Near ACA subsidy cliff? Covered California spox suggests calling an accountant

I have noted on several occasions that health insurance shoppers near the edge of the ACA subsidy cliff should see an accountant:

The premium subsidy cliff for older exchange buyers is more serious, especially if there are two of them in a household.   To return to an example I cited previously, take a pair of 55 year-olds with a 23 year-old son or daughter. For them, the cheapest silver plan in Essex County New Jersey is $1,357 per month.  If the family income is $63,000, the monthly subsidy is $876, their monthly payment to $481.  At $79,119 (299% FPL), the subsidy has dropped modestly, to $756. At $79,121, it's -- zero.

In this case, some serious money is at stake at the cliff. But it seems to me that the likeliest reaction is not to reduce hours or income but to manipulate MAGI -- especially since the stakes are higher as you go up the income scale, and so those at the steeper cliff's edge are likely to be more sophisticated. In fact, they're likely to be self-employed -- i.e., earning a relatively decent income while lacking access to employer-sponsored insurance. And as I've noted before, the taxable income of the self-employed is notoriously malleable at the margins. Sticking another thousand or two in an individual 401k or buying yourself a new computer at Christmas may put you a few inches back from the subsidy cliff.

The ACA added a few skyscrapers to the submerged state.  It will spur some creative accounting. Tax advisers catering to all income levels, e.g. H&R Block, should incorporate subsidy levels into their advice to those without access to ESI; tax preparation software should throw up red flags at the subsidy break points. In fact, if the new MyRAs were not structured like Roth IRAs, i.e. not reducing current taxable income, there could be a direct tie: feed your MyRA, lower your premiums!  Hey, Obama.....

On that front, the Sacramento Bee ran some numbers and found that out of seven million uninsured Californians, about one million would not qualify for subsidies, and at least 240,000 of those would have qualified for subsidies if they earned $10,000 a year less.* In response, I was a little astonished to see that a Covered California spokesperson echoed my advice:

Anne Gonzales, a spokeswoman for Covered California, said working with financial planners or tax professionals could help customers receive subsidies and save thousands of dollars. Reducing taxable income by increasing retirement savings is one option, she said.

Gonzales followed that up with another important, if far from ideal, option:

 “There is no reason why somebody should have to pay 10 percent of their income for insurance,” Gonzales said. “So we encourage people to use this as an opportunity and to become aware of their options.” She noted that families whose lowest-cost premiums exceed 8 percent of their income have the opportunity to buy less expensive catastrophic coverage.

Catastrophic plans offered under the ACA are not far inferior to bronze plans offered on the exchanges, nor much cheaper.  But they may be a viable option for some.

The steep ACA subsidy cliff for older buyers, particularly those with multiple household members, is a real defect. It's not only unfair, and a disincentive to work -- it also may encourage tax cheating.  A lot of the subsidy-ineligible are self-employed (particularly in California, which has lots of independent contractors and consultants in the film/entertainment and tech industries): get a client or six to pay you off the books, and you may be subsidy-eligible.  In a functioning political system, corrective legislation would grade the cliff.  But Republicans remain committed to sabotaging the law rather than improving it.

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*Those numbers capture only part of the problem, in that  many previously insured Californians in the individual market have been subject to steep rate hikes --though about half those insured in the individual market in 2013 are probably eligible for subsidies (if California patterns reflect those of the nation as a whole) and another large chunk  probably had pre-existing conditions and so are likely to come out ahead.

Related:
Will the ACA boost retirement savings?

Read more here: http://www.sacbee.com/2014/03/08/6219101/in-california-middle-class-feels.html#storylink=cpy

 Young, self-employed and seeking health insurance via the ACA? See an accountant
Self-employed? That pre-ACA health insurance deduction is still there