Author Topic: How do you prepare for changes to ACA?  (Read 5239 times)

Trudie

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How do you prepare for changes to ACA?
« on: May 16, 2016, 10:28:22 AM »
I just read a news item that Blue Cross Blue Shield in my state (Iowa) is raising the premiums on its ACA plans by 43%.  And just about 2 months ago United Health Care announced it was ditching the marketplace.  In the past I've been concerned about political and legal maneuvering to change the law (and even posted about it here), but now it seems that the companies themselves are starting to wreak havoc.  I guess this should come as no surprise, but given that I'm in the ER window of 3-5 years, this is the issue that causes me the most heartburn.

I'm curious how others are adapting?  If you've been on a plan for awhile what's going on with your rates?  Are certain states better than others?

We're pondering a move to Colorado in ER and I know they operate their own exchange (and in general, policies there are cheaper).  I would move for decent health care if I had to.

forummm

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Re: How do you prepare for changes to ACA?
« Reply #1 on: May 16, 2016, 11:35:04 AM »
Is the rate hike a proposed hike? Or an actual, final one? Many insurers propose outrageously high increases as a negotiating tactic and then the state lets them raise rates by a big amount, but one that is smaller than the initial outrageous ask. And then poor quality reporting fails to make this clear. And ideological opponents of the ACA intentionally mislead people into thinking the wrong thing.

That said, the cost of medical care is ridiculous. And the ACA was intentionally restricted in its ability to reign in those costs (all that waste is someone's profit). So costs will continue to be high and continue to increase until additional changes are made.

Some states, like CA, are doing a good job of keeping the plans competing with each other and keeping rates down. Others (like a lot of conservative states) are antagonistic to the ACA and do things to promote large increases in rates so that they can say that the ACA plans are too expensive. In FL, they made it illegal for the insurance commissioner to work with plans to keep the costs down.

The ACA was good at fixing some things but mostly ignored other problems (because the special interests are too powerful and the political will was absent). We need a big overhaul of the system.

seattlecyclone

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Re: How do you prepare for changes to ACA?
« Reply #2 on: May 16, 2016, 11:49:12 AM »
During retirement I plan to have a low enough MAGI to get my premiums subsidized. Therefore I don't have a reason to care that much if all the insurance companies keep jacking up their premiums year after year. The second-cheapest silver plan will end up costing a fixed percentage of my income regardless of what the sticker price on that policy may be.

Regarding concern over changes in the law itself, it's impossible to predict what will happen with any certainty. All signs point to no substantial changes happening while we have different parties controlling Congress and the White House. As to what the next election will bring, your guess is as good as mine. I generally plan based on the laws as they exist right now.

Trudie

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Re: How do you prepare for changes to ACA?
« Reply #3 on: May 16, 2016, 12:13:15 PM »
Is the rate hike a proposed hike? Or an actual, final one? Many insurers propose outrageously high increases as a negotiating tactic and then the state lets them raise rates by a big amount, but one that is smaller than the initial outrageous ask. And then poor quality reporting fails to make this clear. And ideological opponents of the ACA intentionally mislead people into thinking the wrong thing.


Looks like it's proposed at this point:
http://siouxcityjournal.com/news/state-and-regional/iowa/wellmark-proposes-big-rate-hikes-for-aca-plans/article_026a7de5-634b-5177-a28f-5caa06471726.html


Trudie

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Re: How do you prepare for changes to ACA?
« Reply #4 on: May 16, 2016, 12:19:38 PM »
During retirement I plan to have a low enough MAGI to get my premiums subsidized. Therefore I don't have a reason to care that much if all the insurance companies keep jacking up their premiums year after year. The second-cheapest silver plan will end up costing a fixed percentage of my income regardless of what the sticker price on that policy may be.

That's my strategy as well.  I'm working on beefing up my megabackdoor roth contributions right now so we can hatch a plan to keep ourselves in subsidy range.  If I'm correct, it's line 37 on the 1040 that's key, right?  So, Roth draws and non-taxable capital gains (below the $74,900 mark) don't get carried down.  Also, HSA contributions are an above the line deduct so still don't carry down to line 37, right?  They don't add these back for ACA subsidy purposes, do they?

forummm

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Re: How do you prepare for changes to ACA?
« Reply #5 on: May 16, 2016, 01:05:44 PM »
Regarding concern over changes in the law itself, it's impossible to predict what will happen with any certainty. All signs point to no substantial changes happening while we have different parties controlling Congress and the White House. As to what the next election will bring, your guess is as good as mine. I generally plan based on the laws as they exist right now.

I think that's usually a reasonable approach and you have good reasons for your conclusion. But I am not sure how to approach the legal situation here. I do not have confidence that there won't be some kind of means testing added. And it's entirely possible that the tax credits go away entirely. I think the future of healthcare policy is very unclear. And I think it's somewhat likely that either Clinton or Trump would go along with certain changes that Congress might propose. The political argument to restrict subsidies to millionaires and reserve them for the truly needy is hard to argue against. And I intend to be retired for around 30 years before we'll both be eligible for Medicare (under current law). There's a lot of time there for policies to change. And the financial pressures will only grow stronger to compel change.

I just don't know what will happen.

If the ACA's policies stay similar, I am planning to keep my income in a particular range to enable access to Medicaid or tax credits. But I don't feel like it's a good idea to plan on those policies to remain in place. I am roughly budgeting about $8k/yr for total healthcare costs (premiums and OOP) for the family--at almost a quarter of my budget, it's also the largest item in my FIRE budget. And if tax credits were no longer available, $8k might not be enough. I would love to have some clarity that I won't actually need this money. But I don't know that this will come anytime soon.

seattlecyclone

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Re: How do you prepare for changes to ACA?
« Reply #6 on: May 16, 2016, 02:01:24 PM »
During retirement I plan to have a low enough MAGI to get my premiums subsidized. Therefore I don't have a reason to care that much if all the insurance companies keep jacking up their premiums year after year. The second-cheapest silver plan will end up costing a fixed percentage of my income regardless of what the sticker price on that policy may be.

That's my strategy as well.  I'm working on beefing up my megabackdoor roth contributions right now so we can hatch a plan to keep ourselves in subsidy range.  If I'm correct, it's line 37 on the 1040 that's key, right?  So, Roth draws and non-taxable capital gains (below the $74,900 mark) don't get carried down.  Also, HSA contributions are an above the line deduct so still don't carry down to line 37, right?  They don't add these back for ACA subsidy purposes, do they?

You've basically got it. Line 37 is your AGI. The MAGI is so called because it is the AGI modified by adding a few things to it. Per Publication 5187,
Quote
MAGI, for the purpose of the premium tax credit, is the adjusted gross income on the federal income tax return plus any excluded foreign income, nontaxable social security benefits (including tier 1 railroad retirement benefits), and tax-exempt interest.

If you have any of the types of untaxed income mentioned above, you have to add it to your AGI to compute your MAGI.

seattlecyclone

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Re: How do you prepare for changes to ACA?
« Reply #7 on: May 16, 2016, 02:32:07 PM »
The political argument to restrict subsidies to millionaires and reserve them for the truly needy is hard to argue against.

Perhaps, but looking at wealth rather than income to determine "richness" seems to be totally alien to anyone in government right now. When politicians say they plan to "tax the rich" what they really mean is to tax people with high incomes. The concept of a millionaire who only spends $30k/year just doesn't enter into the mainstream discourse at all. So while I might agree that putting a wealth test on this tax credit might make some sense from a fairness perspective, I also don't think it's very likely that we'll be asking all Americans on Obamacare to disclose their net worth to the IRS every year as a condition of receiving a tax credit, at least not in the near future.

Quote
And I intend to be retired for around 30 years before we'll both be eligible for Medicare (under current law). There's a lot of time there for policies to change. And the financial pressures will only grow stronger to compel change.

I happen not to share your pessimism for this exact situation, but this is a good argument for having some margins of safety built into your retirement planning. Maybe the market will grow slower than before. Maybe the ACA will be modified in a way that is unfavorable to early retirees. Maybe social security will be reduced in the future. Maybe the cost of food will skyrocket as climate change, population increases, and increasing affluence in other nations brings pressure to the agricultural markets. Any number of things can happen over the course of a few decades. It's good to be prepared for a few of these things happening. Trying to prepare for all of them will mean you'll never retire.

tmoneyearlyretiree

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Re: How do you prepare for changes to ACA?
« Reply #8 on: May 16, 2016, 02:35:50 PM »
Would MAGI include income from rolling over part of a Traditional IRA to a Roth? Taking a break from working and depending on that 15k of "income" to get the premiums subsidized and not owe the full premium bc I should have been on Medicaid

seattlecyclone

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Re: How do you prepare for changes to ACA?
« Reply #9 on: May 16, 2016, 02:38:22 PM »
Would MAGI include income from rolling over part of a Traditional IRA to a Roth?

Yes. Your MAGI includes everything in your AGI (such as Roth conversions) plus a few things that aren't.

forummm

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Re: How do you prepare for changes to ACA?
« Reply #10 on: May 16, 2016, 05:41:00 PM »
The political argument to restrict subsidies to millionaires and reserve them for the truly needy is hard to argue against.

Perhaps, but looking at wealth rather than income to determine "richness" seems to be totally alien to anyone in government right now. When politicians say they plan to "tax the rich" what they really mean is to tax people with high incomes. The concept of a millionaire who only spends $30k/year just doesn't enter into the mainstream discourse at all. So while I might agree that putting a wealth test on this tax credit might make some sense from a fairness perspective, I also don't think it's very likely that we'll be asking all Americans on Obamacare to disclose their net worth to the IRS every year as a condition of receiving a tax credit, at least not in the near future.

Yes, it's very administratively challenging to implement wealth based taxation. There are calls to means test SS, so it's possible that the IRS develops that capacity. I tend to agree that it's less likely to happen.

Paul der Krake

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Re: How do you prepare for changes to ACA?
« Reply #11 on: May 16, 2016, 06:14:20 PM »
If it makes any difference, when I retire I am looking at about three decades outside of traditional employments before the usual retirement age.Three thoughts:

1) I agree that means testing is unlikely. Yeah, some programs do have means tests, but it's typically for something like nutritional assistance programs. Can you imagine the bureaucratic nightmare to come up with rules that apply to millions of self-employed people and just as many different income/wealth situations? The valuation of business interests alone is enough to make your head spin.

2) I think there will always be some sort of plan available that's catastrophic only. Maybe it will require setting up a company and get coverage through it. Something about a window opening when a door is shut.

3) Pack up and leave. This is a more general option that applies to many things beside the costs of seeing a doctor. If at some point the terms of conditions of living in one particular place become unsatisfactory, vote with your feet. The US isn't the only game in town.

iris lily

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Re: How do you prepare for changes to ACA?
« Reply #12 on: May 17, 2016, 09:42:13 AM »
Tagging to follow.
« Last Edit: May 17, 2016, 10:15:38 AM by iris lily »

jim555

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Re: How do you prepare for changes to ACA?
« Reply #13 on: May 17, 2016, 09:58:55 AM »
How do I prepare?  Keep my MAGI below 16.2k.

Trudie

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Re: How do you prepare for changes to ACA?
« Reply #14 on: May 17, 2016, 10:37:57 AM »
@seattlecyclone - I hopped on over to your blog where you admonished people to exercise caution about contributing to an HSA in years where they desire to get subsidies.  Could you please further explain?

I understand that HSAs can't be used to pay premium, but since they are an above the line (37) deduction, isn't the risk of contributing to them minimal if you're trying to hold your income in line for subsidy purposes?

Am I missing something?


Axecleaver

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Re: How do you prepare for changes to ACA?
« Reply #15 on: May 17, 2016, 11:47:17 AM »
This is my line of work, and I'm familiar with Iowa in particular. Forummm described the game pretty well. Companies ask for huge increases, it gets tons of press, and then the division of insurance cuts it back to something reasonable. State regulators must approve increases in insurance rates once a year, and each state has specific guidelines that govern what increases are approved and for how much.

One of the factors driving large increase requests right now is that the feds did not honor their risk corridor promise, which was written into the ACA. As a result some companies have sustained huge losses, or (in the case of the new Co-ops) have gone out of business. There hasn't been a reasonable explanation for why this program wasn't honored, and it completely screwed over insurance companies who based their business model on it functioning as advertised.

In terms of how you plan for it, I think other posters have described some good options. Operate based on the current law, and consider going to a more affordable country if things really fall apart.

forummm

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Re: How do you prepare for changes to ACA?
« Reply #16 on: May 17, 2016, 12:55:30 PM »
One of the factors driving large increase requests right now is that the feds did not honor their risk corridor promise, which was written into the ACA. As a result some companies have sustained huge losses, or (in the case of the new Co-ops) have gone out of business. There hasn't been a reasonable explanation for why this program wasn't honored, and it completely screwed over insurance companies who based their business model on it functioning as advertised.

It was politics. The Republicans eliminated the funding for the risk corridor program as a way to keep the ACA from working as well as it was intended to. They called it a "bailout" for insurers to score more political points. Rubio claims to be the one who put the language into the bill that cut the funding, but it's unclear that he actually did that.

http://www.politifact.com/truth-o-meter/statements/2016/feb/25/marco-rubio/rubio-we-wiped-out-obamacare-bailout-fund-insuranc/

ShoulderThingThatGoesUp

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Re: How do you prepare for changes to ACA?
« Reply #17 on: May 17, 2016, 12:57:47 PM »
Wasn't the risk corridor part supposed to be funded by insurance companies paying in when they made more money than expected?

forummm

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Re: How do you prepare for changes to ACA?
« Reply #18 on: May 17, 2016, 01:26:45 PM »
Wasn't the risk corridor part supposed to be funded by insurance companies paying in when they made more money than expected?

Over time. But with initial funding available from the government if needed to help the insurers adjust to the new risk pool. Since the people who didn't have insurance, and would be most excited to sign up for coverage, were the people who couldn't get insurance before because they were sick, everyone knew that the newly enrolled would be sicker and more expensive. But they didn't know how much more expensive. So the first few years of the risk corridor would allow the insurers to not lose that much money if people enrolling were much sicker than they expected (and they were).

seattlecyclone

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Re: How do you prepare for changes to ACA?
« Reply #19 on: May 17, 2016, 01:59:15 PM »
@seattlecyclone - I hopped on over to your blog where you admonished people to exercise caution about contributing to an HSA in years where they desire to get subsidies.  Could you please further explain?

I understand that HSAs can't be used to pay premium, but since they are an above the line (37) deduction, isn't the risk of contributing to them minimal if you're trying to hold your income in line for subsidy purposes?

HSA contributions are great if you qualify for them! The problem is that you need to qualify for them by purchasing a qualified High-Deductible Health Plan. The point of my note on HSAs was that if you expect to have an income low enough to get the cost-sharing subsidies then you will likely find that those subsidized plans do not qualify for HSA contributions. Therefore you probably shouldn't plan on making HSA contributions during years where you also purchase one of these subsidized plans.

At least in my area, all the cost-sharing silver plans for people between 150%-200% of the poverty level have a deductible that is too low to qualify for HSA contributions. My guess is that it's very hard (if not impossible) to craft a plan that meets the HDHP deductible requirements and also has an 87% actuarial value.

jorjor

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Re: How do you prepare for changes to ACA?
« Reply #20 on: May 17, 2016, 02:21:16 PM »
One of the factors driving large increase requests right now is that the feds did not honor their risk corridor promise, which was written into the ACA. As a result some companies have sustained huge losses, or (in the case of the new Co-ops) have gone out of business. There hasn't been a reasonable explanation for why this program wasn't honored, and it completely screwed over insurance companies who based their business model on it functioning as advertised.

Sure, kinda sorta. The risk corridor program was always scheduled to sunset after 2016. I'm not completely convinced that 2017 rates will be any higher than they would be in the hypothetical world where risk corridor receipts weren't prorated, since carriers would be reacting to the fact that risk corridors were gone in 2017 anyway. Rate increases for 2017 will surely be different than a hypothetical world where risk corridors never existed, sure, but that's more of an artifact of risk corridors affecting 2014-2016 rates than the 2017 rates.

Transitional reinsurance is a biggie in the individual market since it also sunsets after 2016, and was a direct offset to claims in that market.

jorjor

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Re: How do you prepare for changes to ACA?
« Reply #21 on: May 17, 2016, 02:27:35 PM »
Wasn't the risk corridor part supposed to be funded by insurance companies paying in when they made more money than expected?

That would be tough to achieve in practice. The risk corridor program filled in some of the losses when carriers under-priced. It collected some of the profits when carriers overpriced. Carriers with lower prices are more likely to be under-priced, on average, be it due to mis-estimation or aggressiveness or <insert your reason here> (not all, but on average it's likely true). People are more likely to choose the plans with lower rates, it turns out. So you have a situation where more of the membership, dollars, and risk are concentrated in the pieces of the market that are more likely to be under-priced, and more likely to request payments under the program.
« Last Edit: May 17, 2016, 02:43:25 PM by jorjor »

Trudie

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Re: How do you prepare for changes to ACA?
« Reply #22 on: May 17, 2016, 02:37:34 PM »
@seattlecyclone - I hopped on over to your blog where you admonished people to exercise caution about contributing to an HSA in years where they desire to get subsidies.  Could you please further explain?

I understand that HSAs can't be used to pay premium, but since they are an above the line (37) deduction, isn't the risk of contributing to them minimal if you're trying to hold your income in line for subsidy purposes?

HSA contributions are great if you qualify for them! The problem is that you need to qualify for them by purchasing a qualified High-Deductible Health Plan. The point of my note on HSAs was that if you expect to have an income low enough to get the cost-sharing subsidies then you will likely find that those subsidized plans do not qualify for HSA contributions. Therefore you probably shouldn't plan on making HSA contributions during years where you also purchase one of these subsidized plans.

At least in my area, all the cost-sharing silver plans for people between 150%-200% of the poverty level have a deductible that is too low to qualify for HSA contributions. My guess is that it's very hard (if not impossible) to craft a plan that meets the HDHP deductible requirements and also has an 87% actuarial value.

Thanks Seattlecyclone.  Understood.

jorjor

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Re: How do you prepare for changes to ACA?
« Reply #23 on: May 17, 2016, 02:38:40 PM »
@seattlecyclone - I hopped on over to your blog where you admonished people to exercise caution about contributing to an HSA in years where they desire to get subsidies.  Could you please further explain?

I understand that HSAs can't be used to pay premium, but since they are an above the line (37) deduction, isn't the risk of contributing to them minimal if you're trying to hold your income in line for subsidy purposes?

HSA contributions are great if you qualify for them! The problem is that you need to qualify for them by purchasing a qualified High-Deductible Health Plan. The point of my note on HSAs was that if you expect to have an income low enough to get the cost-sharing subsidies then you will likely find that those subsidized plans do not qualify for HSA contributions. Therefore you probably shouldn't plan on making HSA contributions during years where you also purchase one of these subsidized plans.

At least in my area, all the cost-sharing silver plans for people between 150%-200% of the poverty level have a deductible that is too low to qualify for HSA contributions. My guess is that it's very hard (if not impossible) to craft a plan that meets the HDHP deductible requirements and also has an 87% actuarial value.

To give you an idea, using a 2017 AV calculator, let's assume the HSA deductible limit doesn't change from $1,300 this year. In an HSA plan, all services must be subject to that deductible first. The best plan I can make that still qualifies under HSA rules is a plan that just as a $1,300 deductible and $1,300 OOP Max (100% coverage above the deductible). That plan is compliant at 86.80%. If we move the deductible/MOOP up to $1,400, the plan is no longer compliant. A 94% CSR plan would be impossible to make.

That's quick and dirty, so I might be forgetting some other HSA rule that makes the plan non-compliant.

ShoulderThingThatGoesUp

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Re: How do you prepare for changes to ACA?
« Reply #24 on: May 18, 2016, 07:17:27 AM »
Wasn't the risk corridor part supposed to be funded by insurance companies paying in when they made more money than expected?

That would be tough to achieve in practice. The risk corridor program filled in some of the losses when carriers under-priced. It collected some of the profits when carriers overpriced. Carriers with lower prices are more likely to be under-priced, on average, be it due to mis-estimation or aggressiveness or <insert your reason here> (not all, but on average it's likely true). People are more likely to choose the plans with lower rates, it turns out. So you have a situation where more of the membership, dollars, and risk are concentrated in the pieces of the market that are more likely to be under-priced, and more likely to request payments under the program.

Sure, there were a lot of stupid assumptions built in to the ACA.

Roland of Gilead

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Re: How do you prepare for changes to ACA?
« Reply #25 on: May 18, 2016, 07:35:22 AM »
If they ever do implement some form of means testing it will be so complicated that there will be easy ways to get around it.

There will be exemptions for homes, so if you rent, you may need to buy a home and rent that out such that you don't have a high apparent net worth (as opposed to having the money in the stock market).

I do not know how they will inventory wedding rings, paintings, coins in safety deposit boxes, antique furniture your grandparents left you.

Messy is means testing.  Income testing is so much easier works in 99.9% of the cases so they went with that.    We are the other 0.1% here on MMM.