ACA: Cost Sharing: How it works?

[Fermion]

Can someone who has experienced getting and maintaining a ACA silver plan with lower deductible and out of pocket costs than normal (because of cost sharing) set me straight on how it works?

My exchange is Washington state. Other exchanges may operate differently.

1) Are you evaluated monthly for cost sharing eligibility or annually?

2) If you are on a silver plan with cost sharing and a $500/$1000 deductible/max OP and you somehow lose the cost sharing, does the deductible go up to the $3000/$6000 standard? If so, does it reset any money you have already paid in?

3) Can you drop down into cost sharing from non-cost sharing during the year? Can you go from a $3000/$6000 standard deductible silver plan to a $500/$1000 without having to actually change plans? If so, does it reset any money you have already paid in?

I *think* the cost sharing is done on the exchange side of things and the insurance company (like Premera Blue Cross) would think your plan is always a $3000/$6000 standard silver plan.

I do not know how to explain to the exchange folks that income during ER can be lumpy, especially for those of us without a pension. How do you explain a traditional to Roth conversion to a person who can't make correct change on a $4.80 transaction when you give them a five dollar bill and a nickel?

 

[reubenray]

I would like to know this also being Alabama has cost sharing.

 

[Ian S]

I've had cost sharing on the federal exchange for 2015 so I'm not sure that would apply to your Washington state exchange. I think the key thing to keep in mind is that having a "lumpy" income throughout the year is quite different from say a step function increase or decrease in income. Ultimately, it's the annual income that counts when doing your taxes. Now if you suddenly got a permanent job, with a steady income way above what you'd estimated, I think you'd be ethically, possibly legally bound to report that but I'm not really sure how that would affect the cost sharing. I don't think you can drop into cost sharing after the year starts so that makes me wonder if you can actually drop out of cost sharing during the year. You'd need a savvy ACA expert to determine that.

I have not adjusted my income estimate with the exchange - even though my income has been quite lumpy - because my overall estimate of income for the year is unchanged. It sounds like you are controlling your annual income to be at a level where you get cost sharing benefits. If so, I wouldn't worry about trying to change your income estimate every time you sell a chunk of stock or convert a Roth.

BTW, the insurance company definitely knows that your deductible is reduced since they keep track of your expenses. In my case I exceeded the reduced deductible and that was reflected on their statements sent to me.

 

[Trawler]

Fermion
My wife and I have a 2015 Silver Plan with cost share. We put down 30K of income when we applied. We have $2000 Per person deductible $2000 max out of pocket PPO plan. This same plan InHealth HSA3500 without cost share was $2000 per person deductible w/3500 max out of pocket. . Only had to provide information on income once when we made application thus believe only annually unless you initiate a change in income during the year. I do not know how or if IRS settles up on insurance payouts if you end up with more income at tax filing time than qualifies you for cost sharing and you exceeded deductibles and OPP at the lower cost share amounts. In reading IRS form 8962 there in no where that discuses cost sharing true up on payouts if you no longer qualified. The amount of subsidy that is paid will reconcile on the IRS 8962 at tax time. Less income more credit more income less subsidy up to 400% of federal poverty level and payback of advanced subsidy is capped when you stay under 400%. The capped payback amounts are different at different poverty level percentages.


We use Roth Conversions for income as well and I just tell the market place it is investment income then do tax planning in December and make the conversion.


I signed up using income that would qualify us for silver cost share plan knowing what the standard plan was and will see what happens if I decide to show more income. I need to find out and will let you know. My guess is IRS has no way catching this. Stay tuned.


I did have to provide proof of income for 2015. I provided 2014 tax return and stated in letter our income was derived mostly from IRA to Roth conversions and what our intent was for 2015 and they where fine with that.


Do not know if you had a midyear drop in income and go to cost share how that works. Great Question. I will let you know if I find out.

 

[Fermion]

Thanks for the replies guys and keep them coming please. It is a complicated dusty corner of ACA and this information could help others on here not make mistakes. Believe me, you do not want to make mistakes!

On the Washington application they ask if you are getting IRA distributions. While technically I doubt they are talking about IRA to Roth conversions, it might be wise to place some of the income in this category on the application to show consistent monthly income? Like you, I would probably not actually do the Roth conversion until December when I have a handle on our entire 2016 income. Otherwise how are you going to account for unexpected dividends, 1099 interest on bonus deals, or forced capital gains (maybe an early exercise of covered calls).

Would you consider a IRA to Roth conversion to be a IRA income distribution for sake of the ACA application?

 

[MRG]

Fermion they only care about your year total. Why not put off the conversion till December? That's what my plan has been.

 

[Fermion]

Fermion they only care about your year total. Why not put off the conversion till December? That's what my plan has been.

This is likely true if you don't talk to anyone. If you speak with them on the phone to try and get help with your application, it is very clear that they are interested primarily in present monthly income. It looks like income obfuscation is going to be the best approach when dealing with the people working the state exchange.

 

[Trawler]

This is likely true if you don't talk to anyone. If you speak with them on the phone to try and get help with your application, it is very clear that they are interested primarily in present monthly income. It looks like income obfuscation is going to be the best approach when dealing with the people working the state exchange.

The folks on the phone are trained this this way to help people derive their income. Some people do not know how to calculate their income. Yesterday I just told them to use 30K investment income that is it. No other income. That was the end of income discussion.

 

[Ian S]

Would you consider a IRA to Roth conversion to be a IRA income distribution for sake of the ACA application?

Yes I would because IIRC the amount taken out of the IRA will be included as income going into establishing your MAGI. However, I would assume it distributed evenly over the year as I don't think any of the exchange folks you'd be dealing with would understand it otherwise. Likewise, there is no mention specifically on the federal exchange application of the subtraction from income of health insurance premiums for the self employed. Yet that will also be a factor - perhaps significant factor - in calculating the MAGI. Actually you could account for it as a subtraction from self employment income. But, IMHO, for those who are in control of their income so as to benefit from cost sharing, you should start with the MAGI you plan to achieve, then divvy it up in a reasonable fashion among the categories available to you.

Ultimately, all you're really after is a reasonable estimate of income for the upcoming year.

 

[Fermion]

Ok, so now the question becomes, how do you demonstrate you will be getting monthly dividend, capital gains, and IRA distributions? Especially how do you demonstrate this when the only tax return you have is from 2014 where your MAGI was $265,000?

Can you just print out a $50,000 traditional IRA balance from Etrade along with an Excel spreadsheet that shows you will be receiving $1000 a month in planned distributions from it? Is that considered proof?

Can you print out your taxable account which has 800 shares of SPY with a cost basis of $110 and explain you will also be taking $600 a month from that account in capital gains on an Excel spreadsheet.

And finally can you show that the dividends that your SPY and Vanguard taxable accounts pay a total of $300 a month (even though the payments are lumpy in reality).

Is the above something typical one might submit if ones 2014 tax return will be of no use?

 

[Nunthewiser]

^^ That could be the $64,000 question. Last year when I signed up on the exchange I was just retiring and the only "proof" I had on my future income was a pension estimate from my employer. I sent that in (and initially got cost sharing) but a few months later apparently some nameless, faceless government drone didn't think that was good enough and just cancelled our plans without calling or emailing me. By then I had the first month or two of actual pension payment in hand and then provided acceptable proof. But , in the meantime our plans got hosed up, deductibles went up (just for a month).

So, what's good enough? Depends on your judge at healthcare.gov and what kind of day he/she may be having.

 

[MRG]

Ok, so now the question becomes, how do you demonstrate you will be getting monthly dividend, capital gains, and IRA distributions? Especially how do you demonstrate this when the only tax return you have is from 2014 where your MAGI was $265,000?

Can you just print out a $50,000 traditional IRA balance from Etrade along with an Excel spreadsheet that shows you will be receiving $1000 a month in planned distributions from it? Is that considered proof?

Can you print out your taxable account which has 800 shares of SPY with a cost basis of $110 and explain you will also be taking $600 a month from that account in capital gains on an Excel spreadsheet.

And finally can you show that the dividends that your SPY and Vanguard taxable accounts pay a total of $300 a month (even though the payments are lumpy in reality).

Is the above something typical one might submit if ones 2014 tax return will be of no use?

Last year(late 2014) I sent in:

A. Wife's 2013 1099 from SS
B. Fidelity statement of our(2014) YTD interest and dividend's
C. Fidelity projection of 2015 interest and dividends

I wrapped this into a word document that said if I didn't have enough income to avoid medicare (our state didn't expand) I would be doing a conversion from IRA to Roth. A few weeks later I received an OK. Hopefully this will work for 2016 as well. Good luck.


Edit to clarify dates

 

[Ian S]

Ok, so now the question becomes, how do you demonstrate you will be getting monthly dividend, capital gains, and IRA distributions? Especially how do you demonstrate this when the only tax return you have is from 2014 where your MAGI was $265,000?

Can you just print out a $50,000 traditional IRA balance from Etrade along with an Excel spreadsheet that shows you will be receiving $1000 a month in planned distributions from it? Is that considered proof?

Can you print out your taxable account which has 800 shares of SPY with a cost basis of $110 and explain you will also be taking $600 a month from that account in capital gains on an Excel spreadsheet.

And finally can you show that the dividends that your SPY and Vanguard taxable accounts pay a total of $300 a month (even though the payments are lumpy in reality).

Is the above something typical one might submit if ones 2014 tax return will be of no use?

Yes, you could. I submitted 1099s showing dividend income and also submitted a bank statement. Whatever you can use to make a reasonable case for your new income. If your 2014 MAGI of $265,000 was due to salary for a job you no longer have, then use your 2014 return along with proof - e.g. statement from former employer - that that is no longer a source of income. Use the other parts of your 2104 tax return (interest, dividends, capital gains, etc. if they are representative) as estimates for filling out a spreadsheet to show estimated income. The alternative I used last year was to do my 2014 tax return early and to use that as supporting evidence.

Definitely use a simple spreadsheet/table showing the year over year comparison and even write statements explaining how the new numbers are obtained. IIRC they give you a couple months or so to get your info submitted.

 

[Fermion]

Ok, and then the final question here. If you submit all of this information and some time in March 2016 they say "yeah, we are not going to give you cost sharing", does this mean your policy is cancelled and you are left without any insurance? Do you get an special enrollment at the time your cost sharing is denied for some reason?

 

[Ian S]

Ok, and then the final question here. If you submit all of this information and some time in March 2016 they say "yeah, we are not going to give you cost sharing", does this mean your policy is cancelled and you are left without any insurance? Do you get an special enrollment at the time your cost sharing is denied for some reason?

I would think you'd still have the policy and the deductibles, etc. would just be modified. It would be unfair to cancel the policy and not allow you to get coverage. I would imagine we'd have heard such horror stories trumpeted in the press if they had actually occurred.

 

[Nunthewiser]

I would think you'd still have the policy and the deductibles, etc. would just be modified.

See my rant in post #11 above. They didn;t cancel our plans (I misremembered) - we kept our plans but had to pay full retail for a month until I was able to send actuals to get the subsidy reinstated. But no back credit even though they accepted our estimates.

Even though I kept a copy of what was uploaded to the site, as well as a confirmation back from the site that said they got something, the feedback , shall we say, sucks. When you call a CSR they are helpful and can tell you what they see on the screen, but they don't make the decisions. You won't get a personal phone number to some burned out bureaucrat who has the power to make your life miserable .

 

[zenzy]

The broker I worked with didn't seem to think my state exchange would require proof of income so I think I have cost sharing for the year 2016.