2014 Federal Poverty Guidelines Released

Under ACA, eligibility for Medicaid and premium-reduction subsidies for exchange policies is governed by the poverty guidelines for the policy year.   The 2014 guidelines are now available and can be viewed at: http://familiesusa.org/product/federal-poverty-guidelines

In the Medicaid expansion states, individuals and families who fall under 133% of the  poverty line will receive coverage through Medicaid.   Those whose incomes are between 133% and 400% are eligible for subsidies and/or a tax credit when purchasing insurance through an exchange.

In states that have not expanded Medicaid,  individuals and families are eligible to purchase subsidized insurance from an exchange so long as their anticipated income is at or above the 100% poverty level.

If a taxpayer is approved to receive a subsidy by an exchange, but their total income for the year as reported on their 2014 return falls below the 100% level, their tax credit will be computed as the value that would apply if their income was exactly 100% of the FPL.  Continue reading

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Some simple changes to improve ACA (Part One)

Here are some simple “fixes” that would reduce confusion over ACA provisions, help further the individual goals of the statute, and possibly improve the efficiency of signing up ACA customers, and the reason why they are needed.

1) Eliminate the Medicaid gap for non-expansion states: The ACA provides that  taxpayer units (individual or joint followers) are eligible for premium assistance tax credits when household income is between 100-400% of the federal poverty line. At the time of drafting, it was assumed that all any person with income under 100% of the FPL would be enrolled in Medicaid, as the terms of the original statute essentially mandated expansion in all states. (States which did not agree to expansion would have faced loss of federal funds).

However, after the US Supreme Court struck down the Medicaid provisions, half of US states opted out, meaning that individuals who earn less than the FPL who live in those states are not eligible for subsidies on the exchanges.  This leaves many of the neediest individuals out in the cold, and undermines the central goal of ACA: to provide insurance for all.
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The evolution of MAGI

I have wrestled somewhat with the ACA’s definition of MAGI (modified adjusted gross income) for purposes of determining eligibility for the premium tax credit. In fact, that is what led me to create this blog.  The information I found on the internet was contradictory and confusing, and even the tax professionals and insurance agents I consulted seemed confused.

Part of the confusion stems from the fact that the tax code uses the phrase “modified adjusted gross income” to mean different things for different purposes.  The term is defined for purposes of the Affordable Care Act in 26 USC 36B.  Various other definitions can be found in these sections:

To add to the confusion, there are two other sections of the Affordable Care Act which also provide their own, different definitions of MAGI:

  • 26 USC 1411 (Medicare Tax on High Level  Investment Income)
  • 26 USC 5000A (Requirement to Maintain Minimum Essential Coverage)

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Do you want that raise or not? A formula for 400 percenters

Because tax credits or subsidies to offset insurance premiums are eliminated for taxpayers with  household incomes over 400% of the federal poverty line, crossing that income threshold creates a potentially large tax penalty, especially for older adults who will be face higher premiums.  This means that a slight gain in the year’s income for a taxpayer on the edge of eligibility could end up costing more than the amount gained.

This can obvious impact decisions as to whether to accept a moderate increase in pay, as well as impact decisions that could result in other taxable income, such as managing investments.

On the other hand, it’s generally better for a person to get more money than less, so it would be foolish for someone to forego an income opportunity that would result in gains that substantially outweigh the loss of a tax credit.   Continue reading

Who’s Left Out? (Part Two)

The goal of the Affordable Care Act was to help several large classes of people who had been excluded from the insurance market because of rising prices and previous insurance practices. Those consisted mainly of people who could not afford to pay for insurance, and people who could not buy insurance at any price because of present or past health problems.

But most Americans already had insurance.  According to a recent NBC News report, 32 percent of Americans get government-sponsored insurance such as Medicare or Medicaid.  Among those too young for Medicare, 58 percent get health insurance through an employer.

Employer-provided insurance typically offers more choices and better coverage options than policies available on the individual market.  The ACA was never intended to disrupt or undermine that market, so the ACA specifically excludes individuals who are eligible for employer-provided insurance from subsidy eligibility.

There is one exception: if the cost to the employee of the employer-provided subsidy is more  than 9.5% of the employee’s income, then that person can shop on the exchange instead and receive a subsidy if the income is low enough.  Continue reading

Who’s Left Out? (Part One)

The goal of the Affordable Care Act is in its name: to give every American an affordable option to buy health insurance.  

Unfortunately, there are two groups of people who may find themselves left out, and stuck with no affordable option. 

One group are the adults with household incomes of less than 100% of the poverty line.  When the law was written, it included a massive, federally funded expansion of Medicaid, guaranteeing that all adults with poverty-level incomes would be enrolled automatically in Medicaid.  In fact, under the expansion, the cutoff for adult eligibility for Medicaid rose to 138% of the poverty line. [1] (Children were already eligible through passage of earlier laws).

Because that group was guaranteed care through the government-run program, they would not need to pay for premiums on the exchange, nor would they need subsidies.  So eligibility for subsidies was restricted to those with incomes between 100% and 400% of the poverty line.

However, in 2012, the United States Supreme Court ruled that the Medicaid expansion part of the ACA was unconstitutional.  The problem was that Medicaid is administered separately by the states, and Congress had written the law as a take-it-or-leave-it proposition that punished the states who didn’t sign on. If the states agreed to the expansion, they received a massive influx of federal funding to support the new programs.  But if they turned the federal government down, they would lose their already existing federal funding for the more limited Medicaid programs already in place.  Continue reading

Falling off the cliff…..

The really cool part about Obamacare, especially for we older folks, are the subsidies. 

The really terrible part about Obamacare, especially for we older folks, is what happens if our incomes too high to qualify for subsidies, but just barely.

Here’s why:

The part that makes the care “affordable” is that everyone who earns income between 100% to 400% of the federal poverty  line gets a tax credit for any amount that we pay that is above a certain percentage of our income. That percentage varies, but is no more than 9.5%.  Because we need to pay our insurance premiums right away, the law has another perk: we can choose to claim that tax credit in advance, and the government will pay it out in monthly installments directly to the insurance company.  Continue reading