Saturday, November 16, 2013

Weird Obamacare Strategies and Incentives - 2

This is the second in a series of posts that have me a bit conflicted.  They could be interpreted as political, and, as advice, some of it may be considered unethical, but the point of the posts is to point out things in the law that provide negative incentives, and, at the same time, point out actions that can have big negative consequences on someone receiving a Premium Tax Credit (hereafter referred to as a subsidy.)  They are primarily designed to ensure that people don't make huge mistakes with huge consequences.  They should not be interpreted as me suggesting that you manipulate the rules in any illegal or unethical way.  If you continue reading these posts you will understand what I mean.

This one I would say is definitely unethical, but I'm not sure if it's technically illegal.  The behavior has a built in penalty, but that's where the loophole is.

I have repeatedly advised, and continue to advise, keeping the healthcare exchanges informed of changes in family size and income to ensure the most accurate subsidy is received, thus avoiding a big payback at tax time due to increasing income or decreasing family size.  The information on the IRS and websites indicate that providing this information is mandatory, and follows up with pointing out that if you don't, you could end up paying back excess subsidies at tax time - but that's not always the case.  As long as household income remains below 400% of the poverty line, repayment is capped.

It is theoretically possible to calculate your new subsidy when your income increases, or family size decreases, compare it to your maximum repayment amount, and determine whether or not you will come out ahead by not informing the exchange about your change in status.  You could then save enough money to cover the maximum repayment, while still getting a lower insurance payment than you qualified for.

Ordinarily I would provide numbers, examples, and links so that you can calculate how this affects you.  I'm not going to do that this time.  I consider this strategy unethical at a minimum, so, if you want to do it, you can do the research yourself.  I will provide the maximum repayment amounts for 2014, but not poverty levels and subsidy amounts.  (I'm including the maximum repayments because they are part of the tax law and there are plenty of reasons to know them other than manipulating the system.)  Let me be clear - I do not advocate doing this, and my post should in no way be interpreted as a suggestion or recommendation. 

Here are the maximum penalty amounts for a Single Taxpayer:
  • Up to 200% of poverty level: $300
  • 200% to 300% of poverty level: $750
  • 300% to 400% of poverty level: $1250
The numbers are exactly double for a Married Taxpayer.

Normally I would encourage you to contact me for assistance at this point.  If you are trying to do this, don't ask me for help.

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