Poll: Who's going to try to get ACA subsidies by staying under the threshold?

[MichaelB]

It's a shame to see HDHPs go by the wayside, they were one of the proven ways to reduce medical expenditures. Oh, well, progress . . .

Not sure what is proven and what isn't, but we do know that HDHP plans will continue, as will HSA accounts.

 

[pb4uski]

OK, I'll add one more wrinkle for folks to consider. My family is currently on a high deductible plan that qualifies for an HSA account. The plan (incl. out of pocket costs) currently costs me around $5K/yr. I plan to enroll in a qualified silver ACA plan, which will probably cost around $14K/yr, but expect to receive about $9K in subsidies.

Although the net cost will be lower with the ACA plan, there are some finer points that make this narrower than you might think:

- giving up the HSA will cause me to lose around $1K/yr in tax savings
- I also lose the ability to harvest capital gains at 0% since I will be trying to keep my income as low as possible. Last year, I was able to harvest almost $50K in capital gains at 0%, so to me, this could potentially cost me $50K x 15% = $7.5K in future years depending on what happens with capital gains taxes in the future.

Finally, the decision to use an ACA plan is solely based on the expected tax subsidy - if there was no subsidy, I am guaranteed to be better off staying on my HSA plan, even if I hit my max out of pocket. So it's not simply a matter of maximizing my credit for something I would have bought anyways - it's actually impacting what I should be buying ([-]expect[/-]except I won't know until after the fact!).

What a mess...

I believe that some HDHP/HSA-eligible plans will qualify for ACA subsidies so the first concern may be moot. In my case I am going to need to cut my 0% capital gains in half in order to stay under 400% FPL but the value of the lost subsidy is so large compared to the incremental capital gains that it is well worth it to me. YMMV.

 

[gerrym51]

OK, I'll add one more wrinkle for folks to consider. My family is currently on a high deductible plan that qualifies for an HSA account. The plan (incl. out of pocket costs) currently costs me around $5K/yr. I plan to enroll in a qualified silver ACA plan, which will probably cost around $14K/yr, but expect to receive about $9K in subsidies.

Although the net cost will be lower with the ACA plan, there are some finer points that make this narrower than you might think:

- giving up the HSA will cause me to lose around $1K/yr in tax savings
- I also lose the ability to harvest capital gains at 0% since I will be trying to keep my income as low as possible. Last year, I was able to harvest almost $50K in capital gains at 0%, so to me, this could potentially cost me $50K x 15% = $7.5K in future years depending on what happens with capital gains taxes in the future.

Finally, the decision to use an ACA plan is solely based on the expected tax subsidy - if there was no subsidy, I am guaranteed to be better off staying on my HSA plan, even if I hit my max out of pocket. So it's not simply a matter of maximizing my credit for something I would have bought anyways - it's actually impacting what I should be buying ([-]expect[/-]except I won't know until after the fact!).

What a mess...

california was allowed a 5000 deductible bronze plan. I assume that will be allowed all over the country.

its the one on the far right of the chart

http://www.coveredca.com/media/10748/CoveredCA-HealthPlanBenefitsComparisonChart.pdf

 

[MichaelB]

Bronze level coverage requires an AV of 60% and total out of pocket is limited to $6350. This can be allocated to deductible and co-pay. This is also well within the limits for an HSA policy

 

[skyline]

GM51/MB - Thanks for the responses. I'm glad to hear that I may be able to keep an HDHP as a Bronze option within the ACA. After some thought, however, I realized that the HSA portion is not very relevant for me under ACA. The reduction in income to achieve <400% FPL means that the HSA deduction does nothing for my federal taxes (which is already effectively 0% as all my income is CG and I'm in the 15% bracket), and California doesn't allow HSA contributions as a deduction anyways.

I did a little more research and found that, while the ACA tax credit applies to any type of ACA plan, it does not allow for cash back if you pick a plan that is cheaper than your ACA credit (I read discussion earlier in the thread about this, but wanted to check on my own):

How New Health Insurance Subsidies Will Work - The Best Life (usnews.com)

The relevant portion (the dollar amount below is tied to an example earlier in the article):

"While this tax credit is tied to a silver plan, the family is free to buy any plan in the exchange it can afford. Whatever the premium is for the plan, the family will be able to reduce its payment by the amount of its credit: $7,095.70. The only exception is that if it decides to buy a cheaper policy with total premiums of less than this amount, it will not get any money back."

So, if I decide to reduce my income to qualify for tax credits under ACA, it doesn't seem like there would be any benefit to selecting the bronze option (assuming the cost is somewhat comparable to what I pay now for my HDHP).

Which means, for me at least, it's still probably down to comparing costs/savings for:

- harvest CG at 0%, not qualify for ACA tax credits, purchase bronze exchange plan
or
- give up CG harvesting, qualify for ACA tax credits, purchase silver exchange plan

Lots of food for thought - and I'm sure there will be more details as October closes in...

 

[gerrym51]

GM51/MB - Thanks for the responses. I'm glad to hear that I may be able to keep an HDHP as a Bronze option within the ACA. After some thought, however, I realized that the HSA portion is not very relevant for me under ACA. The reduction in income to achieve <400% FPL means that the HSA deduction does nothing for my federal taxes (which is already effectively 0% as all my income is CG and I'm in the 15% bracket), and California doesn't allow HSA contributions as a deduction anyways.

I did a little more research and found that, while the ACA tax credit applies to any type of ACA plan, it does not allow for cash back if you pick a plan that is cheaper than your ACA credit (I read discussion earlier in the thread about this, but wanted to check on my own):

How New Health Insurance Subsidies Will Work - The Best Life (usnews.com)

The relevant portion (the dollar amount below is tied to an example earlier in the article):

"While this tax credit is tied to a silver plan, the family is free to buy any plan in the exchange it can afford. Whatever the premium is for the plan, the family will be able to reduce its payment by the amount of its credit: $7,095.70. The only exception is that if it decides to buy a cheaper policy with total premiums of less than this amount, it will not get any money back."

So, if I decide to reduce my income to qualify for tax credits under ACA, it doesn't seem like there would be any benefit to selecting the bronze option (assuming the cost is somewhat comparable to what I pay now for my HDHP).

Which means, for me at least, it's still probably down to comparing costs/savings for:

- harvest CG at 0%, not qualify for ACA tax credits, purchase bronze exchange plan
or
- give up CG harvesting, qualify for ACA tax credits, purchase silver exchange plan

Lots of food for thought - and I'm sure there will be more details as October closes in...

not that i totally know your info-but not paying taxers is not the decider for subsidies- i also will be paying no taxes starting 2014

however the MAGI calculation will be close

 

[explanade]

Doing my tax return, which shows my 1099-DIV forms add up to almost $70k.

So there is no easy way to manage to fit the income below the limits to be eligible for the subsidies, unless I switch my funds to those that have really minimal dividends and cap gains distributions.

But they're all low-cost index funds, Admiral shares of Wellsley and then Total Stock Market, a couple of international funds.

Of course, even if there are funds that have minimal dividend and cap gains, they probably are likely to have lower returns.

So there must be many others in the same boat, which might account for those who answered "No" to the poll.

 

[pb4uski]

....Which means, for me at least, it's still probably down to comparing costs/savings for:

- harvest CG at 0%, not qualify for ACA tax credits, purchase bronze exchange plan
or
- give up CG harvesting, qualify for ACA tax credits, purchase silver exchange plan

Lots of food for thought - and I'm sure there will be more details as October closes in...

I guess it depends on how close you are to 400% FPL before capital gains.

I expect to be about 77% FPL before capital gains (qualified dividends - HSA contributions) so I can take ~50k of 0% capital gains a year and still stay within 400% FPL.

It seems my state will offer a silver plan that is HSA and ACA eligible that will be ~$225 a month (before subsidies) more than I pay now so I'll probably go with that. After subsidies, I expect to pay about ~$135/month less than I pay now with broadly similar deductibles and OOPMs.

The lost subsidy above 400% FPL makes it very costly for me to harvest gains that cause me to go above 400% FPL, even at 0% federal income tax.

If I took additional gains to being me to the end of the 15% bracket, even though my CG tax would be zero, my lost subsidy would be ~39% of the incremental gains (plus some stat tax effects that would puch the incremental cost to ~50% of the incremental gains).

 

[samclem]

I expect to be about 77% FPL before capital gains (qualified dividends - HSA contributions) so I can take ~50k of 0% capital gains a year and still stay within 400% FPL.
. . . .
The lost subsidy above 400% FPL makes it very costly for me to harvest gains that cause me to go above 400% FPL, even at 0% federal income tax.

If I took additional gains to being me to the end of the 15% bracket, even though my CG tax would be zero, my lost subsidy would be ~39% of the incremental gains (plus some stat tax effects that would puch the incremental cost to ~50% of the incremental gains).

So, as a practical matter, what do we think is a good way to approach "the line" without going over? Unfortunately, lots of decisions (e.g. how much CG to take at 0% taxes) have to be made before 31 December, and we don't have full info on all our income sources by that time. One post-Dec fine-tuning mechanism available to us is tIRA-to-Roth recharacterizations.

So, it might work like this:
- Mid December: Estimate "can't help it" income from employment, taxable interest, SS, pensions, etc.
- Subtract carried-over losses, deductions, exemptions to determine headroom before hitting "the cliff" (which might be 400% of FPL for those getting health insurance subsidies, or top of the 15% bracket for those not getting subsidies)
- Harvest CG to reset the basis in appreciated shares held in taxable accounts. Do this only up to a safe buffer zone below "the cliff" to assure the subsidy isn't jeopardized.
- Then convert tIRA to Roth IRA up to "the cliff", or even beyond it.
- After all the 1099s are received and we are ready to file taxes, recharacterize that portion of the tIRA-to_Roth that ends up being in excess of "the cliff."

Sound close?

 

[sengsational]

Sound close?

You're hired. Oh, wait, that's a "bad word" on this site. Or in December just key it all into an early version of TaxCut (or HR Block blah blah, whatever they renamed it to) and let that determine the tIRA conversion. I bet that the TaxCut people are already working on the "interview" screens for telling you you'll get socked in the gut if you make $1 over the 400% FPL.

 

[RunningBum]

Also try to limit or eliminate state tax refunds. Those show up on line 10 of 1040 and therefore are part of MAGI. A Roth recharacterization is likely to result in a refund, so it may not be to your advantage to go over the edge and recharacterize back. It won't affect the current year but it will the following year.

 

[pb4uski]

.....Sound close?

Yes, except remember that we're talking about keeping O-MAGI less than 400% FPL, so exemptions and itemized deductions are not include in O-MAGI.

It would include Form 1040 AGI + any foreign earned income exemption + tax-exempt interest + and non-taxable SS.

My plan is to essentially do an estimated return in December and take gains for 400% FPL - estimated O-MAGI based on everything I know - $1,000 and cross my fingers. I could instead fill up with $5,000 or so of Roth conversion and recharacterize any excess once I complete my return.

 

[pb4uski]

Also try to limit or eliminate state tax refunds. Those show up on line 10 of 1040 and therefore are part of MAGI. A Roth recharacterization is likely to result in a refund, so it may not be to your advantage to go over the edge and recharacterize back. It won't affect the current year but it will the following year.

True, but you'll know the amount of any prior state income tax refunds to add back if you itemized the prior year so I don't see "income" from prior year refunds as being problematic.

 

[gerrym51]

One thing to be careful of.

the states will base the value on the silver plan in your area that is the second lowest priced.

if you pick a silver plan but it is more expensive the the 2nd lowest priced you will have to pay the difference between say 2nd lowest and 4 th lowest also.

say their are 10 silver plan providers

1, 100 a month
2,200
3 300
4 400
5 500
6 600
7 700
8 800
9.900
10. 1000

I don't think there will be that much difference between silver providers-i used big round numbers. but say #2 provider 200 anonth and you pick #5 500 a month you will also have to pick up difference between 2 and 5.

just another thing to think about

 

[RunningBum]

True, but you'll know the amount of any prior state income tax refunds to add back if you itemized the prior year so I don't see "income" from prior year refunds as being problematic.

Sure, you'll know it, but if you leave yourself a large state refund, it cuts into the Roth conversion that you can do. Or if you're on the edge with a conversion as I am, a big refund can send you over the cliff.

 

[gerrym51]

another issue to be aware of. Exchange plans in order to be as inexpensive as possible are allowed by federal government to have only 1 prescription drug available per class. unless your state establishes their own exchange they will have no control of this.

Prescription Drug Prices Coverage Under Obamacare


http://healthblog.ncpa.org/navigating-the-obamacare-rules/


Separate rules apply to coverage for prescription drugs. For each therapeutic category or class of prescription drugs (for example, as defined by the United States Pharmacopeia or USP), health plans must cover the greater of one drug per class or category, or the same number of drugs per class or category as covered by the benchmark plan. Drugs in a class or category must be therapeutically distinct (for example, different doses of the same drug are counted as one drug, as are brand drugs and their generic equivalents.)



some states are trying to overcome this flaw-they all have own exchanges


http://thinkprogress.org/health/2012/10/03/946961/states-better-drug-coverage-than-obamacare/

 

[MichaelB]

Exchange plans in order to be as inexpensive as possible are allowed by federal government to have only 1 prescription drug available per class. unless your state establishes their own exchange they will have no control of this.

The PPACA mandates a series of "essential health benefits" and requires every eligible policy to have at least one drug in every category. That does not mean plans will only have one drug per category and has nothing to do with who runs the exchange.

 

[gerrym51]

The PPACA mandates a series of "essential health benefits" and requires every eligible policy to have at least one drug in every category. That does not mean plans will only have one drug per category and has nothing to do with who runs the exchange.

no -but it does mean mroe restrictive formularies of drugs.

when you buy a ppaca plan make sure

1.doctor is in it
2. local hospitals are in it.
3. drug(s) you use are in it.

seems prudent to me.

 

[MichaelB]

no -but it does mean mroe restrictive formularies of drugs.

You are using your own interpretation and calling it fact. We will not know if this is the case until the plans are available on the exchanges.

 

[gerrym51]

You are using your own interpretation and calling it fact. We will not know if this is the case until the plans are available on the exchanges.

michael,

go to this link on california plans. look at the plans on right. 2nd to right 20 dollar co-pay for GENERICS. far right 25 dollar co-pay for generics i just recently semi-retired as a pharmacist.

In all my years i have never seen more than a 10 dollar co-pay for generics. Most of the people on this board if they qualify will probably get get this for subsidy. and those co-pays start after rx deductible..
http://www.coveredca.com/PDFs/English/CoveredCA_HealthPlanBenefitsSummary.pdf



i'm sure most if not all generics for these plans will be covered. i'm also sure brands that have generics will not be covered and you will have to get your doctor to fight with your insurance.

brands that don't have generics yet-since most new drugs are just me to drugs of same therapeutic catagories will not be covered. good luck getting an approval for nexium or crestor this happens on some insurances now but the more Value networks rarely get approvals


in the insurance companies defense they had to submit based on plan decided by california exchange wth california setting the copays. it would have made sense (at least to me) to raise the co-insurance parts to 25 percent from 20 and decrease the generic rx copays to 10 dollars. or increase the brand rx dedictible and decrease the generic co pay. these plans are not as good as they seem

 

[MichaelB]

The link says nothing about restricting drugs by class or category or more restrictive formularies. It has nothing to do with drug availability, which was your earlier post.

Isn't drug co-pay part of actuarial value? Higher co-pays mean lower deductibles, and vice-versa? The overall expected cost of the plan does not change.

 

[gerrym51]

The link says nothing about restricting drugs by class or category or more restrictive formularies. It has nothing to do with drug availability, which was your earlier post.

Isn't drug co-pay part of actuarial value? Higher co-pays mean lower deductibles, and vice-versa? The overall expected cost of the plan does not change.

insurances use co-pays to affect usage. the higher the co-pay the lesser the use. a 25 dollar copay for a generic IS a very high price especially if you have to fill it every month.

 

[kevink]

I guess it's another poll since the option wasn't included on this one, but surely there must be folks who'll keep their AGI low enought not just for subsidies but for Medicaid eligibility. If you're a childless single or couple living solely off off assets in a tax-efficient portfolio and have a modest lifestyle that looks quite do-able.

 

[gerrym51]

I guess it's another poll since the option wasn't included on this one, but surely there must be folks who'll keep their AGI low enought not just for subsidies but for Medicaid eligibility. If you're a childless single or couple living solely off off assets in a tax-efficient portfolio and have a modest lifestyle that looks quite do-able.

medicaid eligibility means medicaid networks. lower co-pays-but tougher to find providers.

1.make sure doctor in it
2. generics in my experience always covered. brands with generics never covered. some classes of drugs excluded.
3. as far as i know all hospitals are in medicaid

 

[Z3Dreamer]

How about this?

I estimate my income at 200% FPL and receive the appropriate subsidy and low deductible plan. I am a heavy user. At year end I get those unintended, unknown Cap Gain distributions. Oh, golly, I owe the difference between the 350% FPL and 200% FPL premiums. But do I get to keep the savings of being on a low deductible, low copay plan? I don't see how they will deal with this, although anything is possible.