Saturday, February 4, 2017

Three Ways to Get Screwed By ObamaCare

Obamacare has such arcane rules, you can really step in the dogshit if you are not careful.  The sharp cutoffs of the Obamacare subsidy are potholes for taxpayers to step in, if they are not careful! Click to enlarge.

Obamacare may go away soon, what will replace it is anyone's guess.   I am not confident the replacement will be any better.  In fact, I am sure it will be worsePoliticians are playing with people's lives here, and they seem to be more interested in their pet economic theories than how they affect real people.   And this goes for both the Left and the Right.

The problems with Obamacare are many and I have cataloged them before.  But recently, I was clued in to some new ways you can really get screwed.  Most of these have to do with the ridiculous proposition that you have to estimate your next year's income a year before, in December during the signup "window".   The people setting this up assumed us "little people" all have standard salaries and W-2 forms and know in advance how much money we will make every year.   The reality is, many on Obamacare are self-employed or part-time employed (hence we don't get employer-provided health care) and really have no idea what our incomes will be in advance.

If you screw this up, you could end up owing thousands of dollars to the IRS, who is not very friendly about people owing money:

1.  Overestimate Your Income:   If you are a married couple and think you will make $25,000 a year, you are above the "poverty line" and you qualify for a near full-subsidy for Obamacare.   The problem is, Obamacare for you and your spouse costs $14,000 a year - half your income.  But thanks to Obamacare, you pay only $18 a month.  Sweet deal, right?

Well, there is one little hitch.  If you make less than about $22,000 a year, or below the poverty line you may not qualify for Obamacare at all, but rather Medicaid, if they offer it in your State.  This doesn't mean you now owe the IRS that entire subsidy for the year.  Which is a good thing, as it would amount to more than half your income, not owed to Blue Cross, or to, but to the IRS, and you know how they are about unpaid taxes.

Obviously, this generates a lot of anxiety among people, as they, like me, can't tell what they will make in the future.  That pesky time-machine thing, again.   If you read the Q&A on this, you can see it flummoxes a lot of people.

If your income is below the poverty line, you don't have to pay back a penny of this subsidy, but apparently, the next year, you don't qualify for a marketplace subsidy, but instead will be forced to go on Medicaid, but the joke there being many States didn't expand Medicaid, so you might not get that.  You may lose your healthcare entirely.
 __________________________ would "make sense" to report fictitious other income to bring your income up to the poverty line so you could qualify for Obamacare. ... it raises an interesting scenario that I am sure the IRS hasn't heard of in the past: people fraudulently over-reporting income instead of under-reporting. Obamacare has turned the world upside-down!

It thus creates a conundrum for people working near the poverty line - If I make a dollar less than the poverty rate, I lose my health care coverage.   From a gamesmanship standpoint, it would "make sense" to report fictitious other income (from that lemonade stand you don't have) or not take a tax deduction to bring your income up to the poverty line so you could qualify for Obamacare.   Few people living at the poverty line would be able to think this through, and it raises an interesting scenario that I am sure the IRS hasn't heard of in the past:  people fraudulently over-reporting income instead of under-reporting.   Obamacare has turned the world upside-down!

If you end up making less than you thought, but above the poverty line, you can claim an increased tax credit on your tax returns.   Speaking of which, your tax returns, which were formerly simple affairs (1040-EZ for example) are now a nightmare for many poor people, who don't realize they need to gather together not only their W-2, but their form 1095-A (which shows your subsidy for the year) and now hire a tax accountant to do their taxes for them.

They could not have picked a more complicated way of doing this!

And of course, these rules are so simple and transparent that anyone can easily understand them, particularly those living near the poverty line, who tend to score well in higher math and reading.   The help line is of some use, if you don't mind waiting on hold, but they tend to give conflicting advice, in a heavy accent, that is hard to understand.

And no, this information isn't readily available on the site, which itself is a nightmare of bad HTML.

2.  Underestimate Your income:  This is one that will really catch a lot of people by surprise - such as this guy.   Since the Obamacare subsidy cuts off dramatically at 400% of the poverty line (about $63,000 for a married couple these days - see chart above) you lose the subsidy entirely if you make a dollar more than that 400% level.  You read that right - one lousy buck could cost you $6000 or more.  Only a "community organizer" would think this sort of rule makes sense.

You might use your current W-2 numbers to qualify for the Obamacare subsidy when you sign up, and the algorithm at the website says, "you're approved!" for a subsidy.  But then you get a raise, or your wife goes back to work, or you work overtime - all things that the government used to say were good for the economy, productivity, and your personal well-being.

Now you get socked with a larger tax-bill - potentially a huge one.  Possibly even with penalties and interest due!

If you are still below 400% of the poverty line, you may only have to repay a portion if you miscalculate your subsidy  This part of Obamacare is, to say the least, bizarre.   If you look at this from a gaming point of view, the best option for anyone under the 400% level would be to claim income just above the poverty line, and then get a full subsidy on your health insurance premiums, as you may only be required to pay back only a portion of the subsidy.

The problem is, if you go above that magic 400% number, you owe the entire subsidy back.   For a family of four paying $20,000 a year in premiums (which were subsidized) the loss of that subsidy could be staggering.   It could end up being as much as 10% of your income for the year - all because of something you can't predict ahead of time - your annual income.

And the problem here is that while you could "create" fictitious income to qualify for Obamacare if you are below the poverty line (I am not sure if this would be illegal, I know of no IRS provision against over-reporting of income) you cannot similarly reduce your income in any legal way I am aware of.   You are proper fucked, to be sure, and probably now wish you never heard of Obamacare.   These are the people who voted for Trump.

If you could predict this event (making over 400% of the poverty line) with certainty (and no one can) you might decided instead to (a) drop all health care coverage and pay the tax "fine", or (b) obtain a "catastrophic" high-deductible plan with the lowest possible premium, as you are paying the premiums yourself, or even (c) opt for a cheaper Obamacare plan.  If you instead opt for an expensive Obamacare plan based on the projections of the site, you may later find yourself screwed when you make a dollar more than the 400% cutoff limit.

This is a nonsensical way to calculate taxes - asking people to project in advance, and then balance things up a year later, particularly with the cutoff.  Yes, with withholding, you have to project your income for your W-4 form at the beginning of the year.  But unlike the Obamacare tax credit, ordinary income taxes don't have a cut-your-balls-off cliff at some arbitrary limit, like 400% of the poverty line.

A better approach would have been a retroactive approach, which would also force people to shop around on plan prices.  But of course, that approach would mean a lot of people couldn't afford the premiums, as they wouldn't have the cash-flow to do so.

3.  Overestimate Your Income Part II:  Suppose you go to the website and like a good little puppet, go through all the screens (even the ones that crash) and enter all the data based on last year's income.   You make just over 400% of the poverty line, and says, "Gee, sorry, you don't qualify for a subsidy!"   So you buy a regular insurance plan thinking that is that.

Thanks to Obamacare, however, your "regular insurance plan" now costs more than twice what you were paying before.  Maybe $1000 a month or more.

Then, next year, you do your taxes and to your horror, you realize that your income was far less than you projected, and you would have qualified for a $10,000 tax credit.   So what's the problem?  The problem is, the site uses your last year's income as a guide, not next year's, and as a result, you lose the credit you should be entitled to because your income is not steady.   People with variable incomes get screwed by this, having to jump on and off Obamacare, private insurance, no insurance, or Medicaid, depending on what last year's income was. 

It makes no freaking sense.   If you find yourself, at the end of the year, making well under the 400% threshold, you don't qualify for squat, as the Obamacare subsidy is forward-looking but based on your previous year's income.   If you declined to sign up for a "Marketplace plan" and later find out you qualified for one, too fucking bad for you.   You might get a tax deduction for the premiums, if you are self-employed, but that's about it.

Again, this is horrifically done, from so many standpoints - the rules are arcane and unnecessarily complex and create several "gotcha" situations than can cost taxpayers a ton of money, if they are not careful or don't control their income - which is something we all have control over, right?

* * * 

Obama will never be on Obamacare.   That in a nutshell, is the problem.   None of the authors of this bill will ever shop for coverage in the "Marketplace" as they will be covered by their employer, who likely is the U.S. Government or some Washington septic think-tank.

And unfortunately, those who want to "repeal and replace" Obamacare will never have to go on the replacement, whatever that is.   But these people will decide for me what is best for me and how much I should pay so my neighbor can get a CPAP machine or a sex change or whatever the fuck.

Simple answers to complex problems are rarely the right answers - rarely.   But one thing that would help improve health care coverage in the United States would be to force the people who are crafting these plans to actually use them, because if they did, you can bet a lot of these problems would be cleared up right away.  But like Bernie becoming President, that ain't never gonna happen.   The powers-that-be are not stupid, thank you.

But as I noted in an earlier posting, the real issue is that very few people are on Obamacare.   Sure,  your employer now has to provide Obamacare-compliant coverage, but you don't pay the cost of that, and are largely unaware of what is going on.   You have an opinion about Obamacare, but never in your life went on the site and put your own dollars down, as many of us are required to do by law.

Maybe 33 million Americans (10% of the population) are on real Obamacare - signing up on the "exchanges" which you can do at Wal-Mart these days.   Of these 33 million, probably more than half are getting a subsidy, so these are folks who are poorer and will tend to vote Democratic.   The people not getting the subsidy or getting screwed by the subsidy, well, they are the ones who want to see Obamacare repealed.

But the vast majority of Americans - many of whom have strong but ill-informed opinions about Obamacare, have never had to sign up for it.   And it irks me in particular when some oldster on Medicare lectures me about Obamacare, as if they knew something about it at all.  They really don't know the half of it.  And most of them couldn't read this entire posting or even understand what I am talking about.   They merely repeat slogans and shit they heard on television.

The bottom line is, politicians are using us folks who buy our own insurance as a political football, and they can shit all over us and get away with it, because we aren't a big part of the overall population.

I almost wonder if "repeal and forgetabout it" might not be a better approach, because frankly, this is like not having insurance at all.