Monday, March 24, 2014

Why go through or state exchanges if you're subsidy-ineligible? Good reasons for a few

One sub-theme in my article about people who are buying health insurance in the individual market but do not qualify for ACA subsidies was that most of them saw no reason to buy insurance through or the state exchanges. Doing so would only add a layer of bureaucracy -- and, given the still-shaky technology, uncertainty.  One person interviewed however ("Jonathan"), did buy on-exchange, because he felt there was some possibility that his income would drop enough during the year to make him and his wife subsidy-eligible. In that case, he could collect the subsidy at tax time. That would be impossible if he had bought off-exchange.

Another interviewee in the piece, Karen in Colorado, referred me to her broker -- call her Amy -- who works mainly with clients who are subsidy-eligible.  Amy cites three reasons why some customers who are not subsidy-eligible might choose to buy on-exchange. First, if the monthly deadline for getting insured as of the first of the next month falls on the weekend, last-minute buyers can apply through the exchange. Second, one insurer, Colorado HealthOP, the state's nonprofit co-op, is only available through the exchange. Finally, in a variation of Jonathan's reasoning, Amy suggests that those who are near the subsidy line should consider signing up through the exchange and taking any subsidy for which they prove eligible as a year-end tax refund rather than as a monthly contribution to their subsidy, so they don't end up owing money if they underestimate their income.

I would add one further variant to this reasoning. Those who prospectively find themselves just over the subsidy cliff should buy on-exchange and see what legal means they can take at tax-time to get under it. Self-employed people, who are disproportionately represented in the individual market, tend to have more resources in this regard. As I've pointed out before, adding just enough extra to an individual 401k to get under the subsidy line could in some circumstances pay for itself even in present income. The same goes for people at lower income levels who might qualify for larger Cost Saving Reductions if they push their taxable income below below certain breakpoints (for this year, $17,235, 22,980, and 28,725).

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