The Wrong Amount of Poor
My income is lower than average, so we watch every penny carefully and live within our means. I used to have a Healthcare plan that fit my budget and worked well for my family of 6. It cost less than $300 per month, and the deductible was $4000. I felt good about being able to provide insurance for my wife and our four children with a plan that I liked and found affordable, and I didn’t have to utilize medicaid. Today, the cheapest plans available cost over $600 per month with a $12,000 per person deductible! Oh, but that’s okay, because my income is low enough that I’ll get lots of tax credits thanks to Obamacare, right? Wrong. I’m poor, but not the right amount of poor.
You see, I make about $30,000 a year so I’m considered too poor to qualify for any tax credits. Basically, to get any benefit from Obamacare you have to be just the right amount of poor. And I am not… Or I might be… Kinda depends. Confused yet? Keep reading.
I happen to own my own business so my income does fluctuate. It’s difficult to predict an exact number but I should make between $30,000 and $33,000 this year. At $30,000 I’m too poor to get help, but at $32,000 I qualify for over $300 per month in tax credits! Before the enrollment period is over I need to guess exactly what my income is going to be. Guessing wrong could have major repercussions. So here are my options:
I can estimate my income at $31,000 (the wrong amount of poor). I won’t qualify for tax credits, but I will be exempt from the requirement to have insurance in the first place (good thing I suppose, since it’s entirely unaffordable without the tax credit). The kids could be on medicaid, but my wife and I would be uninsured and would have to be very careful not to get sick or injured. One stay at the hospital could bankrupt us. But to make matters worse, there’s also a catch here. If I accidentally make a few hundred dollars more than I predicted, then I’ll have to pay a penalty because I chose not to get insurance when I should have. Okay, “chose” is the wrong word. “Guessed that I’d be exempt” would be more appropriate.
Option 2 is to predict an income of $32,000 (the right amount of poor). In that case, I’ll qualify for all sorts of help, but if my income falls short of 32k, even by a few hundred dollars, I would owe have to pay back every penny of that subsidy.
That’s over $3700 for the year! I guess that’s just the penalty for being the wrong amount of poor.
Being on that line is a hard one. On one hand, if your state expanded Medicaid under the ACA, pricing out of tax credits means free or low-cost Medicaid. On the other hand, many hard-working Americans want private coverage and not Medicaid.
So here is the advice.
You want to project income just high enough to get cost assistance. You can then take deductions that ensure your household MAGI is over the limit. If you simply can’t make the limit, you actually owe ZERO DOLLARS.
This information can be found in the 8962 instructions under repayment limits and summarized on this page: https://obamacarefacts.com/advanced-tax-credit-repayment-limits/
In short if you don’t claim enough for Marketplace subsidies you owe NOTHING.
The PPACA was designed to cover Americans in any position. Some situations are a little harder than others to maneuver, but part of the reason for any complexity in the law is to address every situation fairly.
Truly, you are in a pretty good position. Get a silver family plan and make the cut-off limit and you’ll get really generous cost sharing reductions subsidies you don’t have to repay, and if you make more than projected you only owe back money up to the repayment limit.
If you price out of coverage, and need to switch to Medicaid, then you should update the Marketplace so you can make the switch. That being said, you don’t have to. You can just reconcile tax credits at the end of the year.
You and your family are protected and access to affordable coverage under the ACA.
Also your cost assistance after tax credits will bring down your premiums and out-of-pocket costs far below what you quote. You’ll see that reflected for Silver plans only, after you apply to the Marketplace:
Income Level Actuarial Value (the amount of costs a Silver plan will cover due to cost sharing reduction subsidies for % of the Poverty Level).
100-150% FPL = 94% Actuarial Value
150-200% FPL = 87% Actuarial Value
200-250% FPL = 73% Actuarial Value
More than 250% FPL = 70% Actuarial Value
Out-of-pocket maximum limits:
100-200 percent of FPL,
your out-of-pocket limit won’t be more than $2,250 for an individual.
your out-of-pocket limit won’t be more than $4,500 for a family.
200-250 percent of FPL,
your out-of-pocket limit won’t be more than $5,200 for an individual.
your out-of-pocket limit won’t be more than $10,400 for a family.
More than 250% percent of FPL,
your out-of-pocket limit won’t be more than $6,600 for an individual.
your out-of-pocket limit won’t be more than $13,200 for a family.