Subsidy Help: 1. Insurance Policy Disability Payments 2. COBRA Eligibility & Subsidy

[yorkriver1]

Working on an app that is turning out to be a big disappointment for the prospect and family. For me, it's one of those blame the messenger deals. ugh.
I made the mistake of estimating the premium based on using the disability income to qualify for a subsidy. Now they can't get why I have reneged on the "deal". Our state has not expanded Medicaid, so no income = no subsidy. Maybe Medicaid for disability, except they have income that is probably counted there.

Anyone have experience with either of these situations?

1. Healthcare.gov supervisor says disability income that is not taxable doesn't count as income. That makes my prospect have zero income, although they are bringing in over $3,000/mo. Any other results out there? This is being bumped up to the next resolution level for a 5 day call back. But, I get it, not on tax return, pretty obvious, unless you consider how SSDI is counted.

2nd question re: disability not taxed. If no taxable income, no tax liability, then any insurance is more than 8% of income, so no penalty for being uninsured, right?

2. Need to know if anyone else has encountered COBRA costs low enough to prevent subsidy eligibilty. This is an app done on the eve of qualification, so the app has asked for information about the employer insurance. I gave the full cost for EE from the COBRA papers. If no loss of current coverage, no SEP, so have to include ER group. It appears that COBRA eligibility creates the same affordability test as group insurance eligibility. One obvious exception, the employee rate is not reduced by employer contribution. Even so, I have a client with a COBRA premium that is so reasonable for the employee that they won't qualify based on the 9.5% of household income rule.

The client says they can't afford $600/mo. COBRA for health insurance for two adults aged 55 and 59. They don't see it as a *deal*.

How to tell the son and daughter that late middle age mom and pop may have to come live with them. If they are getting income of over $40k from disability, I wonder about what it is in their lifestyle that makes them need $1,000/mo from their kids. This is not New York or LA. That's another thread, I guess.

And, no, I am not having fun yet.

 

[Tkruger]

First off what type of disability is it?

1) http://laborcenter.berkeley.edu/healthcare/MAGI_summary13.pdf

Note: Check the IRS website for detailed requirements for the income and deduction categories above. Do not include Veterans’ disability payments, workers’ compensation or child support received. Pre-tax contributions, such as those for child care, commuting, employer-sponsored health insurance, flexible spending accounts and retirement plans such as 401(k) and 403(b), are not included in AGI but are not listed above because they are already subtracted out of W-2 wages and salaries.

No tax penalty.

I am wondering the type as you may have been fed misinformation...go figure.

2) The client says they can't afford $600/mo. COBRA for health insurance for two adults aged 55 and 59. They don't see it as a *deal*. This is because the employer was probably contributing thus they were paying less in their eyes.

 

[RayNY]

Let me preface this by saying clearly, what the exchange does isn't always exactly what or how the law says it should be done.

Is it "SSDI" or a private DI program? Sounds like SSDI to me...

1. DI is not taxable if premium was paid post-tax. If it's employer paid, or pre-tax, distributions are taxable. SSDI is not taxable up to a certain limit. I'm not a CPA, but it sounds like your client is near the line depending on household size (which you didn't mention). You might want to check with an accountant, I'm not even going to pretend to know the tax law on that.

2. That's how I understand it, so yes. No income on taxes=no income=no penalty liability because it's all "unaffordable".

3. Taking COBRA instantly disqualifies them from subsidies, regardless of other factors like cost. They can't stop COBRA mid-year, as non-pay or termination are not qualifying events. If they have the OPTION of COBRA, but haven't taken it, the cost doesn't figure into anything. They would apply using the QE of "loss of coverage due to termination", giving 60 days from the termination to apply.

Can't help you with making your clients see it as a deal. I could give you $25,000 off a brand new Ferrari and you wouldn't think only $230,000 for a car was a deal either. We all have our own perception of value.

 

[yorkriver1]

1. Disability insurance through work. Husband pays own premium as truck owner/operator. Policy is "occupational accident" with 2 year max income benefit for inability to work. Wife may or may not have paid premium on her DI, but if not taxable (which they claim), then was most likely paid post tax, as anyone would advise a DI buyer/plan sponsor to do to maximize benefits.

I get that for tax purposes disability income is taxable or not. But some types of income are included for subsidy calculation that are not taxable. Is this one of them--non taxable disability income from insurance--, that's my question. There is no specific ACA guidance on HC.gov on this type of income the way there is for so many others. Like SSI vs SSDI, or worker's comp.

Daughter of client who does their taxes says both their private insurance disability payments are not taxable. It's a negative if both HH members have no taxable income, and it's not of a type that ACA rules say should still be counted. There's no direct mention of it, as such. So, no income, no subsidy.

2. I know that taking COBRA wipes out SEP. My point is that the *availability* of COBRA at an ACA defined "affordable" rate seems to have wiped out their subsidy eligibility. We are at the point where employer coverage ends 7/31/14 and COBRA or ACA starts 8/1/14, the earliest.

I had run a test of their income before, and it qualified for a subsidy. We have bigger issues now that the income is probably not valid at all, but it's also a valid point about COBRA premiums being tested just like group insurance. In other words, if you *can* get it, and the employee only premium (without employer contribution) is not more than 9.5% of HH income, then no subsidy. Yes or no to that is my question. It appears that, yes, now COBRA availability that is also affordable nixes subsidy. At the time when employer coverage ends, the SEP starts. If the person decides not to take COBRA, if one answers that they are "eligible", then the affordability test seems to take place. I will do a test app later with lower income and see if a subsidy is granted with the same info. This time the COBRA premium will be more than 9.5% of income.

If I am way off here, let me know. The HC.gov folks said that the free ride for COBRA ended July 1. I am not talking about people who take COBRA, I know how that works. I just mean people who have the choice and don't take it. Can they get a subsidy if the COBRA premium is "affordable" (and minimum essential coverage).

Maybe it's always been this way but the low cost COBRA premium in relation to income is so rare it almost never comes up.

Thanks for hanging in there, if you are still with the thread!

Maybe, TRuger, I am just beating this up, but thanks for the tax info. If we look at HC.gov, however, we know that sometimes the subsidy is not 100% based on MAGI. Take the point of we have to count all SS and SSDI (but not SSI) income for subsidy. It's right on HC.gov. What to count/not count.

 

[taterpeeler]

Simple, call a tax advisor or lawyer

 

[houcoogster]

Simple, call a tax advisor or lawyer

Nice Selfie Peeler!

Any way you could include the whole family in it?

 

[Yagents]

If client has not paid the first month of Cobra, then they are not on Cobra, and the loss of the group plan on 7/31 creates the SEP. The cost of the Cobra has nothing to do with affordability testing as it's not an employer plan. APTC will be based on est 14' income.

Just say "yes" if employer/cobra plan available, but then answer "yes" if plan is terminating in next 60 days (or past 60 days), it will issue an SEP.

You can get an SEP ............ before taking Cobra, during OEP, or when 18 months of Cobra ends.

 

[Ann H]

1. Disability insurance through work. Husband pays own premium as truck owner/operator.

I get that for tax purposes disability income is taxable or not. But some types of income are included for subsidy calculation that are not taxable. Is this one of them--non taxable disability income from insurance--, that's my question. There is no specific ACA guidance on HC.gov on this type of income the way there is for so many others. Like SSI vs SSDI, or worker's comp.

Maybe, TRuger, I am just beating this up, but thanks for the tax info. If we look at HC.gov, however, we know that sometimes the subsidy is not 100% based on MAGI. Take the point of we have to count all SS and SSDI (but not SSI) income for subsidy. It's right on HC.gov. What to count/not count.

This is simpler than it looks. Yes, the subsidy is based 100% on MAGI (Modified Adjusted Gross Income). For the purpose of the subsidy, MAGI is your AGI (Adjusted Gross Income) plus 3 things: 1) the non-taxed portion of social security benefits, 2) foreign income, 3) tax-free interest. As you stated, the social security benefits includes SSDI, but does not include SSI.

So, Disability Income and Worker's Comp are not one of the three "modifications to AGI". That is because they are embedded in the calculation of AGI in the first place.

Private Disability Income is taxable (and flows to AGI) if the premium was paid by the Employer or with pre-tax dollars. Worker's Comp is rarely includable in AGI.

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Also, I agree with Yagents about the COBRA issue.

 

[yorkriver1]

Yagents & Ann, also everyone else, thanks! Like an infomercial, but wait, there's more!

The app asked 3 questions to determine if ER coverage is affordable. I've never seen those questions before. When I ran the app with income that would render the ER coverage affordable there was no subsidy granted. The income level on this app would have otherwise qualified for a subsidy. When I ran the app again with an income that would make the COBRA EE only premium unaffordable, a subsidy was granted. I did indicate on both apps that ER coverage is lost 7/31/14.

If the questions/affordability test are there through a glitch, and COBRA is not affordability tested, I have no way to know. HC.gov employees have no idea about this. Any thoughts?

Back to disability. Thanks for the tax info. Will have the daughter double check parents policies to see if the premiums are paid pre or post tax. I take it if the disability benefits are not taxed, then they are not counted as income. These are commercial policies, one was for a salaried EE. The other was an "occupational accident" policy, paying up to 2 years disability benefit. It is required by the contractor for all 1099 subs. This in lieu of WC, as not required for solo independents.

Also need to check if non-taxable disability benefits are counted as income for Medicaid. I am guessing they are.

 

[RayNY]

If the questions/affordability test are there through a glitch, and COBRA is not affordability tested, I have no way to know. HC.gov employees have no idea about this. Any thoughts?

Welcome to Obamacare... Like I mentioned, what the law says, and what the exchanges do, are not one in the same. Exchange employees "just put it in the system, if it's approved it's allowed, if not, it isn't" in the words of the last supervisor I dealt with.