My apologies if this is a very basic question and hope I'm posting in the right place - I'm a day old PRC-G user trying to dive into this incredible product!
When modeling retiring at 57/58 (couple), I assumed ACA health insurance until Medicare kicks in. In trying to make sense of the tabular projections, I'm seeing "ACA subsidy amount" as zero right through the period. My initial thought was that it was more optimal to do Roth conversions and just forgo the entire subsidy. But when I turned *off* Roth conversions, there was no change in ACA subsidies. I'm sure it's operator error on my part but can't figure out where.
Appreciate any help, thank you!
@rrkaushik My apologies for the slow response here! Without the benefit of seeing your file, I'm having to guess at what the issue could be, but here are a couple of possibilities: 1) your MAGI is too low to qualify for a subsidy or 2) your SLCSP premium is so low that you don't qualify for a subsidy. If you'll send (to mail@pralanaconsulting.com) me a representative export file, I'll be happy to take a look and explain what's going on.
Stuart
To troubleshoot some of the possibilities that Stuart raises, head to your tabular projections and check the columns for Taxes and AGI Detail. It's good that you're watching those guardrails for things like paying back ACA healthcare subsidies (premium tax credits) and IRMAA for Medicare recipients. I often see clients going Roth conversion wild and not understanding those costly and subtle side effects (as well as their LTCG bracket).
What Stuart means by MAGI too low to qualify for a subsidy is that if it's too low, you fall into the Medicaid coverage area, not ACA coverage.
I am also a rookie (joined yesterday) and I am really impressed by the detailed program. I do have a related Roth question- I am using the program to optimize my Roth conversion. Somehow in the tabular results section under income - my income is reported accurately yet under taxes my adjustable gross income is 40k greater than my MAGI (above my true income) which apparently allows me to get under the IRMA limits but not really believable. What is the likely error? Norm
@hines202 Bill - I appreciate your response! Stuart was kind enough to troubleshoot my question and find some quick "operator errors" on my part. I had not filled out the ACA silver plan premium price, plus I had set the ACA multiple to 3 which was causing some unreasonable behavior. When I fixed these, the ACA subsidies started showing up until Medicare kicks in. Thanks for the advice on the ACA-IRMAA guardrails, I see that going bonkers on Roth conversions is not optimal while on ACA. The model is suggesting rather modest conversions until I get on Medicare. Lots to learn and a moving target as life changes hit!
ACA subsidies are based on your MAGI:
How do you get help paying for health insurance and health coverage? It depends on how much you earn. In 2024, you’re eligible for Obamacare subsidies if the cost of the “benchmark plan” (the second-lowest-cost silver plan on the exchange) costs more than a given percent of your income, up to a maximum of 8.5%. The cut-off threshold increases on a sliding scale depending on your income. The discount on your monthly health insurance payment is also known as a Premium Tax Credit (or PTC) or Advance Premium Tax Credit (APTC).
2024 health plans are measured against your projected income for 2024 and the benchmark plan cost. You qualify for subsidies if you pay more than 8.5% of your household income toward health insurance.
The American Rescue Plan Act (ARP) of 2021 and Inflation Reduction (IRA) of 2022 improved the affordability of the Affordable Care Act (ACA).
How? In two major ways:
First: There is no longer a Federal Poverty Level (FPL) income cap requirement. Previously, if you earned more than 400% FPL, you didn’t qualify for subsidies.
The benchmark Silver plan costs no more than 8.5% of your annual household income, no matter how high that income is. The subsidies eventually drop off to nothing, but they taper off gradually now instead of ending when your income hits 400% FPL.
Before 2021, you were expected to spend from around 2% to 9.83% of your household income toward health insurance.
That range dropped from 0% to 8.5% until the end of 2025.
https://healthcareinsider.com/aca-subsidy-calculator-186869
You don't get an ACA subsidy if you qualify for Medicaid:
If Your State Decides to Expand Medicaid
States have the option to expand Medicaid coverage to everyone under 138% of the poverty level. If a state expands Medicaid, most of the costs are covered by the federal government under the health reform law. If your state decides to expand Medicaid, your income will make you eligible for the program. Medicaid coverage varies from state to state, but out-of-pocket costs are generally very low. Tobacco use is not taken into account in Medicaid eligibility.
If Your State Decides Not to Expand Medicaid
If your state decides not to expand Medicaid, you or some members of your family may still be eligible for coverage, depending on your state’s eligibility criteria. Visit Healthcare.gov, your state’s Health Insurance Marketplace or Medicaid office for more information.
You may be eligible for financial assistance through the Health Insurance Marketplace. Financial assistance is only available to people who make at least 100% of the poverty level.
What About Expanded Marketplace Subsidies?
Under the 2021 American Rescue Plan and 2022 Inflation Reduction Act, individuals earning up to 150% FPL can enroll in a Silver benchmark plan for $0 with dramatically reduced deductibles and other out-of pocket expenses. Previously, no matter how low-income you were, people had to contribute something toward the cost of the benchmark Silver plan.
If you received unemployment benefits or were approved for them at any point during 2023, you also qualify for the expanded subsidies through the federal Health Insurance Marketplace.
On the other end of the spectrum, people who make more than 400% FPL can also qualify for a premium subsidy. In the past, anyone making more than the income cap was unable to qualify and would have to pay full price, whether on or off the exchange.
I am a BIG proponent of ROTH IRA's. If you have money in a ROTH now, are retired but not yet 65 (Medicare), getting your MAGI below 150% of Federal Poverty Level (FPL) will get you HUGE price breaks on the ACA exchange (see previous post). Also for the next two years, I think it is much better to get the ACA subsites instead of doing ROTH conversions assuming you can get your MAGI down low.
On a some what related topic, if you are looking to upgrade to an air source electric heat pump, add insulation, or other efficiency upgrades, the Inflation Reduction Act has low income rebates that would also tie into having a low MAGI:
Understanding the High-Efficiency Electric Home Rebate Act (HEEHRA)
The Inflation Reduction Act specifically addresses the issue of home energy reduction through the High-Efficiency Electric Home Rebate Act (HEEHRA). Formerly known as the Zero-Emission Homes Act (ZEHA), it helps low- and moderate-income households afford the energy-efficient upgrades needed to lower costs and greenhouse gas emissions.
Who is eligible?
The HEERHA focuses on helping low- and moderate-income (LMI) households afford energy-efficient upgrades. To participate, households must earn a total annual income that’s less than 150% of the local median income (the local median income for your area is defined and determined by your state. This program takes a tiered approach to rebate eligibility by increasing in value for the most energy-burdened households. For instance, households with an annual income below 80% of an area’s median income can receive rebates that cover 100% of the total project cost. While households that earn 80 to 150% of an area’s median income can receive rebates for 50% of the final project cost. What’s more, whole building projects for multi-family properties are also eligible if half the residents meet similar income qualifications.
AGI exceeding MAGI doesn't quite make sense. There are various flavors of MAGI, depending on the usage, but all are found by adding certain other income (like Muni bond interest or portions or SS income) to the AGI. Make sure your eye didn't slip to a different column. If you read the rest of the thread, Stuart provided an e-mail where you can export the data you are having trouble with and send him the export file.
That 0-8.5% reduction in ACA premium credits is so deceptive though. The fact that the rates ramp up with MAGI means that the effective premium credit phase-out moves in a weird saw-tooth pattern with rates between 14- 18.25% between 2.5 and 4XFPL before finally dropping to 8.5% above 4xFPL. Put that on top of a 10% or 12% tax bracket and Roth Conversions between 2.5 and 4XFPL are really expensive. I attached a JPG with a graph I put together of how much the phase out adds to the marginal cost.
@ricke I did look at that export file and here's the explanation: On any given row in the tabular projections, the AGI is for the associated year but the MAGI shown for that year (used to determine IRMAA in that year) actually refers to the MAGI (i.e., AGI plus tax-exempt interest) from two years earlier. So, it's entirely possible for the AGI to exceed the MAGI in any given year.
Stuart
