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Author: WendyBG Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 884965  
Subject: ACA Health insurance subsidy cliff Date: 11/24/2013 5:35 PM
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The Affordable Care Act (ACA or "Obamacare") subsidizes health insurance for households that make <= 400% of the poverty line. This subsidy can be worth thousands of dollars to a household.

The subsidy is income-dependent. It is cut off if the household earns even a dollar more than the threshold. This has been called the "subsidy cliff."

If you might qualify, be careful to keep your income under the subsidy cutoff because there is a "cliff" -- if you make even a little more, you won't get the subsidy.

On the Washington State ACA exchange, earned income and dividends are definitely counted toward ACA income. Interest and capital gains are not counted -- but that may just be a screw-up of the web site and they may be added later.

IRA distributions are counted as income by the Affordable Care Act (at least in Washington State).

People between the age of 59.5 and 65 (able to take IRA distributions but too young for Medicare) should consider how the IRA distribution may affect their Affordable Care Act ("Obamacare") subsidy.



http://www.valuepenguin.com/2013/07/aca-subsidy-cliff-may-in......



ACA Subsidy Cliff May Incentivize Some To Earn Less
by Jonathan Wu

The introduction of ACA subsidies to help people buy insurance on the individual market creates a number of economic incentives when it comes to income. In particular is the phase-out of all subsidies for households once their income surpasses 400% of the Federal Poverty Level (FPL). Getting a raise or putting in more hours beyond the FPL threshold may actually result in less take-home income for the household.

Who will this impact?

Since the subsidies are only available to those purchasing insurance through the state exchange, the issues with the cliff will apply only to that same group. Within this group, it will take effect for households with incomes near 400% of FPL.

If your income is at or below the above 400% FPL figure for your household size, the government will subsidize your healthcare so that you spend no more than 9.5% of your income. Earn a dollar above the 400% FPL threshold and the subsidies disappear completely. ...
[end quote]

This excellent article has a table showing the thousands of dollars of subsidy that can be lost by falling off the subsidy cliff.

The following steps might help maximize the ACA subsidy.

1. Keep your cash allocation in non-IRA bank accounts, where it will be FDIC-insured but generate little income. The lower the income, the higher the ACA subsidy.

2. Spend non-IRA cash when possible instead of withdrawing money from your Traditional IRA (since taxable IRA distributions are now counted as income toward the ACA). A Roth IRA distribution should be OK because it isn't taxable.

3. Put income-earning investments (e.g. dividend stocks, bonds) in your IRA rather than non-IRA. It's true that dividends get preferential tax treatment outside the IRA, but if you qualify for ACA subsidies you are already in a low tax bracket.

I don't know yet whether capital gains are counted as income toward the ACA subsidy. I'm not taking any chances so I am planning to keep any capital gains generating activity (e.g. stock trades) in my IRA.

In the past, I have been gradually transferring assets from my Traditional IRA to my Roth IRA in order to pay the current income tax (because I think taxes will rise in the future). In the future, I won't do this if it would reduce our ACA subsidy.

I personally think it's absurd to count IRA distributions as income, but that's the law so I try to maximize our household benefits.

With interest and dividend yields so low, it may be worth going to cash in order to qualify for the subsidy.

Wendy
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Author: wrjohnston91283 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878263 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 11/25/2013 6:36 AM
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It's true that dividends get preferential tax treatment outside the IRA,

Just a nitpick - dividends do get preferential tax treatment in both Roth IRA and Trad IRA. Roth = no taxes; traditional = deferred until distributed (but true, then counted as regular income rather than the lower 0-15% rate).

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Author: MetroChick Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878264 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 11/25/2013 9:29 AM
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If you might qualify, be careful to keep your income under the subsidy cutoff because there is a "cliff" -- if you make even a little more, you won't get the subsidy.

Which essentially means "hey people with assets - keep how much of your assets you spend each year down so you can keep getting a govt subsidy supported by other taxpayers who are still trying to build up their assets".

This every-one-for-themselves-mentality is ruining the country.

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Author: AmericanIdle Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878267 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 11/25/2013 1:03 PM
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Which essentially means "hey people with assets - keep how much of your assets you spend each year down so you can keep getting a govt subsidy supported by other taxpayers who are still trying to build up their assets".

This every-one-for-themselves-mentality is ruining the country.


The Law of Unintended Consequences strikes again.

Personally, I don't see anything wrong with what Wendy is doing. She didn't make the rules - she is only attempting to live by them. The politicians could have put an asset test on the law and chose not to.

AI

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Author: WallyLock Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878272 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 11/25/2013 1:50 PM
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Personally, I don't see anything wrong with what Wendy is doing. She didn't make the rules - she is only attempting to live by them.

Agreed. There is nothing unethical here. If taking $300 more out of an IRA will cost you $600 in a subsidy, then I can understand the reasoning to keep the money in the IRA.

The politicians could have put an asset test on the law and chose not to.

At the very least, they must have known that a hard subsidy cap that does not phase out is going to encourage game-playing optimization. I wonder if this was something they planned to fix in conference and had to take as is when they lost the senate seat.

Wally

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Author: WendyBG Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878282 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 11/25/2013 3:42 PM
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<Which essentially means "hey people with assets - keep how much of your assets you spend each year down so you can keep getting a govt subsidy supported by other taxpayers who are still trying to build up their assets".

This every-one-for-themselves-mentality is ruining the country. >

I didn't write the rules. However, I would be stupid NOT to understand them and maximize my household benefits.

If you disagree, simply ignore the rules (which include many, many government and tax rules).

But don't say that I'm ruining the country.

Even the IRS (hardly a charitable organization) says that it is every taxpayer's right to act in their own best interest -- as long as they stay legal.

Wendy

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878286 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 11/25/2013 4:17 PM
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I don't know yet whether capital gains are counted as income toward the ACA subsidy.

Yes, they are. The subsidy is based on Modified AGI, which is the AGI from your tax return plus any non-taxable interest (mainly municipal bond interest), the non-taxed portion of social security benefits, and any foreign earnings that are excluded. Capital gains ARE included in your AGI, therefore they are included as income in the subsidy calculation.

Spend non-IRA cash when possible instead of withdrawing money from your Traditional IRA

A multi-year planning strategy would be to take enough from your IRA in one year so that you don't need to take any additional from your IRA in the following year. If you're going over the subsidy cliff, go OVER it in a big way (keeping in mind other tax issues, of course.) With a smaller or no IRA withdrawal in the following year, you might then qualify for the subsidy.

--Peter

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878287 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 11/25/2013 4:24 PM
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<<If you might qualify, be careful to keep your income under the subsidy cutoff because there is a "cliff" -- if you make even a little more, you won't get the subsidy.

Which essentially means "hey people with assets - keep how much of your assets you spend each year down so you can keep getting a govt subsidy supported by other taxpayers who are still trying to build up their assets".
>>


I have to suppose that training people to look for and take advantage of handouts is one of the purposes of such rules.



Seattle Pioneer

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Author: WendyBG Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878289 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 11/25/2013 4:56 PM
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< training people to look for and take advantage of handouts is one of the purposes of such rules.>

Training people to take advantage of handouts (such as government tax subsidies for oil producing corporations, farm subsidies, etc.) is inevitable whenever the government redistributes taxes.

And let's not forget the wars fomented by the military-industrial complex, which President Eisenhower warned against. The so-called "Defense Department" (I don't see Mexico and Canada invading, do you?) dwarfs all the rest.

Wendy

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Author: CCinOC Big funky green star, 20000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878301 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 11/25/2013 10:58 PM
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Which essentially means "hey people with assets - keep how much of your assets you spend each year down so you can keep getting a govt subsidy supported by other taxpayers who are still trying to build up their assets". This every-one-for-themselves-mentality is ruining the country.

You voted for it. This is what happens when government infringes on its citizens' freedom to choose.

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Author: AmericanIdle Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878305 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 11/26/2013 10:16 AM
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At the very least, they must have known that a hard subsidy cap that does not phase out is going to encourage game-playing optimization. I wonder if this was something they planned to fix in conference and had to take as is when they lost the senate seat.

That is, of course, true of hard caps and cliffs in general.

AI

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878312 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 11/26/2013 12:44 PM
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At the very least, they must have known that a hard subsidy cap that does not phase out is going to encourage game-playing optimization. I wonder if this was something they planned to fix in conference and had to take as is when they lost the senate seat.

It isn't something that requires fixing. Taxes and subsidizes cause income and tax planning.

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Author: WallyLock Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878315 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 11/26/2013 2:34 PM
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It isn't something that requires fixing. Taxes and subsidizes cause income and tax planning.

Indeed it does. But if subsidies gradually phase out, instead of having a hard cap, there is less incentive to keep income below a certain level. As a rule, the government should try to avoid having cliffs were a $10 dollar change in income could cost someone $800, both out of general fairness, but also to limit the impact the policy has on people's decisions (unless impacting those decisions was one of the stated goals of the program.)

Wally

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Author: MetroChick Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878325 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 11/26/2013 5:28 PM
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Personally, I don't see anything wrong with what Wendy is doing.

It's more about the attitude - which she showed in the "absurd to count IRA distributions as income" comment.

IMO to anyone who buys their own health insurance or who has pre-existing conditions and know they wouldn't have been able to get an affordable plan pre-ACA without being on an employer plan - the ACA is a GIFT with or without the subsidy because it now means you can't be dropped if you have a major health issue. It's not so good to look a gift horse in the mouth. Promoting how to make sure you optimize your subsidy plus being offended that part of your asset distribution is actually considered part of income - is kind of looking a gift horse in the mouth to younger generations who between student loans, high unemployment, disintegration of traditional pension plans, and increased global competition will have a harder time than you did building their own assets while paying taxes to help subsidized your early retired butt.

So show a little appreciation - because the voters could certainly take the gift away.

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Author: AmericanIdle Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878333 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 11/26/2013 8:36 PM
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Promoting how to make sure you optimize your subsidy plus being offended that part of your asset distribution is actually considered part of income - is kind of looking a gift horse in the mouth to younger generations who between student loans, high unemployment, disintegration of traditional pension plans, and increased global competition will have a harder time than you did building their own assets while paying taxes to help subsidized your early retired butt.

Be careful throwing around those "you's" and "your's" kemosabe. Every generation has its challenges. I, for instance, am very happy that I never had to contemplate facing the draft.

AI

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Author: BlueGrits Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878334 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 11/27/2013 1:32 AM
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CC: This is what happens when government infringes on its citizens' freedom to choose.

Big wreck the other day caused by someone who I believe thinks like you. He didn't want the gov't infringing on his right to drive on whatever lane he wanted.

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Author: Brooklyn1948 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878336 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 11/27/2013 7:36 AM
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Be careful throwing around those "you's" and "your's" kemosabe. Every generation has its challenges. I, for instance, am very happy that I never had to contemplate facing the draft.


____________________________________

Exactly! Well said!
My husband and all of our friends were drafted (or enlisted) in the late 60's and early 70's. Most were sent to Vietnam. Thankfully my husband's paperwork was lost (so they said) and although he trained as a paratrooper, was able to stay in the states. It was a very very bad time especially when the fighting in "Nam was shown on the television every night.
I grew up in a blue collar middle class family in a small house in a neighborhood where most people were cops, firemen, or worked for the city or state. We got married and although my husband got an entry level job when he left the service, we struggled financially for years. did we drive a gas guzzling car? Most likely as in the 60's most of them were gas guzzlers. Our car was old and always in need of repairs that we could not afford. We rarely went out as we could not afford the gas to do so. I clipped coupons obsessively in the local library so that I could feed us. I still remember the "uh oh Spaghetti's song" as they were a staple in our home when the kids were small. We bought a kerosene heater to heat our tiny home bought with "no down payment" with a VA loan (in a bad neighborhood). We could not afford the oil.
Fast forward 42 years and we are now retired. My husband worked his way up from that entry level job to a management position. My children are well educated and have families of their own. They are both doing well. They are people of good character.
So, like you, I realize that we are not all the same and that we all grew up with different circumstances.
The post was about food pantries and if I can now "give back" and donate
a little every month, no one has the right to question those people who wait patiently in line for food to feed their families as I could have been one of those people 42 years ago!

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Author: Brooklyn1948 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878337 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 11/27/2013 7:38 AM
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Sorry, I thought the post was about the food pantry. That's OK though as the poster you are referring to also had assumptions to make about the people who use the food pantry.

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878352 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 11/27/2013 6:06 PM
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<<IMO to anyone who buys their own health insurance or who has pre-existing conditions and know they wouldn't have been able to get an affordable plan pre-ACA without being on an employer plan - the ACA is a GIFT with or without the subsidy because it now means you can't be dropped if you have a major health issue. >>


Depends on where you are. Washington State allows people coming off employer health insurance a guaranteed ability to buy any individual health insurance plan offered in their area at standard rates, and once on you can't be kicked off if you get sick.

This was part of the Republican health care plan that replaced a failed Democrat plan that attracted lots of sick people, but not many healthy people and was repealed.

The same thing may yet happen to Obamacare.


Seattle Pioneer

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Author: PolymerMom Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878364 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 11/27/2013 10:59 PM
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Depends on where you are. Washington State allows people coming off employer health insurance a guaranteed ability to buy any individual health insurance plan offered in their area at standard rates, and once on you can't be kicked off if you get sick.

That was most definitely not true in just about all the rest of the states. Until ACA came along, it was COBRA, at full, non-employer subsidized rates.

I was "paid to retire" (i.e. separation payment) in 2007. I lucked out in that I could continue at employee rates for up to 6 months. I then retired and got retiree rates (which weren't as good). If that hadn't happened, I'd have been looking at $1,200+/mo for family insurance under Cobra. (Don't even think about the high-risk pool rates.) Other options, such as an individual policy, would have been much worse since I have asthma, as does #1 son, and MDH has birth defects (as in a missing limb).

Since I and MDH are now on Medicare, we only pay $400+/mo to insure #2 son and all of us for prescription drugs.

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Author: determinedmom Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 878454 of 884965
Subject: Re: ACA Health insurance subsidy cliff Date: 12/2/2013 8:13 PM
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Which essentially means "hey people with assets - keep how much of your assets you spend each year down so you can keep getting a govt subsidy supported by other taxpayers who are still trying to build up their assets".

This every-one-for-themselves-mentality is ruining the country.


The thing is that for older people the premiums can be very high in relation to an income that may be too high for a subsidy.

It is not so much everyone for himself but simply the fight that insurance costs much more for older people (I'm not saying this is unjust because I recognize that older people do have higher costs, but that doesn't change the fact that it may be difficult for people to afford).

For example, in my zip code the premiums per year for a 64 year old couple for the cheapest plan (an HMO) are about $9449 a year. That is not all that bad, but the deductible is $12700. And, older people are not likely the get through the year with no medical costs. So it is over $22k a year before a penny of medical benefits is paid. If that couple wants a PPO and not an HMO the cheapest plan is a couple of thousand dollars more.

For a couple making $62041 a year, having to spend more than $22k before you have any medical benefits paid is a lot of money.

On the other hand, if they make $62040 they get about $7900 a year in subsidies, making it far more manageable.

It is easy to think of anyone with an IRA as "rich" but most people's IRAs are not all that high. For the couple living on Social Security who withdraws $25k or $30k a year from an IRA, their total estate is not likely all that large. Any they have to make that money last for the rest of their lives.

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