Issues around eligible income for calculating "Obamacare" subsidies

[Jingthing]

This topic is a discussion of technical issues around obtaining "Obamacare" insurance for U.S. nationals.

It may be of interest to Americans living in Thailand considering returning but Americans already using the system would probably know more about how this actually works, so ... WELCOME!

Anyway, here is my general impression of the current health care access system in the U.S.:

-- People who get insurance from employers (this thread is NOT for you)

-- People over 65 who have entered the Medicare system (this thread is not for you)

-- People who qualify for "classic" Medicaid (very impoverished people with almost no assets)

-- People who are between extreme poverty income and the MINIMUM amount where "Obamacare" requirement and subsidies kick in who live in states offering expanded Medicaid

-- People who are between extreme poverty income and the MINIMUM amount where "Obamacare" requirement and subsidies kick in who live in states offering expanded Medicaid

-- People who have income above the threshold to enter the Obamacare zone but still low enough to qualify for SUBSIDIES to pay for the private insurance

-- -- People who have income above the threshold to enter the Obamacare zone but higher income so no SUBSIDIES

The focus here is about WHAT KINDS OF INCOME are used to calculate the income that is used to determine your income that tells you whether you have enough income to enter the minimum Obamacare zone and to also figure your annual subsidies.

If not totally impoverished, this income calculation would also be very important to know if you are BELOW the minimum threshold to know that you'd be eligible to apply for EXPANDED MEDICAID in the U.S. states where that is an option.

So here we go.

This is how I think it works but I don't really know for sure. Please correct me if you know I'm wrong , and feel welcome to ADD MORE INFO!

There is annual enrollment period and you're supposed to ESTIMATE your next year's income.

Your specific U.S. state of residence will have a specific MINIMUM threshold that puts you into the Obamacare zone.

Below that and you're either going for EXPANDED MEDICAID, or NOTHING. Though you could still pay full freight for insurance if you could afford it.

So you figure your PROJECTED income and let's say it is above the minimum threshold but not high enough to be out of the subsidy zone ... so, that level of income determines your SUBSIDY level.

You can see there is a motivation there for the income to be over the MINIMUM threshold but still as LOW as possible to qualify for the highest amount of subsidy possible.

If LATER it turns out you made a higher income, you will have taken more subsidy than it turned out you're eligible for ... so you'd need to pay it back on your taxes!

I assume if you stated an income that was OVER the minimum threshold and it was LOWER, that you would legally owe the FULL RETAIL cost of the health insurance as you in effect wouldn't have been eligible for anything, certainly no subsidies. That sounds very harsh! Is it really being enforced on people who obviously usually can't afford it? I don't know.

Now, you may ask, what kinds of INCOME are used in determine this magic number you need every year?

My research has told me pretty much everything except for Roth IRAs.

That includes, surprising to me, WITHDRAWALS from IRA accounts and less surprising social security income.

Many people collect social security before age 65 so this is VERY relevant to EARLY retirees.

Now, doing the math, I can see there would be an incentive to try to STRUCTURE your projected income (if you had that power such as amount of IRA withdrawals) so that it is sure to go above the minimum threshold but still with as much SUBSIDY as possible.

I am not saying I like the complexity of this system. I hate it actually. But that's the current system so that's what we're dealing with.

Personally, I am strongly considering repatriating as lower income "early retiree" and assuming I've got the basic details correct, it would mean I wouldn't have to worry about seeking out an EXPANDED MEDICAID state as I think based on adding early social security plus IRA withdrawals I would be over the minimum income thresholds, but not by much, so then there would be those subsidies.

As you might see, this effects different people in different complex ways.

For some if still working, it may be very smart to avoid going early on social security as that would add to income reducing your subsidies.

Working on social security, under 65, would take a similar hit, increasing your income, decreasing your subsidy.

What a mess!

Anyway ... seeking feedback from people who know a lot more than me about this.

Also questions from people still learning to talk about your specific situation and how these rough rules might work best for you.

Here are some related links:

https://www.healthcare.gov/income-and-household-information/income/

http://healthunsurance.bangordailynews.com/2014/01/20/individual/affordable-care-act-401k-withdrawals-count-as-income/

http://www.forbes.com/sites/financialfinesse/2013/05/30/what-obamacare-means-for-early-retirees-next-year/#6f6816907b1e

Residents of more civilized nations that guarantee access to health care as a basic civil right open to all citizens reading this mess, you're welcome to feel sorry for us!

Edited March 4, 2016 by Jingthing

[Jingthing]

OK, I have some "fun" questions about how to figure eligible income for this.

Suppose you own a property and rent it out.I assume that the income after expenses is added to the Obamacare eligible income thingie.

Rental and royalty income

Yes

Use net rental and royalty income.

That's probably clear enough.

How about if you own a house and enter into a landlord relationship with a roommate. So they're paying you monthly rent. Isn't that more complicated. Wouldn't you have to, if you want to be legal, declare the full rental amount as income, and what about expenses for that. Do you treat that as a profit and loss business just as if you rented out the entire place? Yes you could just take cash and not declare it but that wouldn't really be legal, eh?

How about if you own a small business? I'm interested in doing a small fun business that may never make a profit, and if it does would probably take 5 years. Obviously you file a profit and loss statement in that business annually, and I'm pretty sure any profit would count towards the total of the Obamacare eligibility figure.

Include “net self-employment income” you expect — what you’ll make from your business minus business expenses. Note:You’ll be asked to describe the type of work you do. If you have farming or fishing income, enter it as either “farming or fishing” income or “self-employment,” but not both.

HOWEVER, suppose there is a LOSS (as I would expect for my idea for some years)? Would that mean you would have to DEDUCT that loss from the Obamacare eligibility figure?

https://www.healthcare.gov/income-and-household-information/income/

Edited March 4, 2016 by Jingthing

[NeverSure]

"That includes, surprising to me, WITHDRAWALS from IRA accounts..."

That shouldn't be a surprise as those withdrawals are always income. The reason is that the income that was deposited at the time wasn't taxed. It's a good deal because you get to invest your gross income and hope to have more growth over time before withdrawal. That's the deal - pay the taxes only when you withdraw.

As for renting, you can deduct a portion of the house costs including maintenance, insurance, taxes, utilities etc. and not really net that much income on paper. It really is almost all net income though because you would be paying all of that anyway. I suspect that a lot of people renting a room get it in cash...

Most people who reach the point of beginning to collect SS wind up wishing they'd worked and made the max they could up until that age because that income directly affects the amount of SS you get each month. Higher earners simply get more. It's possible to get almost nothing from SS, or it's possible to get about $2,500 per month or more. Also by working, it might be possible to get employer provided health care.

Cheers.

[NeverSure]

"HOWEVER, suppose there is a LOSS (as I would expect for my idea for some years)? Would that mean you would have to DEDUCT that loss from the Obamacare eligibility figure?"

I would suspect that this would follow IRS rules for a losing startup. They will let you write off losses for 3 years after which they will deem it not a legitimate profit making endeavor. Yes, the loss goes to the bottom - to your Adjusted Gross Income - and it lowers "the amount of income you have".

[NeverSure]

Paying as much money as possible into SS right now is the best investment you can make. They look at the last 20 years and take the best 10 years and use a formula to determine how much SS you get. The amount they pay you over time if you live to be "older" is far and away above any amount you could get by putting into a bank and withdrawing from savings. It truly is subsidized and it truly is a good deal especially if you just pay in for the last ten years.

I had someone who's retired approach me about renting a room which I really don't want to do. That guy had a total of $700 per month in income - all SS - and that was it. He wanted to pay a very small amount of rent, perhaps to cover the addition hot water etc, and then "work for the room" by replacing my housekeeper and landscaper and then doing odd jobs around the house. He doesn't have a car and has no hope of owning one. Heck, I have a perfect driving record and my car insurance alone is still about $1200 per year. These huge lawsuit settlements have really driven the price of liability insurance - the one you're required to have - through the roof.

If I had agreed to rent to him I would also probably have turned into a taxi service because I'm soft hearted. How's he going to get his groceries? At the least, how could I go grocery shopping or just to town or the mall without taking him with me? There certainly aren't any well off people wanting to rent a room, although many will at least have a car.

A lot of these people don't have a car because they don't have a driver's license. They lost it to a DUI or something and you're risking getting an alcoholic or druggie so you must do background checks. Many of these people can't rent through normal channels because no rental agency would rent to them after checking background and credit. OTOH there are a LOT of really nice but poor people who need to rent a room and they would be a pleasure to be around. It's all in your selection process.

Cheers.

[Jingthing]

"That includes, surprising to me, WITHDRAWALS from IRA accounts..."

That shouldn't be a surprise as those withdrawals are always income. The reason is that the income that was deposited at the time wasn't taxed. It's a good deal because you get to invest your gross income and hope to have more growth over time before withdrawal. That's the deal - pay the taxes only when you withdraw.

As for renting, you can deduct a portion of the house costs including maintenance, insurance, taxes, utilities etc. and not really net that much income on paper. It really is almost all net income though because you would be paying all of that anyway. I suspect that a lot of people renting a room get it in cash...

Most people who reach the point of beginning to collect SS wind up wishing they'd worked and made the max they could up until that age because that income directly affects the amount of SS you get each month. Higher earners simply get more. It's possible to get almost nothing from SS, or it's possible to get about $2,500 per month or more. Also by working, it might be possible to get employer provided health care.

Cheers.

Yeah I understand all that. Good general advice. For me though I assume I'm unemployable now ... out too long.

It seems to me being legit on a roommate landlord situation would be complicated. Need to check that out. I also assume many people take cash but ultimately that's dodgy.

[Jingthing]

I don't think that last 10 years thing about the ss benefit is really true. Never heard that before. Not mentioned in this link. Yes I know taking it early costs. You're basically betting on a shorter life expectancy.

http://www.geeksonfinance.com/how_4822470_calculate-social-security-benefits.html

Edited March 4, 2016 by Jingthing

[Jingthing]

So a business loss would reduce my income for Obamacare subsidy yes?

[TallGuyJohninBKK]

Jing, the first link you provided above seems to provide a pretty clear and detailed list of just what kinds of income are and aren't counted as eligible income under the Obamacare income/federal subsidy rules.

I did a proforma run on the Healthcare.gov website for a 60-year-old single male living in Texas with an annual income tallied under the Obamacare rules at $30,000. The website spit out the following details:

The results showed 52 health plans offered as available:

In the bronze category, 17 plans starting at $89 per month after the federal subsidy, and going up to $400 per month.

In the silver category, 20 plans starting at $201 per month after the federal subsidy, and going up to $461 per month.

In the gold category, 14 plans starting at $307 per month after the federal subsidy, and going up to $605 per month.

That kind of thing begins to give some idea of the kind of out of pocket expenses one could expect under Obamacare just for the health insurance premiums -- though the figures above only include premiums and not the copays, deductibles, etc.

[NeverSure]

I don't think that last 10 years thing about the ss benefit is really true. Never heard that before. Not mentioned in this link. Yes I know taking it early costs. You're basically betting on a shorter life expectancy.

http://www.geeksonfinance.com/how_4822470_calculate-social-security-benefits.html

Well, I misspoke but you have to read the link carefully. If you have ten years left to work you need to pay in as much as you can to build up your average. The point is that many people try to keep those payments down as much as they can by keeping their taxable income down (especially self employed people and investors) and then find out that as a result they didn't pay much into SS. SS taxes and income taxes move together.

[NeverSure]

So a business loss would reduce my income for Obamacare subsidy yes?

Yes.

[Jingthing]

I don't think that last 10 years thing about the ss benefit is really true. Never heard that before. Not mentioned in this link. Yes I know taking it early costs. You're basically betting on a shorter life expectancy.

http://www.geeksonfinance.com/how_4822470_calculate-social-security-benefits.html

Well, I misspoke but you have to read the link carefully. If you have ten years left to work you need to pay in as much as you can to build up your average. The point is that many people try to keep those payments down as much as they can by keeping their taxable income down (especially self employed people and investors) and then find out that as a result they didn't pay much into SS. SS taxes and income taxes move together.

OK.

In other words, what you initially said was totally wrong about the last 10 years.

That's fine, it's cleared up.

There was another point in that link of interest suggesting based on inflation weighting higher income when you are YOUNGER has more impact on the benefit than when older.

[Jingthing]

So a business loss would reduce my income for Obamacare subsidy yes?

Yes.

Too bad.

I really don't like the structure of this system.

I understand why people on the left and right hate it.

It gets into your personal business too much.

Similar to the tax code really.

People have incentive to make big life decisions based on taxation and subsidy tactics based on arcane rules as opposed to what they really want to do in their life.

Ideally people should make such big decisions as starting a business or not based on their desire to do that. Oh well!

Edited March 5, 2016 by Jingthing

[Jingthing]

Jing, the first link you provided above seems to provide a pretty clear and detailed list of just what kinds of income are and aren't counted as eligible income under the Obamacare income/federal subsidy rules.

...

It's a good list, yes, but I still had more questions.

I'm happy if I repatriate that I'll have the chance to purchase private insurance (requirement actually) that is "affordable" and won't exclude my preexisting conditions.

Not happy about having to worry about structuring my income.

For example suppose one year I have an emergency and need to withdraw a lot more than expected from my IRA.

Then that will be penalized later for underestimating my income, resulting in the need for forfeit the initial subsidy level.

Maybe that sounds fair, but it still seems really kludgey, but yes, that's the way it is now.

I suppose it's also worth mentioning that all the current republican presidential candidates are running on the issue of completely trashing Obamacare.

So the election needs to be watch for this issue.

Not sure if they could actually do that, doubtful, but I would say if a democrat is elected president that the campaign to totally trash Obamacare will be finished.

[Jingthing]

Here's another case.

I know someone with low income and insecure job that is eligible for a large subsidy for his health insurance.

It's based on his income estimate assuming he keeps the job.

There's a good chance he won't keep the job.

Which will mean his income will go BELOW the minimum threshold for Obamacare requirement/subsidies.

He also lives in a non- expanded Medicaid state.

So what happens to him if he pays the subsidy insurance all year and then goes under?

Under the rules he would owe the full amount of the subsidy back.

Are they really enforcing that against such poor people?!?

Example, his insurance is 200

The full cost might be 500.

So if at the end of the year it turns out he really goes under the minimum threshold he would owe 300 x 12 which of course he does not have!

This has got to be a very common scenario so I'm really curious about enforcement of that against poor people.

Edited March 5, 2016 by Jingthing

[Jingthing]

Here's a fun one ... more returning expat specific.

There is the annual OPEN ENROLLMENT period for the ACA program.

You must take action during this period.

On another thread, someone said if you MOVE to another state or repatriate that you can enroll outside the OPEN ENROLLMENT period.

Is that really true? How exactly does that work?

Suppose you repatriate to Thailand to a new U.S. state that you've never lived in and you establish residence in that state (they all have specific rules) in JULY. Far from the open enrollment period.

How would you deal with stating your income in such a scenario? Would it be prorated in some way? The normal method, I think, during the open enrollment period, would be based on a PROJECTION estimate of your next year's income.

But this is a case where you would already be into that year.

Complicated, yes?

[TallGuyJohninBKK]

When I was looking at the ACA sign up information, I certainly saw moving one's residence to a new location as being one of the eligible triggers that would allow someone to sign up for a new/different ACA plan outside of the annual open enrollment period. Presumably because, among other things, the plans and rates vary by state (and perhaps even smaller geographies).

But I don't follow you're question about there being some difficulty in stating your expected income as part of that process. Especially for expat folks like us here in the retired category, isn't our annual income likely to be pretty much the same whether we're living in Thailand vs moving back to the U.S.? How would moving from Thailand to the U.S. complicate the estimation of one's annual income?

[Jingthing]

Not always. Like if you were just starting social security in the middle of the year or many other personal variables.

I guess the core of that question is would the stated income for an out of enrollment period initial sign up be based on annualizing the income or actual income. For example if you only took a 1500 monthly benefit for half the year would the full year be counted for estimating your subsidy or even minimum eligibility for the program at all.

Writing that I'm assuming it wouldn't be annualized. But actual. So in such year you might need to structure other income to even make the minimum. Can someone confirm?

There are indeed many potential variables in retirement income. Some that might apply to me and I'm sure there are many others include ...

Projected a rental income that failed to materialize

Part year pension as mentioned

Business income or loss

IRA withdrawal being different than expected

Edited March 5, 2016 by Jingthing

[Jingthing]

As I've explained with a real life example one of the biggest hazards of this scheme is estimating your income to be high enough for the minimum threshold then take the large subsidy and end up being below it meaning you weren't actually entitled to the benefit.

Now for a political comment. Forgetting the partisan issue of expanded medicaid why is there any minimum income at all needed for subsidies? Surely many people with very low incomes could self fund for awhile even years with savings.

It doesn't seem fair that a low income person with just the minimum threshold gets full subsidy and one dollar less treated as a person with high income and no subsidy. It seems crazy actually.

Particularly about the underemployed older people who haven't reached 65.

The answer is probably that it was expected that expanded medicaid would be in 50 states but the supreme Court ruled states could opt out.

Edited March 5, 2016 by Jingthing

[gk10002000]

The income is very simple. You use your MAGI, which is a bit different than the AGI. AGI comes right off the line on the 1040. MAGI adds back a few things. Now as far as subsidy, if you under estimate your income and then the next year you do your taxes and find out you made more than you originally estimated the year before, you may owe money. Conversely if you over estimated your income and then later found out you made less money, you may be due a rebate. However, I had trouble finding a good solid example of somebody that ended up making less than they originally estimated. I thought it went only one way and if you over paid, too bad. You didn't get a rebate for paying too much for Obamacare, but I found a good example at consumerreports, that addresses both under estimating and over estimating.

The issues of medicaid and obamacare is complex and I have a few years before I have to worry about that. I suspect Obamacare is going to change a lot once more people become seniors and cross over from Obamacare

http://www.consumerreports.org/cro/news/2013/12/will-i-have-to-pay-back-my-obamacare-subsidy/index.htm.

[Jingthing]

The income is very simple. You use your MAGI, which is a bit different than the AGI. AGI comes right off the line on the 1040. MAGI adds back a few things. Now as far as subsidy, if you under estimate your income and then the next year you do your taxes and find out you made more than you originally estimated the year before, you may owe money. Conversely if you over estimated your income and then later found out you made less money, you may be due a rebate. However, I had trouble finding a good solid example of somebody that ended up making less than they originally estimated. I thought it went only one way and if you over paid, too bad. You didn't get a rebate for paying too much for Obamacare, but I found a good example at consumerreports, that addresses both under estimating and over estimating.

The issues of medicaid and obamacare is complex and I have a few years before I have to worry about that. I suspect Obamacare is going to change a lot once more people become seniors and cross over from Obamacare

http://www.consumerreports.org/cro/news/2013/12/will-i-have-to-pay-back-my-obamacare-subsidy/index.htm.

I don't understand your theory about Obamacare changing when more people get older. Sure once on Medicare it's not an issue anymore but the majority of Americans will always be under age 65.

[gk10002000]

The income is very simple. You use your MAGI, which is a bit different than the AGI. AGI comes right off the line on the 1040. MAGI adds back a few things. Now as far as subsidy, if you under estimate your income and then the next year you do your taxes and find out you made more than you originally estimated the year before, you may owe money. Conversely if you over estimated your income and then later found out you made less money, you may be due a rebate. However, I had trouble finding a good solid example of somebody that ended up making less than they originally estimated. I thought it went only one way and if you over paid, too bad. You didn't get a rebate for paying too much for Obamacare, but I found a good example at consumerreports, that addresses both under estimating and over estimating.

The issues of medicaid and obamacare is complex and I have a few years before I have to worry about that. I suspect Obamacare is going to change a lot once more people become seniors and cross over from Obamacare

http://www.consumerreports.org/cro/news/2013/12/will-i-have-to-pay-back-my-obamacare-subsidy/index.htm.

I don't understand your theory about Obamacare changing when more people get older. Sure once on Medicare it's not an issue anymore but the majority of Americans will always be under age 65.

What I meant was I think the Obamacare system is going to change. It has so many problems and issues, there will be challenges, changes, modifications, other options etc. And I think one of the issues that may drive that is the number of people that are reaching the medicare age. The ramifications of that and the large numbers of people and how many will switch from Obamacare to Medicare is going to be a big thing.

[Jingthing]

Well I think there are many serious flaws with Obamacare, valid criticisms from the left and the right. Accessibility isn't complete largely thanks to republicans not participating in expanded medicaid and the COSTS issues is a mess because the core of the program is welfare for big medical industries rather than a more rational more socialized system like in most civilized nations. Personally I think it HRC is elected the republicans will never be able to totally kill it and it will be a matter of massaging it over time and the U.S. being stuck with something like it for many decades. The republicans promise to kill it and with the control of all branches of government if they elect a president this time, that will be very interesting to see them try. Given there are millions of people that have really benefited from it.

Edited March 5, 2016 by Jingthing

[gk10002000]

I would add that Obamacare would be totally impractical for me. I am a contract engineer. Some years I make a very lot. Some years not so much. My income easily goes up or down by $40 k USD from one year to the next. I could not make any accurate estimate of next year's income. "Luckily", my Florid blue cross blue shield plan was "grandfathered" so I was able to keep that. Of course they are price gouging me and the premiums have gone up 28% every year. After this year, the medical premium will force me to do something. I am single male, 58. No health issues but I am now paying $364 a month and comes August I think for various reasons, it will jump to about $490 USD a month. Ridiculous, but since I make decent money, going to obamacare is not an option because I would not qualify for subsidies. I might bite the bullet and go direct hire with one of the aerospace firms I currently contract for, or luckily, I have enough cash and dividend and interest income from my investment portfolio to punch out, head to Thailand and be quite fine. In a few years I will also be eligible for my social security which will be pretty good, almost $2,000 a month if i wait just one year from my early retirement age of 62 1/2.

Obamacare is horrible, directly or indirectly affected me, costs me more. I am basically being "taxed" via my higher premiums to pay for lower income people's health care.

[Jingthing]

You're right ... it's a sliding scale type system. Which wouldn't be so bad if the OVERALL costs were radically reduced, which they could have been with a real revolution of the entire health care system, but alas, that didn't happen and likely won't for decades.

I'm not unsympathetic to higher income people paying a lot for their health care. I want the costs to be addressed for everyone but to do that you have to confront the health care industry in a very aggressive way. And nobody is willing to do that except for politicians like Bernie Sanders who won't win and even if he did couldn't pass what he wants. Depressing? Yep.

Edited March 5, 2016 by Jingthing

[lannarebirth]

You might find this website helpful:

http://obamacarefacts.com/insurance-exchange/cost-sharing-reduction-subsidies-csr/