Updated chart with MORE ACA detail from "Thought experiment" thread

[kelly1mm]

OK, so per request, I expanded the income ranges from 22k-30k, out to 22k-45k of gross income in the referenced thread.  Upon doing so, I found a pretty significant issue in the ACA coverage - specifically the massive jump in out of pocket maximums at various income levels.  Thus, for more discussion, I added a "worst case scenario" column that reflects an additional cost for OOP maximums per year and what effect that has on total 'tax' rate.  It looks like the BIG win here for me would be to stay at 31k of income!  For those not watching the other thread, this is for a MD resident, MFJ return, no kids, 55 and 53 years old, non smokers.  RE tax is based on my actual RE tax.


 Income     fed tax     MD tax      RE tax       ACA premium    TOTAL  % of income         ACA OOP MAX     Total w/MOPP     %
22,000      201         859           960           775                   2795       12.7%                      4500                7295          33.2%
23,000      303         921           1050         898                   3172       13.8%                      4500                7672          33.3%
24,000      404         985           1140         1012                 3541       14.8%                      4500                8041          33.5%
25,000      503         1048         1230         1192                 3973       15.9%                      4500                8473          33.9%
26,000      603         1110         1320         1251                 4284       16.5%                      4500                8784          33.8%
27,000      703         1177         1410         1379                 4669       17.3%                      4500                9169          34.0%
28,000      803         1251         1500         1513                 5067       18.1%                      4500                9567          34.2%
29,000      903         1325         1590         1653                 5471       18.9%                      4500                9971          34.4%
30,000      1021       1399         1680         1799                 5899        19.7%                     4500                10399        34.7%
31,100      1103       1473         1770         1951                 6297       20.3%                      4500                10797        34.8%
32,000      1203       1547         1860         2087*               6533       21.1%                      10400              16933        52.9%
33,000      1303       1621         1950         2226                 7100       21.5%                      10400              17500        53.0%
34,000      1403       1695         2040         2371                 7409       22.1%                      10400              17809        52.4%
35,000      1503       1769         2130         2519                 7921       22.6%                      10400              18321        52.3%
36,000      1603       1843         2220         2676                 8339       23.2%                      10400              18739        52.1%
37,000      1703       1917         2310         2830                 8760       23.8%                      10400              19160        51.8%
38,000      1811       1991         2400         2993                 9195       24.2%                      10400              19595        51.6%
39,000      1961       2065         2500**     3156***            9682       24.8%                      12700              22382        57.4%
40,000      2111       2139         2500         3312                10062      25.2%                      12700              22762        56.9%
41,000      2261       2213         2500         3471                10445      25.5%                      12700              23145        56.5%
42,000      2411       2287         2500         3634                10832      25.8%                      12700              23542        56.0%
43,000      2561       2361         2500         3801                11223      26.1%                      12700              23923        55.6%
44,000      2711       2435         2500         3972                11618      26.4%                      12700              24318        55.3%
45,000      2861       2509         2500         4146                12016      26.7%                      12700              24716        54.9%

Original Thread :
https://forum.mrmoneymustache.com/welcome-to-the-forum/thought-experiment-and-why-fed-taxes-are-not-that-big-a-deal-for-er/

[secondcor521]

Thanks for sharing...I haven't done the analysis for my own situation, but I suspect that I will be in a similar scenario with my somewhat-adjustable AGI and the ACA credits and subsidies and things.  It will probably be very valuable to do the similar analysis and work to adjust my AGI as necessary to hit the sweet spot below the cliff.

I appreciate your layout as it will inform the way I do the analysis myself.

[kelly1mm]

Thanks for sharing...I haven't done the analysis for my own situation, but I suspect that I will be in a similar scenario with my somewhat-adjustable AGI and the ACA credits and subsidies and things.  It will probably be very valuable to do the similar analysis and work to adjust my AGI as necessary to hit the sweet spot below the cliff.

I appreciate your layout as it will inform the way I do the analysis myself.

Thanks for the comment.  After doing some more analysis,  my thinking is to do something like this:  Take out $31000 throughout the year.  Then, at the end of December, if OOP medicals are low (lower than $4500), take out additional funds - maybe up to 45,000.  Why you may ask?  look at the following:

At 31,000, if I had 50,000 of actual medical expenses, I would spend max $10,787, leaving me $20,213 to live on.
At 39,000, if I had 50,000 of actual medical expenses, I would spend max $22,383, leaving me $16,617 to live on.
At 45,000, if I had 50,000 of actual medical expenses, I would spend max $24,716, leaving me $20,284 to live on.

So, I am in a worse (after mandatory expenses) financial position making more than 31k, till somewhere around 44.5k!  Also, if I took at 45k instead of 31k, that is 14k less of stash!

Now, in years where I spend (for ease of illustration) $4,500 of actual medical expenses the results would be:
At 31,000, if I had 4500 of actual medical expenses, I would spend max $10,787, leaving me $20,213 to live on.
At 39,000, if I had 4500 of actual medical expenses, I would spend max $14,182, leaving me $24,818 to live on.
At 45,000, if I had 4500 of actual medical expenses, I would spend max $16,516, leaving me $28,484 to live on.

I can see LOTS of people who can control their income in retirement doing so and LOTS of late December withdraws in my future!

[TreeTired]

My financial situation has some similarities,  at age 61 I have almost no wage income, while investment income (dividends + interest) is around $25,000 for my wife and me. Any additional spending comes out of savings.  We had been paying $900/month for health insurance, then lowered that to $680 by increasing deductible and co-insurance.  For 2014 our healthcare choices were to renew our cancelled and then uncancelled policy for $900/month,  pay full sticker price of $1500 for a new ACA plan, or pay the subsidized rate of around $300 per month for that same ACA plan if our 2014 MAGI is $30,000.  I felt it would be foolish to not opt for the subsidized (I mean, "tax credits")  $300/month plan.  I didn't write the law, but yes,  I appear to be a beneficiary of the new law.

You also left out the additional 7.65%  of social security + medicare taxes that will come out of any additional wages earned.   I am troubled by the strong financial incentives for keeping our income low.  I tend to behave in an "economic" fashion and follow the financial incentives wherever they lead me.

[kelly1mm]

My financial situation has some similarities,  at age 61 I have almost no wage income, while investment income (dividends + interest) is around $25,000 for my wife and me. Any additional spending comes out of savings.  We had been paying $900/month for health insurance, then lowered that to $680 by increasing deductible and co-insurance.  For 2014 our healthcare choices were to renew our cancelled and then uncancelled policy for $900/month,  pay full sticker price of $1500 for a new ACA plan, or pay the subsidized rate of around $300 per month for that same ACA plan if our 2014 MAGI is $30,000.  I felt it would be foolish to not opt for the subsidized (I mean, "tax credits")  $300/month plan.  I didn't write the law, but yes,  I appear to be a beneficiary of the new law.

You also left out the additional 7.65%  of social security + medicare taxes that will come out of any additional wages earned.   I am troubled by the strong financial incentives for keeping our income low.  I tend to behave in an "economic" fashion and follow the financial incentives wherever they lead me.

My income will be from 401k/403b/IRA distributions so no FICA tax.

Thank for your comments!  I think it is going to be a wild ride if people start to realize what this is REALLY going to mean.  I cannot fathom why they made CLIFFS in this law!  The well known one is that subsidies cut off at 401% of FPR.  But these OOP max cutoffs are just as bad and at MUCH lower income levels.

[Eric]

Thanks Kelly.  I was unaware that the Out Of Pocket Max fluctuated by income level.  That's good to know.

[Iron Mike Sharpe]

How is you max OOP increasing so much at those cliffs?  At $32,000, your premium goes from 1951 to 2087, but your max OOP goes from 4500 to 10400.

[OzzieandHarriet]

This might be a dumb question, but are those ACA premiums total annual?

I haven't been curious enough to register on the MD site to find out what we'd have to pay if we didn't have employer-provided HI.

[mollyjade]

These maximums are per family. So in order to reach them, both husband and wife in your scenario would have to have unusually high medical expenses for the year. The individual out-of-pocket maximum (presumably half the family out-of-pocket) still applies to each individual on the plan. So that's another level of chance to take into account.

[kelly1mm]

How is you max OOP increasing so much at those cliffs?  At $32,000, your premium goes from 1951 to 2087, but your max OOP goes from 4500 to 10400.

THAT is the issue!  Those are the OOP maximums for those income points!  The OOP maximum goes up in CLIFFS!  Here is the link to the Kaiser ACA calculator.  The OOP maximums are listed in the detail paragraphs below the rate.  It may not matter but if you want to check, you would need to put in 2 adults, MD residents, non smokers, 55 and 53 years old to get the same numbers I did.

 http://kff.org/interactive/subsidy-calculator/

[kelly1mm]

This might be a dumb question, but are those ACA premiums total annual?

I haven't been curious enough to register on the MD site to find out what we'd have to pay if we didn't have employer-provided HI.

Yes, total per year, as are all the numbers above (RE tax, Fed tax, etc.)

[Iron Mike Sharpe]

How is you max OOP increasing so much at those cliffs?  At $32,000, your premium goes from 1951 to 2087, but your max OOP goes from 4500 to 10400.

THAT is the issue!  Those are the OOP maximums for those income points!  The OOP maximum goes up in CLIFFS!  Here is the link to the Kaiser ACA calculator.  The OOP maximums are listed in the detail paragraphs below the rate.  It may not matter but if you want to check, you would need to put in 2 adults, MD residents, non smokers, 55 and 53 years old to get the same numbers I did.

 http://kff.org/interactive/subsidy-calculator/

I thought you just shopped from a list of policies and that your max OOP remained constant in that policy.

[kelly1mm]

How is you max OOP increasing so much at those cliffs?  At $32,000, your premium goes from 1951 to 2087, but your max OOP goes from 4500 to 10400.

THAT is the issue!  Those are the OOP maximums for those income points!  The OOP maximum goes up in CLIFFS!  Here is the link to the Kaiser ACA calculator.  The OOP maximums are listed in the detail paragraphs below the rate.  It may not matter but if you want to check, you would need to put in 2 adults, MD residents, non smokers, 55 and 53 years old to get the same numbers I did.

 http://kff.org/interactive/subsidy-calculator/

I thought you just shopped from a list of policies and that your max OOP remained constant in that policy.

I think we may be getting confused.  Your ACA premium subsidy remains constant, based on income.  You can then use that subsidy to pay for your HI premium.  the difference between your subsidy and the premium is what I listed in the ACA premium column.

Now, another part of the ACA was meant to end medical bankruptcy.  That is the MAX OOP or max out of pocket.  This is an amount over and above the premium that you could pay (like for co-pays and deductibles)  For example and very simplified:

You have 80/20 split HI.  Your total HC expenses for the year are $100,000.  You would NORMALLY, with no OOP max, pay $20,000 out of pocket with the insurance paying the other $80,000.

At the 31,000 income level however, your OOP max is $4500. So, in our above example, for 100k worth of HC expenses, you would pay 20% of the cost, up to $4500, so, in effect, the 100k would be paid 4.5k by you and 95.5k by 'others' (I don't know if the government kicks in $ or just the Insurance Co eats it).

So, two different things, one is premium subsidy and the other is OOP max.

[Iron Mike Sharpe]

OK, I was unaware there was a subsidy for OOP costs.  I thought that would be the same for everyone.  Like if you got a plan that was $10K max OOP it would be the same across the board for everyone and it was the premiums only that were subsidized.

[EscapeVelocity2020]

Wow, thanks for putting this together and sharing.  I plan to withdraw 40k from a blend of taxable and pre-tax sources, possibly via a 72t.  I will also have qualified dividends and non-taxable municipal bond interest, so there are quite a few moving pieces to ensure that my AGI remains below 31k, but also hope to transfer 401k IRA over to Roth while my income is at a lower rate.  Fortunately I have never had 4500 medical expenses (post-insurance adjustments), so I will certainly want to pop above 31k when I can, but I would hate to unnecessarily expose myself to higher OOP until the end of December!  Good to know, thanks!

[TreeTired]

the subsidies are based off MAGI

Also,  note that MAGI includes tax-free municipal bond interest.    I don't own any munis, but when I first read this my reaction was, "wow, they finally figured out a way to tax tax-free bonds!"

[kelly1mm]

OK, so per request, I expanded the income ranges from 22k-30k, out to 22k-45k of gross income in the referenced thread.

Shouldn't that read MAGI instead of gross income?  The ACA subsidies are based off MAGI:

"Under the Affordable Care Act, eligibility for income-based Medicaid and subsidized health insurance through the Exchanges will be calculated using a household’s Modified Adjusted Gross Income (MAGI)."

http://laborcenter.berkeley.edu/healthcare/MAGI_summary13.pdf

I don't mean to be picky over the wording, but it is something that confused me for a long time because all the calculators (including KFF) ask for "income," which made me think gross income instead of MAGI.  I went from not being able to get any subsidies to getting almost the highest subsidies due to my particular circumstances (income + amount put into tax-deferred accounts).  I just want to make sure anyone else looking at the charts realizes that the subsidies are based off MAGI, which can make a huge difference for those of us maxing out our tax-deferred accounts.

Sure, it probably should read MAGI.  However, since the basis for this chart was my personal situation, and my income will be all coming from tax deferred accounts (403b/401k/IRA), for me, total income will be MAGI.  This really was not supposed to be a ACA guide, it really just kind of morphed into that.  Really, I was just trying to figure out what my 'mandatory' spending would be at different income levels.  So, yes your are correct, MAGI should be used, but wasn't.  I hope it was not to confusing.