Confused on AGI: medicaid, ACA, and retirement savings

[dizzy]

So I am thinking my final salary for the year will be around $40k reported.  I will have maxed out my solo401k ($19.5k + probs $2k employer contribution), trad IRA ($6k), and HSA ($3550).  When I do this my AGI is $8950, and this doesn't even take into account 1/2 self-employment taxes or paying for health insurance premium, which is deductible for me as a self-employed person (it was $600 for the year).

Anyway, I went to go apply for ACA yesterday in PA.  I qualify for medicaid now maybe, whoops.
The ACA number it's telling me to re-enroll in my current $38/month high-deductible plan with an HSA is now a whopping $370 a month.  Whaaa?  It also said if I was potentially eligible for medicaid they would boot me off the state marketplace.  All of the cheapest plans are in that $370 ballpark.

I would totally love to be back on medicaid- one of the programs covers acupuncture which is the main thing I would want covered with a health insurance plan (I didn't even find a plan from the marketplace that covered it last year).  But I'm not sure what I qualify for or if I did the #'s wrong.

Can anyone advise me here?  Is it cool to app medicaid, or do you have any advice to get that super high number down for the ACA?

[nalor511]

So I am thinking my final salary for the year will be around $40k reported.  I will have maxed out my solo401k ($19.5k + probs $2k employer contribution), trad IRA ($6k), and HSA ($3550).  When I do this my AGI is $8950, and this doesn't even take into account 1/2 self-employment taxes or paying for health insurance premium, which is deductible for me as a self-employed person (it was $600 for the year).

Anyway, I went to go apply for ACA yesterday in PA.  I qualify for medicaid now maybe, whoops.
The ACA number it's telling me to re-enroll in my current $38/month high-deductible plan with an HSA is now a whopping $370 a month.  Whaaa?  It also said if I was potentially eligible for medicaid they would boot me off the state marketplace.  All of the cheapest plans are in that $370 ballpark.

I would totally love to be back on medicaid- one of the programs covers acupuncture which is the main thing I would want covered with a health insurance plan (I didn't even find a plan from the marketplace that covered it last year).  But I'm not sure what I qualify for or if I did the #'s wrong.

Can anyone advise me here?  Is it cool to app medicaid, or do you have any advice to get that super high number down for the ACA?

Did you put in all your deductions (including 401k) correctly in the ACA application? If so, it should not be funneling you anywhere except medicaid, if, you did that. Here's a great primer on MAGI for ACA purposes, including CARES act changes: https://laborcenter.berkeley.edu/pdf/2019/magi.pdf

Except, um, I don't think you understand MAGI correctly, perhaps. You cannot qualify for an HSA/deduction on medicaid, so maybe that's the issue. You cannot deduct your healthcare expenses as a self-employed person, because you won't have any (medicaid doesn't have premiums). So if you add back those two deductions (and maybe others), then your MAGI will be too high, 'eh?

Have you tried modelling your tax situation using tax software for 2019? That's a great tactic. So put in all your prospective 2020 numbers into 2019 software, and see what you get back. The ACA tax credits/expenses get trued up on your tax return when you file, so if you overpaid in premiums, you get it back, and vice versa.

[seattlecyclone]

It's quoting you high premiums for the bronze plan because your income is too low for subsides. At your income level you are eligible for Medicaid and that's the only option if you want government help paying for your coverage. Once you're on Medicaid you won't be HSA eligible anymore.

[terran]

It sounds like you did things right, and you qualify for medicaid, so if you're happy with that result then go with medicaid. If not, you could recharacterize your IRA contribution to Roth (any time until your tax filing deadline and do some traditional to Roth conversions before the end of the year to get your income high enough for ACA subsidies. You might consider at least doing that enough to to fully take advantage of the standard deduction, and maybe the savers tax credit too. No sense putting money in traditional instead of Roth that you won't pay taxes on anyway.

Also remember to account of the Qualified Business Income deduction.

[nalor511]

It's quoting you high premiums for the bronze plan because your income is too low for subsides. At your income level you are eligible for Medicaid and that's the only option if you want government help paying for your coverage. Once you're on Medicaid you won't be HSA eligible anymore.

It's a vicious cycle. HSA deduction -> medicaid -> no HSA deduction -> ACA -> repeat.

[Queen Frugal]

Figure out what the cut off is for Medicaid in your state and adjust your income to just above that so you can get the ACA deductions. It's different in every state but it is based off the FPL. In some states it's 100% FPL and below = Medicaid, and other states it is higher.

I am also self employed and I track this carefully every year to take advantage of the ACA deductions.  Here is what I use to calculate MAGI:

+ Net business income
- 1/2 self employment tax
- health insurance premiums I actually pay
- HSA contributions
- 401k contributions
- IRA contributions
= MAGI

And in practice, I would hold off on making the IRA contribution until 2021 is over but before the tax filing deadline. You can then play with whether you should make a deductible IRA contribution vs a nondeductible Roth IRA contribution based on how your actual numbers work out.

[terran]

In some states it's 100% FPL and below = Medicaid, and other states it is higher.

It's only 100% of FPL in medicaid non-expansion states which would mean no mustachian would qualify since there's then a $2000 asset limit. In expansion states the limit is 138% FPL. In all states you need to reach 138% FPL to be eligible for ACA subsidies. FPL varies depending on the state, but only in Alaska and Hawaii, otherwise all states use the same FPL

[Runrooster]

OP is in PA which has a 133% FPL limit for Medicaid. I don’t know if there’s an asset test because I’m too stupid to understand the verbiage. It lists the same $2000 resource limit but then says it doesn’t apply if you meet the income limit, but I could be reading it wrong.

In any case OP the income limit is over $16k so she should be okay even without HSA deduction.

[jim555]

Medicaid is based on current monthly income, so you could have made way over the previous month but that doesn't count.  ACA plans are annual income, not monthly.  In NY you get Medicaid enrolled for a year, so even if your income has gone up it doesn't matter until the next recert, and by that point the increase is moot assuming the increase was a lump.

[dizzy]

If I can get medicaid, that would be awesome.  The healthcare plan I have with the HSA sucks, it's just basically for an emergency, and I found one with an HSA which made it worth it at all.  The medicaid insurance I would actually use, it covers so much more.  It just seems to good to be true.  I guess I just haven't read about if you save enough of your (not super high) income for retirement, you can get free healthcare?!?

[dizzy]

Figure out what the cut off is for Medicaid in your state and adjust your income to just above that so you can get the ACA deductions. It's different in every state but it is based off the FPL. In some states it's 100% FPL and below = Medicaid, and other states it is higher.

I am also self employed and I track this carefully every year to take advantage of the ACA deductions.  Here is what I use to calculate MAGI:

+ Net business income
- 1/2 self employment tax
- health insurance premiums I actually pay
- HSA contributions
- 401k contributions
- IRA contributions
= MAGI

And in practice, I would hold off on making the IRA contribution until 2021 is over but before the tax filing deadline. You can then play with whether you should make a deductible IRA contribution vs a nondeductible Roth IRA contribution based on how your actual numbers work out.

This is really useful to me.  I had no idea at the beginning of the year I'd be doing this well financially to be honest, especially in a poopshow of a year like 2020 has been (most of my friends are still unemployed, as is my partner).  I'm seeing about recharacterizing the trad to Roth to be sure, didn't even think about that.  I also will see what NJ says since I have residency there too.  I feel like their plans both marketplace and medicaid are junkier tho (I got my bf on NJ medicaid once he became unemployed, it sucks but at least he has something).

[Queen Frugal]

Figure out what the cut off is for Medicaid in your state and adjust your income to just above that so you can get the ACA deductions. It's different in every state but it is based off the FPL. In some states it's 100% FPL and below = Medicaid, and other states it is higher.

I am also self employed and I track this carefully every year to take advantage of the ACA deductions.  Here is what I use to calculate MAGI:

+ Net business income
- 1/2 self employment tax
- health insurance premiums I actually pay
- HSA contributions
- 401k contributions
- IRA contributions
= MAGI

And in practice, I would hold off on making the IRA contribution until 2021 is over but before the tax filing deadline. You can then play with whether you should make a deductible IRA contribution vs a nondeductible Roth IRA contribution based on how your actual numbers work out.

This is really useful to me.  I had no idea at the beginning of the year I'd be doing this well financially to be honest, especially in a poopshow of a year like 2020 has been (most of my friends are still unemployed, as is my partner).  I'm seeing about recharacterizing the trad to Roth to be sure, didn't even think about that.  I also will see what NJ says since I have residency there too.  I feel like their plans both marketplace and medicaid are junkier tho (I got my bf on NJ medicaid once he became unemployed, it sucks but at least he has something).

Glad you found it useful!

One more thought - learned by my through recent experience - Medicaid may have different income rules than the ACA. My income will be low enough next year that ACA applied for Medicaid/CHIP for my child. My state bases self employed income on most recent tax return - i.e., from the past. They looked to my 2019 return and they counted my net business income, NOT MAGI. Every state can calculate this differently and I have no idea how PA or NJ calculates self employment income but it seems to me you run a high risk of not qualifying for Medicaid.

Remember that ACA looks at your prospective income for 2021, not your current income. I can't tell for sure from your post but I am thinking maybe you are applying for ACA for 2021, and not just for the rest of this year. If that is true, your income this year is irrelevant. It's next year's income that matters.