<p>NO. Absolutely not. The whole point is that the person will NOT have to pay out of pocket more than they can afford.</p>
<p>The subsidized person fills out a financial form and the subsidy is paid directly to the insurer, at whatever level the person qualifies for and opts for. The person has the option to pay in full and get the subsidy in the form of a tax refund – or take the full subsidy. The downfall is that if you understate income, you’d owe that back when you filed your taxes the following year. </p>
<p>But you also have the option to defer the subsidy entirely and take it as a tax credit. That is what I would do if I went onto the exchange, because I am self-employed and close to borderline on whether or not I qualify for a subsidy. So I’d rather pay the full premium (whatever it is), take my self-employed health insurance deduction – and let IRS do the math. (Which I think would be rather complicated given that deduction, which would need to be recalculated depending on subsidy amount). </p>
<p>In year #1, the subsidized person will not need to have complete tax records when they sign up. However, at year’s end, they will definitely need to file a return – and in subsequent years I assume that there will be a system that will ensure that information is automatically transmitted between the IRS and the exchanges as appropriate.</p>
<p>If you get a raise that leaves you still qualified for a subsidy, you just report it to the exchange provider and your premiums are adjusted accordingly. </p>
<p>So lets a single person earns $35K a year. That person gets a raise and will be earning $38K per year. They go to the exchange and fill out a “change of income” report. That’s my title - I don’t know what the form or report will actually be called. I assume it will be relatively simple and can be done online. </p>
<p>The smartest thing for most people whose earnings qualify for subsidies to do would be opt to take less than the full subsidy in advance – for example, to take 80% of their subsidy, reserving the remaining 20% for a possible tax refund. That gives wiggle room if their income goes up, and at the same time allows them the immediate benefit of receiving most of their subsidy. And if income doesn’t go up, they get a nice refund check from IRS in the spring, from the subsidy portion they reserved.</p>
<p>Thanks, Calmom–I had read about the tax credit part and gotten confused. I think somewhere I’d read it as you need to wait on the credit, but that may have been me skimming too fast!</p>
<p>This is good info, as I have family members it might apply to.</p>
<p>Needing a crash course in ACA. I just got a notice form BCBS that I will need to get a new plan for 2014. My existing plan is not grandfathered. oops. I see we are discussing subsidies. Isn’t the subsidy based on 2012 income tax return? My income was too high for 2012 (partly due to Roth IRA conversion) even tho I am not working and have no steady income. I can make it much lower in 2014, by not doing any Roth conversions and not taking capital gains. Not sure if I will have to pay full freight during 2014 and get a refund based on tax credits or if I will be able to pay a subsidized rate during 2014. The real interesting thing will be what the basic un-subsidized premium is going to be on my new plan that will be the equivalent plan to what we have now. For the 2 of us, age 60, we have been paying about $680/mo in 2013 which I think is pretty good. The new premium info is supposed to be available sometime this month, and we get to sign up Oct 1. oh boy!</p>
<p>NJres–I wish NJ had done its own exchange, as the states that did look pretty good, but I am definitely interested in seeing what we have when the info announced.</p>
<p>The subsidy is based on the income for the year in which you get the subsidy. So the 2014 subsidy is based on 2014 income. Judging by the Kaiser report, the second-lowest Silver policy for a 60-year-old looks to be around $500-700 for NJ. That’s for one person. Bronze level looks to be $300-$400 per person.</p>
<p>The subsidy is available to couples up to $62K of income. I’m not sure what documentation you’d need to get an Advance Tax Premium Subsidy if your income tended to fluctuate.</p>
No, the subsidy is based on what you say your current income is. You don’t have to prove it. But if you lie and understate your income to get a subsidy you aren’t entitled to, you will be penalized the following year when you file your tax return. </p>
<p>So it really does work like a FAFSA. When you fill out the FAFSA before filing your tax return, there is no cross check. You could say that you have no income and get a FAFSA that says you have a 0 EFC. But people don’t do that because they know that the numbers will be verified later on in the process, and they will be liable for paying back any benefits that were improperly receive. </p>
<p>There actually are probably a lot of people who will be tempted to slightly understate their income. That is, I don’t think that many $150K earners will come in and fill out a form that says they earn $20K, but I do think that there may be people who earn $48K who will fill out the form saying that they earn $45K in order to qualify for a subsidy, without really thinking about the long term consequences. Actually, that might be a good idea for a small fraction people who are cash-strapped in the short run, but expect to have funds at hand to pay back whatever they got in the long run – for example, someone who is waiting on an inheritance or personal injury settlement to come in. </p>
<p>I am thinking that most of the exchanges will have agents or counselors who will be able to work with people as they enroll and explain these things. It’s not that complicated really-- it’s simply a matter that if you get paid more money than you are entitled to, you’ll have to pay it back later.</p>
<p>It may not be that complicated, but if it involves the IRS, it will be! I can see the avalanche of notices. This is going to be an absolute nightmare for CPAs. I feel it coming. Where oh where is my early retirement package?</p>
<p>So basically – if you’ve lost your job or your hours have been reduced – you’ll just say so. There’s a possibility that you might have to produce more documentation if there is a big discrepancy and your application happens to be one of the ones that is pulled for an audit – but even then, it will be a matter of coming forward with appropriate documentation or explanation.</p>
<p>I do think with ACA there may be a significant segment of people whose income goes down because they now have the flexibility to quit a job they don’t like, or cut back on hours, without having to worry about the consequences of losing their employer health benefits. A definite benefit for those in the 60-65 age range who would like to transition from full time employment toward retirement.</p>
<p>I like the idea that entrepreneurs who want to start businesses, people 60-65 who want to move toward retirement and parents of gravely ill or formerly gravely ill children are no longer shackled to their job for health insurance reasons.</p>
<p>Cartera, if your income is variable then I really think it’s best to defer the subsidy and collect the tax refund, unless that is absolutely impossible financially. Or, as I mentioned, you can opt to take a reduced subsidy with the possibility of collecting on the back end.</p>
<p>I personally don’t plan to go to the exchanges, at least not until I have a better idea of how they will calculated MAGI. </p>
<p>And I don’t think tax wise it’s all that complicated, given everything else in the tax code. Somehow we all managed to figure out whether we could deduct student loan interest or take a Hope credit or Lifetime Learning Credit. It’s just one more thing that gets built into the tax software.</p>
<p>I called the BCBS (of North Carolina) info line and only learned that plan premiums would be announced later this month (I already knew that) and we would be able to sign up on October 1 (already knew that too) at which time there would be a lot of questions to determine subsidy eligibility. </p>
<p>Ever since I stopped working in 2007 I have managed my income through Roth IRA conversions and taking capital gains (and losses). The idea up to now has been to produce enough income to be able to take advantage of available tax credits (energy tax credit one year, education tax credits most years) while paying minimal or no federal income tax. Going forward it looks like the incentive will be for me to manage my income downward so I can take advantage of healthcare subsidies. You might call this “gaming the system” but to me it is simply making rational economic decisions. If I had a financial adviser (I do not) he would have a fiduciary responsibility to tell me to do what I am doing. </p>
<p>I had to do some research to determine how they are defining “household income.” You may have noticed they throw that term around a lot when discussing eligibility for subsidies. Turns out you start with the AGI (adjusted gross income) line on your federal tax return, but add in a few things to get a “MAGI” (MODIFIED adjusted gross income) and one of the things you add back is tax exempt income (!!) So apparently they have figured out a way to tax muni bond interest. I wonder if Roth IRA withdrawals (tax free, remember?) will also be added back in. I have no plans to make any IRA withdrawals before I reach Medicare age, but just wondering.</p>
<p>I almost feel sorry for health insurance companies that now must suddenly accept people with extremely expensive existing illnesses. Imagine running a business where you suddenly must accept a customer that you know is going to cost you $100s of thousands each year.</p>
<p>They should be. A subsidy should be based on all income, even tax free income. The less income that is able to be hidden, the better. </p>
<p>I don’t think you need to worry about insurance companies. They wrote the bill. They have always, always figured out a way to be profitable. From chicagobusiness.com on one BCBS 2013 profit so far. </p>
<p>I don’t feel sorry for health insurance companies at all. They get to set the premiums. Moreover, they are suddenly going to get an influx of healthy young customers. And furthermore, these are the same companies that actually bragged that they deliberately trumped up reasons to throw innocent sick people off their rolls, and would continue to do so.</p>
<p>yeah, no violins playing here for the insurance companies. And I am glad to see subsidies are based on all income, not just taxed. The idea is to get them to people who need them.</p>
<p>I also think that the idea that people may dial down employment because of the new system is great. If I or my H can retire early and still have health insurance, that opens jobs for young people. and if we or others can take the risk to start businesses, knowing we can still afford insurance, then that’s a really good thing.</p>
<p>The less that insurance is tied to work, the more healthy our economy can be (wish they’d taken it to the logical conclusion, but something is better than nothing.)</p>
Great point!</p>