ACA Confusion-very low income = NO subsidies?

[IslandFiGirl]

I've been playing with the ACA plans calculator, and noticed that if my MAGI is $17,300, I qualify for subsidies, but if it's less than that, it says I qualify for low cost coverage (Medicaid?).  I guess I thought if someone qualified for medicaid it would be even less, but the medicaid plans are over $300/month whereas the plans with subsidies at that level of income are like $50.  Anyone understand this better than me?  Oh and this is in Colorado, by the way.

Thanks!

[dcheesi]

The ACA included that subsidy cutoff in order to strong-arm states into expanding Medicaid to cover everyone at that income level. Some states did, while others stubbornly refused, leaving some low-income people in the lurch. Not sure if that's what you're running into?

[IslandFiGirl]

The ACA included that subsidy cutoff in order to strong-arm states into expanding Medicaid to cover everyone at that income level. Some states did, while others stubbornly refused, leaving some low-income people in the lurch. Not sure if that's what you're running into?

Oh maybe you are right, it's funny how you have to make just enough money to qualify for good subsidies, but not too much.  What a balance!

[StashingAway]

There is a very interesting order of operations loop that is stuck in the tax code at this cutoff line as well. In specific scenarios, if you make just enough money for subsidies (rather than Medicaid), but don't take any subsidies on a monthly basis and elect to get reimbursement at the end of the year, you might be required to pay full price for your healthcare.

The issue is that if you make over the MAGI poverty line, then deduct your monthly health insurance that you paid full price on, it brings you below the MAGI poverty line, which means you should have been on Medicaid rather than in the ACA market (and therefore get zero ACA tax payback rather than almost all of it). BUT, the kicker is that if you apply your subsidy kick back before you calculate MAGI, then you stay above the poverty line and are qualified for that kick back. It's literally determined by which form you fill out first in the tax code, and there is no solution from the IRS for this. It can amount to a significant amount of money.

This doesn't occur often, because if you are at that MAGI level, you likely are taking monthly kickbacks rather than one lump sum, so it's all worked out before you do taxes because you're supposed to take into account estimate annual salary when applying in the ACA. But for people with unusual income fluctuations (ahem, Mustachians), it can hit you with an 8K tax payment that you were unaware of!

[IslandFiGirl]

There is a very interesting order of operations loop that is stuck in the tax code at this cutoff line as well. In specific scenarios, if you make just enough money for subsidies (rather than Medicaid), but don't take any subsidies on a monthly basis and elect to get reimbursement at the end of the year, you might be required to pay full price for your healthcare.

The issue is that if you make over the MAGI poverty line, then deduct your monthly health insurance that you paid full price on, it brings you below the MAGI poverty line, which means you should have been on Medicaid rather than in the ACA market (and therefore get zero ACA tax payback rather than almost all of it). BUT, the kicker is that if you apply your subsidy kick back before you calculate MAGI, then you stay above the poverty line and are qualified for that kick back. It's literally determined by which form you fill out first in the tax code, and there is no solution from the IRS for this. It can amount to a significant amount of money.

This doesn't occur often, because if you are at that MAGI level, you likely are taking monthly kickbacks rather than one lump sum, so it's all worked out before you do taxes because you're supposed to take into account estimate annual salary when applying in the ACA. But for people with unusual income fluctuations (ahem, Mustachians), it can hit you with an 8K tax payment that you were unaware of!

Not gonna lie, it took me 3 times to read through that and totally understand it!  I feel like they must want it to be that confusing!

[Schaefer Light]

Yep.  I noticed the same thing when I was out of work last year and signed up for an ACA plan.  During the sign-up process, you have to enter your annual income.  I had no idea what my income would be, so I entered a number that was exactly 100% of the Federal Poverty Level (it was $12,400 in my case) in order to maximize my subsidies.  Had I entered $1 less, I wouldn't have been eligible for subsidies and also wouldn't have been able to sign up for a Medicaid plan since my state didn't expand Medicaid when the ACA was passed.  My income for 2019 ended up being something like 300% of the FPL, so I was entitled to some subsidy money.  I guess I'll find out how much when I file my taxes.  I'm sure I'll have to pay back a good portion of the subsidy money.

[eostache]

I'm in Colorado and I have dealt with Medicaid coverage, though I'm not on it at the moment. I'm looking on the Health First Colorado page (https://www.healthfirstcolorado.com/apply-now/?tab=do-i-qualify) and they have a monthly income limit of $1385 for 1 person. (~$16,000 per year)

I was expecting to get on Medicaid at the beginning of January. I'm collecting unemployment, but only through March. As far as I know now my 2020 income will only be 3 months of UI payments. (No guarantee of when I will find a job. I have a lot of savings and few expenses....MMM style).

When I put in my 2020 income in the Colorado Peak Health page, where they determine if you are eligible for Medicaid, I did it as they asked, $x per month for 3 months. My monthly payments from UI are more than $1385. This directed me not to Medicaid coverage, but to several choices of highly subsidized ACA plans. I chose a silver plan with $0 premiums and very low co-pays and deductibles.

When my UI ends in March, if I don't have a job by then, I will go back into Peak and adjust my monthly income again to $0 and it should put me on Medicaid coverage. I will drop the $0 ACA plan then. I like the Medicaid coverage. I can go to the urgent care clinic 2 blocks away for free. I can get two free dental cleanings a year.

Later in the year I may look into picking up some part time work. If I know I can keep my 2020 income under $16,000 I will adjust my income in Peak so I can stay on the Medicaid.


As an aside, I was thinking recently that in the past 3 years I've been on 5 different kinds of health plans.
This was due to changing income situations:
Unemployment (Medicaid)
Job with no health insurance ($$ ACA plan)
Job with health insurance (then got laid off this job)
Unemployment again (collecting UI, on cheap ACA plan for 3 months Oct, Nov, Dec)
For 2020 still collecting UI but ACA plans changed a lot so I picked up a different one on January 1.

Six, as I will probably be back on Medicaid in a couple of months.

I did not even use any of these health plans (never went to doctor) but it's fkng ridiculous to have to change health plans whenever income changes a bit.

[jim555]

...but the medicaid plans are over $300/month whereas the plans with subsidies at that level of income are like $50.  Anyone understand this better than me?  Oh and this is in Colorado, by the way.

Medicaid plans are $0 premium, don't know where you are getting the $300 from.  Subsidies don't apply to Medicaid.

[jim555]

The ACA included that subsidy cutoff in order to strong-arm states into expanding Medicaid to cover everyone at that income level. Some states did, while others stubbornly refused, leaving some low-income people in the lurch. Not sure if that's what you're running into?

Actually the Supreme Court ruled states have the option whether to expand or not.  The original law required states to expand.

[jim555]

There is a very interesting order of operations loop that is stuck in the tax code at this cutoff line as well. In specific scenarios, if you make just enough money for subsidies (rather than Medicaid), but don't take any subsidies on a monthly basis and elect to get reimbursement at the end of the year, you might be required to pay full price for your healthcare.

That is not how it works.  If they accept your estimate and you come in lower at the end of the year, nothing happens.  If you come in over 400% you can loose all subsidies and have to pay back.

Edit add:  I think you may be referring to the gap from 0-100% in non-expansion states.  Below 100% and you have to pay full price.

[jim555]

... they have a monthly income limit of $1385 for 1 person. (~$16,000 per year)

The numbers have gone up a bit, $1,437 a month or 17,237 a year.

[Cranky]

...but the medicaid plans are over $300/month whereas the plans with subsidies at that level of income are like $50.  Anyone understand this better than me?  Oh and this is in Colorado, by the way.

Medicaid plans are $0 premium, don't know where you are getting the $300 from.  Subsidies don't apply to Medicaid.

I wondered about that, too. I've never heard of a premium for Medicaid.

However, a fair number of companies that offer Medicaid plans also offer Medicare plans, and there is a cost for Medicare.

[StashingAway]

There is a very interesting order of operations loop that is stuck in the tax code at this cutoff line as well. In specific scenarios, if you make just enough money for subsidies (rather than Medicaid), but don't take any subsidies on a monthly basis and elect to get reimbursement at the end of the year, you might be required to pay full price for your healthcare.

That is not how it works.  If they accept your estimate and you come in lower at the end of the year, nothing happens.  If you come in over 400% you can loose all subsidies and have to pay back.

Edit add:  I think you may be referring to the gap from 0-100% in non-expansion states.  Below 100% and you have to pay full price.

You're describing the normal scenario. The one the government planned for. In theory, it's supposed to work as describe. What I'm describing is a scenario they didn't account for that has an order of operations loop built in that causes some odd universal singularities!

The scenario I described happened to me a few years ago; I had to consult CPAs and such and everyone was scratching their heads. I had to chase it around. $7,000 was on the line!

Here is what happens:

A person estimates that they will be above 400% FPL, so they don't get any tax credits. They still shop on the ACA and at the end of the year find out that they're at, say, 350% FPL so they get some credits at the end of the year in a lump sum. If they had estimated 350% at the beginning of the year, then they could have those credits applied in monthly payments; either situation is acceptable to the IRS. This is what most people encounter.

Say someone estimates they will be above 400%. Due to salary swings, they make significantly less. Now, if they had applied monthly tax credits to their ACA plan, they would adjust those at the end of the year to get the proper amount compensated. But because they estimated above 400% so weren't taking tax credits. At the end of the year, after health insurance costs are deducted, they make below MAGI. At $9K a year for health insurance. it can make a significant difference in your MAGI. According to the IRS, they should have been on Medicaid and aren't available for tax credits. But MAGI incorporates health insurance costs, so if you were to retroactively apply all of the tax credits that you were technically eligible for if you had known your salary was closer to 100% FPL, then you would be above the FPL and all is well.

If you calculate your tax credits before your MAGI, then you get the subsidy. But you need your MAGI to calculate your tax credits. You literally have to go back and forth and "guess and check" to get to the proper tax credit number because both numbers use the other number when calculating. This sounds absurd, but it's how the instructions on the IRS documents say to do it. The trick is, if you calculate MAGI first (in the above scenario), you owe $7K more than if you calculate your tax credits first, because doing the MAGI first puts you below 100%FPL.

[jim555]

How a 27-Year-Old Math Whiz (and His Uber Driver) Found a Big Flaw in an IRS Tax Formula
https://money.com/irs-tax-problem-obamacare-subsidy/

Looks very much like an edge case scenario.

[ontheway2]

There is a very interesting order of operations loop that is stuck in the tax code at this cutoff line as well. In specific scenarios, if you make just enough money for subsidies (rather than Medicaid), but don't take any subsidies on a monthly basis and elect to get reimbursement at the end of the year, you might be required to pay full price for your healthcare.

The issue is that if you make over the MAGI poverty line, then deduct your monthly health insurance that you paid full price on, it brings you below the MAGI poverty line, which means you should have been on Medicaid rather than in the ACA market (and therefore get zero ACA tax payback rather than almost all of it). BUT, the kicker is that if you apply your subsidy kick back before you calculate MAGI, then you stay above the poverty line and are qualified for that kick back. It's literally determined by which form you fill out first in the tax code, and there is no solution from the IRS for this. It can amount to a significant amount of money.

This doesn't occur often, because if you are at that MAGI level, you likely are taking monthly kickbacks rather than one lump sum, so it's all worked out before you do taxes because you're supposed to take into account estimate annual salary when applying in the ACA. But for people with unusual income fluctuations (ahem, Mustachians), it can hit you with an 8K tax payment that you were unaware of!

You don't get to deduct health care premiums when calculating MAGI unless you are self-employed.

[ontheway2]

healthcare.gov does not show medicaid plans as it isn't something you "pick." If you qualify for Medicaid, it is showing the full price of the plans available on the exchange since you no longer qualify for subsidies. However, if your state didn't expand Medicaid, then you probably don't qualify for Medicaid or subsidies. However, if it is possible that you will have a MAGI over the FPL, then you qualify for subsidies and the government will not require them to be repaid if you end up just below it.

[jim555]

I was expecting to get on Medicaid at the beginning of January. I'm collecting unemployment, but only through March. As far as I know now my 2020 income will only be 3 months of UI payments. (No guarantee of when I will find a job. I have a lot of savings and few expenses....MMM style).

When my UI ran out mid year I dropped into Medicaid, so yes this can be done.

[nalor511]

I was expecting to get on Medicaid at the beginning of January. I'm collecting unemployment, but only through March. As far as I know now my 2020 income will only be 3 months of UI payments. (No guarantee of when I will find a job. I have a lot of savings and few expenses....MMM style).

When my UI ran out mid year I dropped into Medicaid, so yes this can be done.

But would you really get to keep the subsidies for those months you were in ACA, when you file your taxes, because if your MAGI is too low you technically do not qualify for subsidies?

[jim555]

I was expecting to get on Medicaid at the beginning of January. I'm collecting unemployment, but only through March. As far as I know now my 2020 income will only be 3 months of UI payments. (No guarantee of when I will find a job. I have a lot of savings and few expenses....MMM style).

When my UI ran out mid year I dropped into Medicaid, so yes this can be done.

But would you really get to keep the subsidies for those months you were in ACA, when you file your taxes, because if your MAGI is too low you technically do not qualify for subsidies?

You still get subsidies for those months you are on the ACA metal plan.  Actual income falling under your estimate is not a problem.  The only problem is going over 400%, then you get no subsidy.

[StashingAway]

There is a very interesting order of operations loop that is stuck in the tax code at this cutoff line as well. In specific scenarios, if you make just enough money for subsidies (rather than Medicaid), but don't take any subsidies on a monthly basis and elect to get reimbursement at the end of the year, you might be required to pay full price for your healthcare.

The issue is that if you make over the MAGI poverty line, then deduct your monthly health insurance that you paid full price on, it brings you below the MAGI poverty line, which means you should have been on Medicaid rather than in the ACA market (and therefore get zero ACA tax payback rather than almost all of it). BUT, the kicker is that if you apply your subsidy kick back before you calculate MAGI, then you stay above the poverty line and are qualified for that kick back. It's literally determined by which form you fill out first in the tax code, and there is no solution from the IRS for this. It can amount to a significant amount of money.

This doesn't occur often, because if you are at that MAGI level, you likely are taking monthly kickbacks rather than one lump sum, so it's all worked out before you do taxes because you're supposed to take into account estimate annual salary when applying in the ACA. But for people with unusual income fluctuations (ahem, Mustachians), it can hit you with an 8K tax payment that you were unaware of!

You don't get to deduct health care premiums when calculating MAGI unless you are self-employed.

And I was at the time. I forgot about that important part. "Salary" was really just net income

[StashingAway]

How a 27-Year-Old Math Whiz (and His Uber Driver) Found a Big Flaw in an IRS Tax Formula
https://money.com/irs-tax-problem-obamacare-subsidy/

Looks very much like an edge case scenario.

Yes! This is what I'm describing!