, COBRA is up to 18 months in most states, so if it's palatable for you, you could stay on it thru 2021. You can't drop it mid-year, but you can drop it and switch to ACA during enrollments, so you can go on the ACA either Jan1-21 or Jan1-22.

COBRA is expensive, but it's generally the best HI you'll have for a while, and you get the benefit of not having to change docs and stuff while you get settled in retirement.

 

[aaronc879]

The income limit for a single person in 2020 is $49,960 so it'll be over $50K in 2021 so you will qualify for some subsidy. Where is that $40K coming from next year? Is it a pension or dividends? What you do depends significantly on your personal situation. It is best to limit your income to around $20K if possible and supplement with cash savings to cover your bills. That will give you a much bigger subsidy than if you make $40K. That's not possible for some people though.

 

[CRLLS]

It's tiered. To explain how I'd have to google to find the whole, fairly complex formula, so I'll let you do that.

https://www.kff.org/interactive/subsidy-calculator/ is a good calculator, but it won't be accurate for 2021 until those rates come out. That's also when healthcare.gov will have the same info. But meanwhile you could plug in numbers in the 2020 calculator just to get an idea, but there is no guarantee that 2021 will be anywhere close.

Since your income is high this year, you might have to write a note to explain why 2021 will be lower, but that's no big deal. There are at least a couple threads about that if you do a search.

^ +1

If you want the subsidy on the monthly premiums you pay, you will have to explain why the income documents you provide are not applicable going forward. It is a relatively simple thing, if not with much anxiety. IIRC, you could pay the full boat premium (no subsidy) and then when you file your income taxes for 2021, get reimbursed if you qualify.

 

[scrabbler1]

Add me to those who wrote you would have to include a note about why your income will be lower in 2021 (the current year) than in the prior year. I had to do that back in February when I changed my portfolio so it would generate far less income in 2020 than in 2019. What you have to include may vary depending on your state, but for me I included some 1099s and a sales confirmation paper which confirmed I sold off all the mutual fund shares which generated the 2019 income spike. Because I was told in advance that those in my state's exchange were not really so interested in notes, I wrote my relevant comments on the 1099s so they wouldn't miss them. It worked, and I am now back on the ACA subsidy train this year. Because my subsidy is so large, I didn't want to simply wait until the end of 2020 to recover all the money I overpaid during the year.

 

[bada bing]

I have a question about the mechanics of how the subsidy works. Apologies if this is a thread hijack.

How exactly is the subsidy paid ? Is it just a reduction in the monthly premiums due ? Can you pay the full premium amount and get the subsidy rebated ?

 

[scrabbler1]

I have a question about the mechanics of how the subsidy works. Apologies if this is a thread hijack.

How exactly is the subsidy paid ? Is it just a reduction in the monthly premiums due ? Can you pay the full premium amount and get the subsidy rebated ?

You can do either one. I have been on the ACA since its inception. Some of the years, I had my monthly premium reduced. In other years, I paid the full amount and received the subsidy in the form of fewer taxes due the following year (it tended to be pretty small). But you always have to reconcile what your subsidy should have been versus what you received. Some years, I received an advanced subsidy but had to return it in April because my income ended up being too high to qualify for it.

As mentioned elsewhere in this thread already, you may have to prove you deserve an advanced subsidy.

 

[milford]

Thanks for everyone's input and guidance!

 

[Green Papaya]

When I retired last year, I went from $100K+ salary to zero salary. When signing up for ACA the following year, I explained to them that I had retired and my next year income will be a combination of interests and dividends, plus what I plan to withdraw from my 401K account for living cost. It was relatively simple and accepted by the plan administrators.

 

[kimcdougc]

I have a question about the mechanics of how the subsidy works. Apologies if this is a thread hijack.

How exactly is the subsidy paid ? Is it just a reduction in the monthly premiums due ? Can you pay the full premium amount and get the subsidy rebated ?

We pay the full premium and get the subsidy rebated at tax time. Works great. Been doing this for the last 6 years.

 

[RunningBum]

We pay the full premium and get the subsidy rebated at tax time. Works great. Been doing this for the last 6 years.

That's what I'm doing this year, because I hadn't planned on taking the subsidy this year until I did some cap loss harvesting in the big drop this spring. I didn't bother updating my income but I don't really like giving the govt a free $9K loan of my money.

 

[bobbyr]

We pay the full premium and get the subsidy rebated at tax time. Works great. Been doing this for the last 6 years.

I am getting ready to start aca in a month or so...I didn't realize this, I just assumed that the BCBS bronze plan I was seeing with $0 premium meant I wouldn't be paying anything.

 

[bobbyr]

read this on irs.gov, which sounds like the path we would take

Advance payments of the Premium Tax Credit
When you enroll in coverage and request financial assistance, the Marketplace will estimate the amount of the premium tax credit you will be allowed for the year of coverage. To make this estimate, the Marketplace uses information you provide, including information about:

Your family composition
Your household income
Whether those that you are enrolling are eligible for other non-Marketplace coverage
Based on the estimate from the Marketplace, you can choose to have all, some, or none of your estimated credit paid in advance directly to your insurance company on your behalf. These payments – which are called advance payments of the premium tax credit or advance credit payments – lower what you pay out-of-pocket for your monthly premiums.

If you do not get advance credit payments, you will be responsible for paying the full monthly premium.

 

[SecondCor521]

I am getting ready to start aca in a month or so...I didn't realize this, I just assumed that the BCBS bronze plan I was seeing with $0 premium meant I wouldn't be paying anything.

If you went to an ACA marketplace website for your state and put in an income number, then probably what that means is that the subsidy you're entitled to is more than the monthly premium for the bronze plan you're looking at. That's quite common.

What that means if you sign up for that bronze plan and take the premium subsidy is that you'll get that insurance and the federal government will pay the premium for you by sending your subsidy to the insurance company.

Note that if your subsidy is, say $400 and your bronze plan costs $300, you're in essence wasting the $100 difference. You can fix that by either buying a more expensive plan (silver or higher), or by increasing your income until your subsidy drops to equal the bronze premium. One nice way to do this is to do Roth conversions, because those would then be federal income tax free.

...

The subsidy can either be paid monthly to your insurance company (which I think is more common), or you can just pay the premium yourself and get the tax credit when you file your tax return.

 

[bobbyr]

Thanks 2c521 (nice verse!).

I am not sure I am too worried about wasting the $100. I was more interested in $0 premium <smile>. We have very minimal healthcare expenses thus far (knock on wood). The difference between the plans, at least that I have seen, do not motivate me to bump up to silver or something like that, going from $0 to $300 for example, with deductable dropping $2k or so. Ends up being a wash. I have my sights set on $0 premium cost and will deal with deductable and max in case of emergency. Still cheaper than my company offered retirement insurance if we had to spend the max.

I appreciate the roth conversion suggestion and will be looking into that. I mostly want to make sure I don't go over the max cliff that negates the whole subsidy thing.

 

[SecondCor521]

@bobbyr, you're welcome.

See post #2 in this thread for how to figure out what your subsidy cliff AGI is. It's 4 times the Federal Poverty Level for your family size and location.