ACA individual health insurance: people will still get premium subsidies and deductible subsidies

Parent Cafe
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An HSA is a bank account where you can shelter money and/or use it to pay for medical expenses. You open the account and it comes with a debit card or checks. There is an upper limit as to how much you can deposit each year into the HSA. In 2018 that upper limit will be $3450 for an individual, $6900 for a family. If you are over age 55, you can put in an additional $1000 each year. If you don’t spend the money, you keep it and can even invest it. Any earnings on the HSA account are tax-free.

You can use it to pay for any type of medical expense that would qualify for a tax deduction, so more things than are typically covered by insurance. You can use the money for any medical expense for yourself or a dependent, even if the dependent is not covered by the same insurance plan (so, for example, a kid attending college in another state who has separate coverage through the college). You have to have an HSA-qualified health plan in order to create the account, but you are not obligate to deposit money into the HSA or even create one if you don’t want to – but having the HSA is very, very nice.

After you are age 65, you can withdraw the HSA money without penalty. Or leave it. Or use it to pay for your medicare premiums… whatever.

Also, all funds that you put in an HSA are fully written off as a federal tax deduction that reduces your AGI. So if your AGI would be $80,000 but you put $5000 into the HSA, then your AGI is $75, and your taxes will go down by whatever your marginal rate is.

In past years in California insurance policies and off exchange were priced equivalently, but this year Covered California is allowing insurance companies to sell a separate off-exchange silver policy without the surcharge to pay for the CSR money that Trump won’t pay. That’s probably around a 15% discount. Basically, everyone who buys silver on-exchange is pitching in with premium dollars to provide the extra benefits to the poorest group of buyers, but everyone who buys silver on-exchange should also be eligible for subsidies – so all those extra premium dollars are paid by Uncle Sam.

If the reason that your oldest daughter doesn’t qualify for subsidies is that she earns too much, then an HSA is a really good way to shelter money just like an IRA. Just one more way that she can sock away money for the future. So if she can afford it, great idea for a young person. Because the unspent dollars can grow over time, but they always will be readily available to pay for medical expenses. So lets say a young single person age 26 deposits the maximum each year, and after accounting for current medical expenses, is able to save $2500 on average. Ten years down the line, age 36, there’s $25,000 sitting in that account Now lets say at that point the young single person is married but having difficulty conceiving. Her insurance won’t pay for fertility treatment - but the HSA has enough funds to pay for at least one round of treatment. Here’s a good article with examples of things an HSA can be used to pay for - https://www.valuepenguin.com/surprising-benefits-savings-of-health-savings-account

So there really isn’t a good reason for a young person not to have an HSA, assuming they have the money to fund it and don’t have employer-provided insurance. (Some employer do provide HSA options, in some cases with extra dollars to fund the HSA)

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@calmom, thanks for chiming in about the OON max. I was hoping you’d enter this thread, because you have a wealth of knowledge.

Anthem has not left my area, though they have pulled out of a lot of California. They’re still selling plans on the exchange in my county. But I guess Blue Shield is trying to reduce premium prices.

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Does anyone have any advice about investing in your HSA? We have one through employer and so far so good. When they first offered it, there was a spreadsheet that you could enter even worst case problems and it still came up cheaper.

I’d definitely recommend one to younger employees.

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I think an HSA is pretty much a no-lose situation for anyone who is in a strong enough position financially to fund one, and who has low-end medical costs. Basically a terrific deal for the middle class & upper middle class. Especially nice for those who can afford to fund medical expenses out-of-pocket while simply using the HSA for its value as an annual tax writeoff and as a tax-sheltered bank or investment account. (However, I do use my HSA to pay ongoing medical, dental & optometric expenses … I could afford to pay out of pocket but I think that using the HSA make me happier psychologically, because it doesn’t seem like “real money” when I swipe the HSA card at the dentist’s office.)

But an HSA is useless for anyone who doesn’t fund it and not particularly valuable for people whose income is low that they don’t benefit from reductions to their AGI – so, for example, it really wouldn’t benefit those >200% earners who quaify for the silver plans with the extra CSR subsidies.

Although it is tied to health insurance, I don’t think that the HSA benefit is a reason to go for a health plan that is inadequate to meet health needs. Whatever financial benefit the HSA could offer would be wiped out if it meant choosing between paying out of pocket for pricey prescription drugs until a high deductible is met, vs. getting the same drug for a modest copay with a more comprehensive plan.

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I like my HSA, but one disadvantage is there is no investment option for the amount held in the HSA. We’ve got $10,00o in there now and I hope it continues to rise. It pays the same measly amount as my checking account.

One of the great things is you carry over the balance year to year and it’s yours–unlike FSA, where it’s “use it or lose” it each year. Plus, the FSA we have, limited to dental and eye, requires a ridiculous amount of time sending every receipt, them screwing it up, and phone calls to people who barely speak English. #$

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“Just told Child one to make sure his income is below the subsidy amount…if not, he should contribute to a retirement account. Can it be a Roth? Or does it need to be tax deferred?”

@thumper1 Yes, it is easy to set up the IRA and the beauty of it is that your son can do while doing his taxes IF he winds up needing to do so, he doesn’t need to commit now. So, for the 2018 tax year, as long as he sets up and funds an IRA by April 15, 2019, he’s all set.

“For example, if a hypothetical married couple were to report long term capital gain income of $64,000, which is just under 400% of the poverty level, and report no other taxable income, they would be in the 15% marginal bracket (which has a long term capital gain rate of 0%) and would therefore pay zero federal income tax (and of course no SS or self employment tax), but would still be entitled to health insurance subsidies of about $9000.”

@sherpa Subsidies are on a sliding scale based on income and the cost of plans in your state. You would get a subsidy if the plan cost more than 9.5% of your income just below the 400% of poverty like threshold (unless these are changing for 2018), is my understanding. That close to the threshold, I wouldn’t expect a subsidy of $9K.

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@doschicos, I’d get at least an $8400 subsidy if I were eligible for any subsidy.

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@“Cardinal Fang” but it does depend on the health care costs in one’s state, correct? And their income? Not everyone received $8400 or $9000 just because they are below the 400% of PL threshold.

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It depends on the insurance costs in your region, and on your income, and on your age. If hypothetical $47K me lived in Los Angeles (which I would never do) instead of the San Francisco Bay area, I would get a much lower subsidy because insurance rates are considerably lower down there.

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The subsidy works like this.

  1. Cost of premium for 2nd lowest cost silver plan on exchange, for your age agroup. For me, in California, age 63, that's going to be about $1300 a month.
  2. Percentage factor for income under 400% of poverty line, depending on amoiunt of income -- it's a sliding scale, - you can find the chart on page 8 of the IRS instructions for form 8962. It ranges from about 2% for the lowest earners at under 133% of poverty line, to 9.66% for anyone above 300% of poverty line.

So a person earning $47K would be expected to pay at most about $378 for a monthly premium

So next step is to subtract $378 from the premium amount – for me, age 63, if my income were $47K, then it would be $1300 - 378 - for a subsidy of about $922 … which is pretty close to what I am seeing. That $922 could be applied to any plan; there are a handful of bronze plans in my area with monthly premiums in the $800 range – hence the possibility of signing up for coverage where the government pays the entire premium.

The value of my subsidy in this scenario is over $11,000 per years. I’m pretty much maxing out at premium cost at age 63. (64 is the maximum eligible age to buy into the exchange, but I have a birthday early in the years, so I will only need private insurance for one month in 2019, and then I shift to Medicare.)

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Calmom gives a great description of how subsidies work. Because they work the way they do, if a subsidized person buys the reference plan, the 2nd cheapest Silver, they pay the same price no matter how expensive the plan is. If Calmom wanted the reference Silver, she would pay $378. If the actual premium were $378, she’d pay $378 and have no subsidy. If the actual premium were $100,378, she’d pay $378 and have a $100,000 subsidy. [If the premium were $100, she’d pay $100; people only get subsidies if the real price is bigger than their expected payment.]

The premiums for Silver on the exchange are going up in 2018. But for subsidized people, that just means the subsidies go up.

Also, in the states which have instructed insurance companies to load the CSR surcharge onto Silver only, Silver plans have gone up way more than Bronze or Gold plans. That means subsidized people get a bigger subsidy than they would have if the government had merely paid the CSRs. They will find Bronze and Gold more affordable than would have been the case if the government paid the CSRs.

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@thumper1 Her only income right now is taxable scholarships. She in currently on our exchange plan. Not a bad plan with better coverage than the school plan. I will look at the school plan and an non exchange plan. I know will be considerably more than staying on our plan or an her own subsidized exchange plan. With her prescription cost, she needs a plan with drug coverage.

@lookingforward The reason we are considering a separate plan is that her income could push us off the cliff. If she is on the school plan which ends August 1 and is still unemployed then losing her insurance should qualify as a life change. At that time, we could add to our policy.

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@noname87 - you need to do some math. The “cliff” is lower if drop a member of the household from insurance. It doesn’t matter who is legally a dependent or not – for purposes of the ACA subsidy, “household” pretty much means the number of people you are buying insurance for.

So, for example, if you are single parent with one child, you would be eligible for subsidies for yourself only, up to about $48 K annual income; including your child, you can have combined earnings of up to slightly under $65K.

So your concern makes sense if your personal AGI is under $48K, but you are worried that your daughter will get employment earning around $2500 a month if she gets a job straight out of college - because that’s the number that would put you over.

But if you already have an AGI above $48K, then dropping your daugher from the insurance would immediately cause you to lose subsidy eligiblity.

Also keep in mind that the amount of your subsidy changes depending on the number of people you are insuring, as the benchmark for determining subsidy is base on total premium cost. So,dropping your daughter from the plan will also result in a lower subsidy for you, The cost of your own insurance wouldn’t change, but your out-of-pocket would because you would be paying for her separate, unsubsidized policy.

The question would then be how the increased cost to buy your daughter separate insurance from January through May would be compare to the overall cost of the subsidy you might be required to pay back if your daughter gets a job with good pay when she graduates. In other words, this may really be a pay now vs. pay later problem, and actual long-term cost differential between the two options may not be all that significant, assuming that you promptly report any changes after he does graduate.

The numbers change somewhat if there are additional insured members of your household; that is, if you are married or have other dependents.

Keep in mind that you are not required to take the “advanced” premium tax credit – you can also opt to pay full premium cost now, with the option to get a tax refund down the line if you are eligible. So if you really are uncertain and don’t want to be hit with a big tax bill in 2019, that might be the way to go.

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The 1095a, the form the insurer provides, for you to compete the 8962, is detailed by month. Not just the annual totals. Each month should show the correct details for your exchange plan, in that month. Premium, Second Lowest Silver (SLS) benchmark, what you received in subsidies (if you did take the discount at the time.) Etc. Line by line, for each month. Fine. By month allows it to show changes in the course of the year. Life events.

In the year a child graduates, she may qualify as your IRS dependent or not, for that year. You can see the IRS “5 month rule” and the need that you provided more than half her living expenses, that year.

When you file 2018 taxes, she either is or isn't a dependent for that tax year. Only one of you (you or her, on her own return,) can claim her. That's IRS.

But, for ACA purposes, if she is a dependent, for Jan through the job start, you can have her insured with you, assuming it’s cost effective, the lower overall cost to you and her. Your income, hers (if any,) are the “household income” you use.

But once she’s fully employed, it doesn’t make sense to add her new larger income into the household, to keep her on the exchange. It’s a life event, at that point, you don’t have to keep her insured with you, nor include her salary in the household total. Healthcare.gov says:
“If you won’t claim them as a tax dependent, don’t include them” (in household income.)

When exploring today, for ACA, you go with today’s info. The known: student, dependent, little income. Run the numbers, see what costs what. Later, when she gets the job, you would have to report the income change (if she stays on the exchange with you.) But she may have employer insurance or it may be cost effective to get her own, at her age, with her salary. At that point.

Then, when you do the 8962, based on the 1095a, it shows the months she was eligible and when that stopped. For this form, key is the month by month eligibility and premium/subsidy details.

Done right, I don’t see risk of a big charge back.

This is how we handled it for D2. No problems.

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Thanks for al the great info being provided here! Am I reasoning this correctly-If kid (not eligible for a subsidy) lives in a state (SC) where costs will be shared across silver marketplace plans, he should try to get an off exchange silver policy, or an off or on exchange gold or bronze? How are you finding the off exchange policies?

He had an exchange silver this year and just got a letter that the premium is going up 45%. SC had only one marketplace insurer, BCBS, that only offered EPO policies. No OON benefits at all!

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That’s right, my-three-sons. I advise everyone to examine their options, but certainly on-exchange Silver is likely to be a bad bargain in South Carolina.

One way to find off-exchange plans is to call an insurance broker. Insurance brokers are free for the customer.

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@lookingforward

You have just filled in a vast gap in my understanding of this issue. Coulld you clarify some areas.

I understand (for the most part) form 1095. I understand that when the life change occurs, you call and report the new income figures and the subsidies are adjusted according. Where I am confused is where do you report the income earn while receiving a subsidy. In my case, until my daughter finds a job her only income is taxable scholarships. Say she gets a job in August with benefits. I report a life change and remove her from my policy. What income goes on form 8962 for my daughter’s income (If I claim her)? The instructions seem to looking for the taxable yearly income. In the past, I used zero since she was not required to file. Also I am self employed so my income varies all over the place. Tends to peak during Oct-Jan. The subsidies seem to be based on the yearly income.

I thought that household income for ACA was generally (not always) the income of the tax payer and the dependents claimed on the tax payer return. Can you clarify? Your post seems to indicate that you only count the income that was earn while the person was receiving an subsidy. Correct?

I realize that I will need to seek professional advice about this. However, your insightful posts are allowing me to know what questions I really need to ask. Thank you.

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@lookingforward

Another thought (as my head explodes) is that once I report the life change does my household size also change. How is that handled? When I file file my taxes what household size do I use? If I claim her as an IRS dependent do I count her for the full year for ACA purposes on form 8962.

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@“Cardinal Fang” Thanks!

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By the way, I said on-exchange Silver was likely to be a bad bargain in South Carolina. Let me clarify: In any state including South Carolina, for anyone who makes less than 200% of the Federal Poverty Line (around $24,000 for one person, around $49,000 for a family of four) Silver is an amazing bargain. If that’s you, you’ll pay very little for a policy that has small deductibles and copays.