Author Topic: Should one limit their income to qualify for a better Obamacare subsidy?  (Read 13760 times)

DocCyane

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Inspired by the conversation about maintaining a deliberately low income to avoid repayment of student loans:

http://www.mrmoneymustache.com/forum/welcome-to-the-forum/ethical-dimensions-of-student-loan-income-based-repayment-plans

I thought we could discuss the same issue with regards to Obamacare.

There will be those who fall in the zone of income wherein, should they take on extra work, would only end up losing their healthcare subsidy provided by the government.

Should an able bodied person work another job/longer hours if it means money earned pays for healthcare insurance that the government would have subsidized? Is one obligated to work more?

Thoughtful conversation is appreciated.

Devils Advocate

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #1 on: October 14, 2013, 03:30:07 PM »
Often when the government incentivizes someone to do something they usually do it.
 I think mortgage interest deduction for one example.
DA

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #2 on: October 14, 2013, 03:46:09 PM »
The subsidy is graduated. So it's not an enormous cliff you fall off; you receive less subsidy, dollar by dollar, as you approach zero subsidy.

Daleth

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #3 on: October 14, 2013, 04:17:46 PM »
The subsidy is graduated. So it's not an enormous cliff you fall off; you receive less subsidy, dollar by dollar, as you approach zero subsidy.

And zero subsidy doesn't happen at a low income. It's 400% of poverty level. So for a family of four, it's in the neighborhood of $90k. That being more than double the average US income, it's hard to call that "low" or "limited"... Long story short, there's little if any incentive to game the system in that way. I mean, if I earned less we would get a student loan deduction on our taxes... but has that ever entered my mind as a reason to TRY and earn less?! Of course not...

brewer12345

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #4 on: October 14, 2013, 05:09:15 PM »
The subsidies are in effect just another tax layered onto what you already have to deal with.  They are graduated, but there are certain cliff areas where there is a large discontinuity in the tax and you are strongly incented to stay on the low side of the cliff income amount (even if by $1).

lentilman

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #5 on: October 14, 2013, 05:21:53 PM »
The subsidy is graduated. So it's not an enormous cliff you fall off; you receive less subsidy, dollar by dollar, as you approach zero subsidy.

From what I understand it is a cliff on either side (i.e. if your income is too low you get zero subsidy also) and not smooth like income tax rates.

Cyrano

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #6 on: October 14, 2013, 05:56:25 PM »
In the edge case where you're near the 400% of poverty threshold, it could be worth doing the math of your exact situation before making a decision. Just don't cut off your future ability to earn income for this year's benefit.

randymarsh

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #7 on: October 14, 2013, 07:06:01 PM »
From what I understand it is a cliff on either side (i.e. if your income is too low you get zero subsidy also) and not smooth like income tax rates.

As I understand it, if your income is too low you won't get a subsidy, but you should qualify for Medicaid. I say should because while you will in some states, you won't in states that haven't expanded.

Daleth

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #8 on: October 14, 2013, 07:06:40 PM »
The subsidy is graduated. So it's not an enormous cliff you fall off; you receive less subsidy, dollar by dollar, as you approach zero subsidy.

From what I understand it is a cliff on either side (i.e. if your income is too low you get zero subsidy also) and not smooth like income tax rates.

The "income too low" problem is only a problem in states where the governors decided not to accept federal money to help expand Medicaid to cover the working poor. In other words, some of the red states. Obamacare wasn't designed to have a cliff on the "income too low" side; it only has one in states that refused to implement it fully. In the "full Obamacare" states those people are covered by the expanded Medicaid.

I also am not seeing any cliff at the high end, although I do see certain Tea Partyish bloggers claiming such a thing exists. But you can run the numbers yourself, either on your own state's exchange or at the Kaiser Foundation's website. Pick a state, or pick national average, and see what you get:
http://kff.org/interactive/subsidy-calculator/

Here's what I did, and the results:
- Picked "national average" (instead of a particular state)
- Family of 4, 2 non-smoking adults age 36, 2 children
Results:
- If they make 399% of the federal poverty level for a family that size, i.e. $94,000 a year, they get a $526 tax credit (i.e. subsidy) and their family premium costs them $8930/year for a silver plan or $7311 for a bronze plan.
- If they make 403% of poverty level, i.e. $95,000, they get $0 subsidy and their silver plan costs $9456 a year, or $7838 for a bronze plan.

So... what cliff, again?? I don't exactly see $526 a year as a "cliff" for people with a taxable income close to $100k a year! :)

teen persuasion

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #9 on: October 14, 2013, 07:22:58 PM »
From what I understand it is a cliff on either side (i.e. if your income is too low you get zero subsidy also) and not smooth like income tax rates.

As I understand it, if your income is too low you won't get a subsidy, but you should qualify for Medicaid. I say should because while you will in some states, you won't in states that haven't expanded.

As I understand it, the subsidies are based on MAGI, which does not include 401k contributions, so using that number for our family of 6 (including the 2 college kids who can be covered until age 26) we are at 98% of FPL.  That means we would not qualify for any subsidy, but I don't believe that Medicaid uses MAGI, so we would not qualify for that, either.  I suppose we could raise our MAGI to try to qualify for subsidies by putting much less in the 401k, but that would have other repurcussions (taxes, financial aid, etc.)

Good thing this is all academic for us, as we still have insurance thru DH.

beltim

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #10 on: October 14, 2013, 09:21:15 PM »
There definitely is a subsidy cliff, but it's highly dependent on family size and the state in which you live. There certainly isn't one in every state. Here are some examples: http://www.valuepenguin.com/2013/07/aca-subsidy-cliff-may-incentivize-working-less


RootofGood

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #11 on: October 14, 2013, 09:50:28 PM »
Wait, that seems ethically bankrupt to limit one's income in order to cheat the government out of money! 

Who would do that, seriously?  It is outrageous to think that someone would do such a thing in this day of responsibility for the plight of our fellow man. 

I'm not sure what our income will be, but we aren't doing really well right now income-wise.  I lost my job, and Mrs. RootofGood will probably have to stay home soon to take care of the kids so I can work on my online media startup full time.  That's the best thing going for me right now in the middle of this difficult job market.  Once the missus quits working, we won't have insurance, so I guess we will fall onto the exchange.  Hopefully our income will be high enough by then so that we will exceed the 100% of FPL so we get the obamacare insurance and a decent subsidy (we live in a non-medicaid expansion state). 


dragoncar

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #12 on: October 14, 2013, 11:35:28 PM »
Wait, that seems ethically bankrupt to limit one's income in order to cheat the government out of money! 

Who would do that, seriously?  It is outrageous to think that someone would do such a thing in this day of responsibility for the plight of our fellow man. 

I'm not sure what our income will be, but we aren't doing really well right now income-wise.  I lost my job, and Mrs. RootofGood will probably have to stay home soon to take care of the kids so I can work on my online media startup full time.  That's the best thing going for me right now in the middle of this difficult job market.  Once the missus quits working, we won't have insurance, so I guess we will fall onto the exchange.  Hopefully our income will be high enough by then so that we will exceed the 100% of FPL so we get the obamacare insurance and a decent subsidy (we live in a non-medicaid expansion state).

The sarcasm is strong in this one.

lentilman

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #13 on: October 15, 2013, 04:33:10 AM »
From what I understand it is a cliff on either side (i.e. if your income is too low you get zero subsidy also) and not smooth like income tax rates.

As I understand it, if your income is too low you won't get a subsidy, but you should qualify for Medicaid. I say should because while you will in some states, you won't in states that haven't expanded.

Even if one were to qualify for Medicaid they might prefer to get a higher quality plan instead.  It seems unfair that earning too little would eliminate any subsidy.

This is esp. true for an early retiree who may have income linked to the markets.  Bad year on the Dow?  Lose principal and also go join the Medicaid pool too.

chasesfish

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #14 on: October 15, 2013, 04:36:34 AM »
Its certainly a disincentive to work.

What's more interesting is how few people have signed up, I think I saw Maryland had 800,000 uninsured folks and 1121 signed up.   Adverse selection at its finest

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #15 on: October 15, 2013, 07:07:43 AM »
Observations about the number of signup's for coverage today ignore that it's irrational to sign up early. Coverage doesn't go into effect until Jan 2014; why would I sign up and pay now instead of waiting until early December to sign up and pay? (Which is, btw, what I'm doing.)

jawisco

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #16 on: October 15, 2013, 07:35:04 AM »
There is a cliff, but as someone else said, there are a lot of variables that go into how big a cliff it ends up being...

If there is a significant cliff for you, and you end up being over it, there are many things that can help lower your MAGI - HSA contribution, Traditional IRA, 401K contribution.  Right there is a potential 25K/year lowering of you MAGI (more if you have solo 401K). 

Do the math and make adjustments if necessary.

Daleth

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #17 on: October 15, 2013, 09:29:34 AM »
There definitely is a subsidy cliff, but it's highly dependent on family size and the state in which you live. There certainly isn't one in every state. Here are some examples: http://www.valuepenguin.com/2013/07/aca-subsidy-cliff-may-incentivize-working-less

Where is that site getting its data? It gives the example of a family of 3 in New York. I ran the numbers through the Kaiser Foundation cost estimator for New York State, and there's no cliff: if that family earns $1 less than 400% of poverty level ($78,121 according to that ValuePenguin website), they get a $425 subsidy and pay $7421 a year for their insurance. If they earn $1 more, they get no subsidy and pay $7846 for insurance. $425 a year is not a cliff. I wonder what crack ValuePenguin is smoking to come to the conclusion that the NY family making $1 above the income that qualifies you for subsidies would suddenly get whacked with several grand a year in additional insurance premiums?!

The cliff idea makes no sense because the PRICE of insurance does not change based on your income. Only the subsidy eligibility and amount changes. And there's no cliff because at the higher income levels, you're already only getting a subsidy measured in the low to mid hundreds of bucks. That subsidy is the only thing that changes (to $0) when you go over the max income.

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #18 on: October 15, 2013, 10:48:04 AM »
There definitely is a subsidy cliff, but it's highly dependent on family size and the state in which you live. There certainly isn't one in every state. Here are some examples: http://www.valuepenguin.com/2013/07/aca-subsidy-cliff-may-incentivize-working-less

Where is that site getting its data? It gives the example of a family of 3 in New York. I ran the numbers through the Kaiser Foundation cost estimator for New York State, and there's no cliff: if that family earns $1 less than 400% of poverty level ($78,121 according to that ValuePenguin website), they get a $425 subsidy and pay $7421 a year for their insurance. If they earn $1 more, they get no subsidy and pay $7846 for insurance. $425 a year is not a cliff. I wonder what crack ValuePenguin is smoking to come to the conclusion that the NY family making $1 above the income that qualifies you for subsidies would suddenly get whacked with several grand a year in additional insurance premiums?!

The cliff idea makes no sense because the PRICE of insurance does not change based on your income. Only the subsidy eligibility and amount changes. And there's no cliff because at the higher income levels, you're already only getting a subsidy measured in the low to mid hundreds of bucks. That subsidy is the only thing that changes (to $0) when you go over the max income.
+1   In my earliest post in this thread I was thinking only of subsidies (the topic of the OP), not of income being so low as to be disqualified from ACA. You can argue ACA vs Medicare is a "cliff" of sorts.

Back to the OP question: the way I read the subsidy mechanism details, declining the subsidy is not a choice. If you don't claim it upfront (so that it reduces your monthly ACA premium), you receive it on the backend as a tax credit. I'm assuming the IRS will simply program this into automated tax calculations.

This makes it somewhat different from the student loan question as I believe you would need to write a check to the U.S. Treasury as a citizen donation to offset it. Is that how others are reading the subsidy mechanics?

RootofGood

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #19 on: October 15, 2013, 12:21:50 PM »
This makes it somewhat different from the student loan question as I believe you would need to write a check to the U.S. Treasury as a citizen donation to offset it. Is that how others are reading the subsidy mechanics?

I believe you are correct as far as the ACA subsidies work.  It's going to be a refundable tax credit somewhere around line 64-65 on page 2 of the 1040.  Just like the additional child tax credit and the earned income credit.  That's my speculation at least, but it is a refundable credit. 

As far as distinguishing the ACA subsidy from the IBR, it is virtually the same.  Under IBR, you have to certify your income annually.  This means mailing in a copy of your form 1040.  They take the AGI off your tax form, and the number of personal deductions you have, and the simple formula pops out what you owe for the next 12 months. 

In order to avoid having your IBR payments lowered, you would have to intentionally fail to send them your 1040 each year.  The payments would then default to some crazy 10 year amortization (from 30 years in my case) and in my situation I would owe over $1000 per month. 

And come to think of it, I think I signed a form giving them permission to get my tax forms each year from the IRS, so the annual re-certification might be automatic. 

I suppose one could exit the IBR program altogether and go back to their old payment plan to avoid very low or zero dollar student loan payments.  Similarly, you can buy non-exchange health insurance in the private market which would disqualify you from receiving any subsidies (only way to get subsidies is through the exchange). 

Ethically, if you disagree with the IBR program being used by early retirees to potentially avoid some repayment of debt, you should be of the exact same opinion regarding low income and ACA subsidies.  IBR involves reduction of a payment amount due to debt incurred to provide a service (education) and ACA involves reduction of a payment amount due to provision of a service (health insurance). 

Under both programs, one uses a low income to qualify for large monetary subsidies from the government.  If the ethical requirement is that one should keep working to repay student loan debt in full, one should also continue working to afford full price non-subsidized health insurance. 

RootofGood

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #20 on: October 15, 2013, 12:40:14 PM »
Where is that site getting its data? It gives the example of a family of 3 in New York. I ran the numbers through the Kaiser Foundation cost estimator for New York State, and there's no cliff: if that family earns $1 less than 400% of poverty level ($78,121 according to that ValuePenguin website), they get a $425 subsidy and pay $7421 a year for their insurance. If they earn $1 more, they get no subsidy and pay $7846 for insurance. $425 a year is not a cliff. I wonder what crack ValuePenguin is smoking to come to the conclusion that the NY family making $1 above the income that qualifies you for subsidies would suddenly get whacked with several grand a year in additional insurance premiums?!

The cliff idea makes no sense because the PRICE of insurance does not change based on your income. Only the subsidy eligibility and amount changes. And there's no cliff because at the higher income levels, you're already only getting a subsidy measured in the low to mid hundreds of bucks. That subsidy is the only thing that changes (to $0) when you go over the max income.

There is certainly the potential for a huge cliff as you get older.  I put my hypothetical parents in the calculator.  These data aren't their actual stats, but not extremely different: Household of 2 people, Both age 64, non-smokers living in North Carolina (zip 27601). 

Here is a good subsidy calculator:  http://kff.org/interactive/subsidy-calculator
Here is a post I put together explaining how obamacare subsidies impact two different households that vary in age, income, and family size: http://rootofgood.com/obamacare_makes_early_retirement_easier_and_more_secure/   (I link the KFF calculator in that blog post as well). 

Per the KFF calculator, at MAGI of $62,040 the premiums for a silver plan are $15,244 per year.  The insured will qualify for a subsidy of $9,350 and will pay out of pocket $5,894 for their premium.  If they earn $1 more, that pushes their MAGI over the cliff (400.01% of FPL) and they are responsible for the full $15,244 premium and receive zero subsidy.  In this case, there is a very real and very large cliff the insured will fall off of due to earning $1 more. 

The effective marginal tax rate on that $1 additional income would be 935,000%.  If a tax adviser failed to advise their client to reduce their income by $1 in any way, shape, or form legally permissible, I would argue they have committed professional negligence (depending on their professional responsibilities and the scope of their agreement with the client). 

Yet some here say it is unethical (if you have millions retirement savings) to intentionally impoverish yourself (by even $1!) to claim many thousands in benefits year in and year out.  After all, you don't need the subsidies, and you shouldn't be depleting the federal Treasury to further enrich yourself.   
« Last Edit: October 15, 2013, 12:53:25 PM by RootofGood »

beltim

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #21 on: October 15, 2013, 04:33:33 PM »
There definitely is a subsidy cliff, but it's highly dependent on family size and the state in which you live. There certainly isn't one in every state. Here are some examples: http://www.valuepenguin.com/2013/07/aca-subsidy-cliff-may-incentivize-working-less

Where is that site getting its data? It gives the example of a family of 3 in New York. I ran the numbers through the Kaiser Foundation cost estimator for New York State, and there's no cliff: if that family earns $1 less than 400% of poverty level ($78,121 according to that ValuePenguin website), they get a $425 subsidy and pay $7421 a year for their insurance. If they earn $1 more, they get no subsidy and pay $7846 for insurance. $425 a year is not a cliff. I wonder what crack ValuePenguin is smoking to come to the conclusion that the NY family making $1 above the income that qualifies you for subsidies would suddenly get whacked with several grand a year in additional insurance premiums?!

The cliff idea makes no sense because the PRICE of insurance does not change based on your income. Only the subsidy eligibility and amount changes. And there's no cliff because at the higher income levels, you're already only getting a subsidy measured in the low to mid hundreds of bucks. That subsidy is the only thing that changes (to $0) when you go over the max income.

The cost of insurance is highly dependent on location and age.  You might only be getting a subsidy of a few hundred bucks in your state, but in higher cost states it can be much more.  I'm honestly not sure where that particular site got its data (I think it's somewhat older), but as RootofGood posted, it's quite easy to verify a cliff in the Kaiser calculator.  Here's one I just came up with:
Zip code 92037
Family size 4, parents age 40
With annual income 94,200: subsidy is $1,954
With annual income 94,201: subside is 0
$2000 is a very large cliff, and the cliff gets bigger with the higher premiums that go along with higher age.  If we run the same calculation but the parents age is 55, the cliff becomes $7,380. 

Even without kids, a family size of 2, same zip code, age of both people is 55, then:
Subsidy at income $62,040: $6816
Subsidy at income $62,041: $0
The cliff of $6816 is nearly 11% of this couples income.  That is a HUGE cliff.

randymarsh

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #22 on: October 15, 2013, 05:07:41 PM »
The above 55 year old couple wouldn't have to buy insurance since the cost is more than 8% of their income. So they'd be in basically the same position they're in now.

beltim

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #23 on: October 15, 2013, 05:13:18 PM »
The above 55 year old couple wouldn't have to buy insurance since the cost is more than 8% of their income. So they'd be in basically the same position they're in now.

That's sort of true.  More accurately, they wouldn't be fined or penalized if they didn't have insurance.

But that still doesn't refute the point that yes, there is a cliff, and in some cases it's quite steep.

Daleth

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #24 on: October 15, 2013, 06:12:30 PM »
Notice that it says they "could receive a subsidy of UP TO $1954." That's the top number--the subsidy number on Kaiser is always framed as "up to a maximum of $x." I wonder what the bottom number is. Guess we will have to go on Healthcare.gov and enter all that same info in order to find out.

Also, California seems to be a bit wacky on that site. For New York, for instance, you don't have to enter your zip code, and that exact same family--the two 4yo parents with 2 kids earning $94,200 a year--only gets a subsidy of $751 (total insurance cost with the subsidy is $8939).

So apparently, no cliff in New York, and a possible cliff--depending on what the bottom number is in that "subsidy up to" scenario--in California. Weird.

beltim

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #25 on: October 15, 2013, 06:24:42 PM »
Notice that it says they "could receive a subsidy of UP TO $1954." That's the top number--the subsidy number on Kaiser is always framed as "up to a maximum of $x." I wonder what the bottom number is. Guess we will have to go on Healthcare.gov and enter all that same info in order to find out.

Also, California seems to be a bit wacky on that site. For New York, for instance, you don't have to enter your zip code, and that exact same family--the two 4yo parents with 2 kids earning $94,200 a year--only gets a subsidy of $751 (total insurance cost with the subsidy is $8939).

So apparently, no cliff in New York, and a possible cliff--depending on what the bottom number is in that "subsidy up to" scenario--in California. Weird.

The cost of health care varies by state.

It's not that California or NY is weird.  For the 55 year old no kids couple, there's a cliff in Massachusetts, New Jersey, Maryland, Oregon, and Arizona, to list the first five other states I tried.

Daleth

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #26 on: October 15, 2013, 07:31:36 PM »
Notice that it says they "could receive a subsidy of UP TO $1954." That's the top number--the subsidy number on Kaiser is always framed as "up to a maximum of $x." I wonder what the bottom number is. Guess we will have to go on Healthcare.gov and enter all that same info in order to find out.

Also, California seems to be a bit wacky on that site. For New York, for instance, you don't have to enter your zip code, and that exact same family--the two 4yo parents with 2 kids earning $94,200 a year--only gets a subsidy of $751 (total insurance cost with the subsidy is $8939).

So apparently, no cliff in New York, and a possible cliff--depending on what the bottom number is in that "subsidy up to" scenario--in California. Weird.

The cost of health care varies by state.

It's not that California or NY is weird.  For the 55 year old no kids couple, there's a cliff in Massachusetts, New Jersey, Maryland, Oregon, and Arizona, to list the first five other states I tried.

Huh. I didn't see a cliff in the first two states I tried (Michigan and New York), and that's where I stopped. So it seems we have discovered an imperfection in the law, as applied in some states, to some people. That should be fixed. But at this point Tea Partiers would be viewing the existence of imperfections as "proof" that the law is bad to the bone and in need of immediate repeal (wow, in that case we have a lot of laws in need of immediate repeal...)

In any case, here's what that cliff means (in the states and for the household types where it kicks in): it means things may or may not be worse for them under Obamacare than they were before. I'd be interested to know what those households paid for insurance two years ago and what kind of coverage they got (hint: preventive care wasn't free, screenings for colon and breast cancer weren't free, etc. etc., and health insurers were not required to spend 80% of the premiums they took in on paying for people's healthcare claims, so they could and did jack up prices radically every year, well ahead of the inflation rate). If things ARE worse for such people under Obamacare, then we ought to change that particular detail of Obamacare.

sol

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #27 on: October 15, 2013, 08:06:49 PM »
I think most people here will have the opposite problem in retirement.  They're not going to worry about limiting their income, their going to worry about how to keep their income high enough.

After we quit working and no longer have employer coverage, we'll end up in our state's health insurance exchange.  Washington expanded Medicaid coverage up to 138% of the Federal Poverty Level, which for a family of four is $33k/year.

In other words, I have to claim at least $33k/year in taxable income in order to get subsidized private insurances, which would be nearly free at that level.  Between retiring at age 40 and claiming retirement benefits in our 60s, we'll have several decades where our expenses will be met by some combination of taxable investment accounts (where only earnings are taxable, not our contributions), Roth IRA principal withdrawals (which will be tax free), and savings accounts (tax free).  Depending on how we handle the TSP to traditional IRA to Roth IRA rollover process, I can easily foresee a circumstance in which our taxable income would be less than $33k/year, in which case we would be forced in to Medicare. 

Fortunately, Medicaid in Washington is pretty kick ass so I'm not too worried about it.  But for some people on this forum, in other states with bad Medicaid programs and who have large families and/or well optimized expenses, they may not be able to generate enough taxable investment income in retirement to keep their preferred subsidized private insurance.  The ACA might force free healthcare on them, if it is not amended to fix this problem.

Roland of Gilead

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #28 on: October 15, 2013, 08:12:45 PM »
I have run our numbers in WA state for ACA subsidy when we ER (if we keep WA as our home state).

We would pay $94 a month toward a silver plan at age 45 and 47 and the subsidy would be $600 (so $694 premium) if we keep our income around $25,000 a year.  We hope to have a portfolio of around $1,300,000 but we live cheaply (which is how we have managed to save, much like MMM).

If we earned $62,000 (400%) we would get a subsidy of $203 a month for the silver plan.  If we earned $62,050 we would get a subsidy of $0, thus having a "cliff" there of $2436.


beltim

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #29 on: October 15, 2013, 09:27:36 PM »
The cost of health care varies by state.

It's not that California or NY is weird.  For the 55 year old no kids couple, there's a cliff in Massachusetts, New Jersey, Maryland, Oregon, and Arizona, to list the first five other states I tried.

Huh. I didn't see a cliff in the first two states I tried (Michigan and New York), and that's where I stopped. So it seems we have discovered an imperfection in the law, as applied in some states, to some people. That should be fixed. But at this point Tea Partiers would be viewing the existence of imperfections as "proof" that the law is bad to the bone and in need of immediate repeal (wow, in that case we have a lot of laws in need of immediate repeal...)

In any case, here's what that cliff means (in the states and for the household types where it kicks in): it means things may or may not be worse for them under Obamacare than they were before. I'd be interested to know what those households paid for insurance two years ago and what kind of coverage they got (hint: preventive care wasn't free, screenings for colon and breast cancer weren't free, etc. etc., and health insurers were not required to spend 80% of the premiums they took in on paying for people's healthcare claims, so they could and did jack up prices radically every year, well ahead of the inflation rate). If things ARE worse for such people under Obamacare, then we ought to change that particular detail of Obamacare.

You'll get no argument from me that imperfections in the law are not proof that the law is bad.  I'm just saying that these cliffs are not made up, but that they are real, are quite likely to affect real people, and in some cases may be significant.

iris lily

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #30 on: December 27, 2013, 07:30:07 PM »
...Yet some here say it is unethical (if you have millions retirement savings) to intentionally impoverish yourself (by even $1!) to claim many thousands in benefits year in and year out.  After all, you don't need the subsidies, and you shouldn't be depleting the federal Treasury to further enrich yourself.
I am planning on doing exactly this, if I can make it work. If can "impoverish myself" in retirement by living on $50,000 annually (and amount that seems pretty comfortable to me!) and at that comfortable level it ALSO allows a crapload of Obamacare subsidies, well, so be it. Bring on the ethical mud.

I will be freeing up my full time job for a younger worker to take. That's gotta be good for society, right?
« Last Edit: December 27, 2013, 07:32:32 PM by iris lily »

marty998

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #31 on: December 28, 2013, 04:08:44 PM »
...Yet some here say it is unethical (if you have millions retirement savings) to intentionally impoverish yourself (by even $1!) to claim many thousands in benefits year in and year out.  After all, you don't need the subsidies, and you shouldn't be depleting the federal Treasury to further enrich yourself.
I am planning on doing exactly this, if I can make it work. If can "impoverish myself" in retirement by living on $50,000 annually (and amount that seems pretty comfortable to me!) and at that comfortable level it ALSO allows a crapload of Obamacare subsidies, well, so be it. Bring on the ethical mud.

I will be freeing up my full time job for a younger worker to take. That's gotta be good for society, right?

My take on this is that if a loophole exists it then by all means go for it.

Until the legislators close it then it is perfectly legal to take advantage of it. If people have a problem with that then they should vote for someone who will fix it.

sol

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #32 on: December 28, 2013, 09:54:22 PM »
...Yet some here say it is unethical (if you have millions retirement savings) to intentionally impoverish yourself (by even $1!) to claim many thousands in benefits year in and year out.  After all, you don't need the subsidies, and you shouldn't be depleting the federal Treasury to further enrich yourself.
I am planning on doing exactly this, if I can make it work. If can "impoverish myself" in retirement by living on $50,000 annually (and amount that seems pretty comfortable to me!) and at that comfortable level it ALSO allows a crapload of Obamacare subsidies, well, so be it. Bring on the ethical mud.

I will be freeing up my full time job for a younger worker to take. That's gotta be good for society, right?

My take on this is that if a loophole exists it then by all means go for it.

Until the legislators close it then it is perfectly legal to take advantage of it. If people have a problem with that then they should vote for someone who will fix it.

Mr Mark

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #33 on: December 29, 2013, 07:39:13 PM »
Has anyone got a graph of say, post tax, post silver plan medical income as a function of pretax income? This is one powerful argument for owning your own home outright, as this effectively lowers your taxable income level. ( required FIRE income is reduced by house rental value/marginal tax rate, and plus less dividends to declare, along with a traditionally appreciating capital gains tax-free asset you control)

Free_at_50

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #34 on: December 29, 2013, 08:20:04 PM »
Couple observations as I considered needing to get insurance thru ACA.  First it could influence whether one builds a dividend income portfolio versus a total return portfolio as there do appear to be some financial cliffs at around the $62k income level for older individuals.  On the other end if you do qualify for Medicaid my understanding is that it isn't truly free.  Upon death the government has the ability to recover any costs incurred during your enrollment in Medicaid from your estate.

Mr Mark

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Re: Should one limit their income to qualify for a better Obamacare subsidy?
« Reply #35 on: January 05, 2014, 04:04:04 PM »
I calculated the cost of a silver plan,  $835 a month for family of 3, our ages. Thats sticker price. Up to 30k taxable income, we'd be on medicaid, free.  Then there is a straight line subsidy, starting at $ 104/m with 30k/yr through to about $660/m at 78k/yr. Then there's a cliff, with a loss of around $170/m subsidy as soon as your taxable income goes over 78k.

You could say that cliff has a portfolio value of around 50k. By owning your own home, you give your self invisible income, that is non taxable and thus does count towards your entitlement to subsidy.  If your house would rent at say, $1500/m, that could effectively reduce your income to pay off bigtime in terms of tax rates and healthcare.

The tax effect could be more powerful, as low tax rates on ordinary income give you super low rates on dividend and capital gains income (the bulk of your income). Any tax accountants out there?