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Covered California and Obamacare related questions from consumers, employers and agents are answered by Phil Daigle with the best information available at the time. Archived entries may no longer be accurate as the Covered California and Obamacare knowledge-base is evolving quickly. TO REQUEST A PERSONAL RESPONSE INCLUDE EMAIL ADDRESS.


Why No CIGNA Plans in Covered California?

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Question: I read an article in USA today advising that people who do not qualify for subsidies were finding it easier to shop on authorized web-based agent sites. I took a look at www.cahba.com and found 11 CIGNA plans which are bronze/silver/gold compatible, but are not on CoveredCA. They are more expensive than Blue Shield's 2014 plans, but they appear to have the broadest choice of providers I have seen offered. Why are these CIGNA plans not on CoveredCA and is there any danger of being deemed not to have MEC if I buy one?

Answer: Health insurance carriers had to apply and compete to be accepted as qualified health plans offered by Covered California. CIGNA chose not apply, so their plans cannot only be offered off-exchange. However, CIGNA plans offered after January 1, 2014 must be ACA-complaiant. So there is no danger of them not having minimum essential coverage. You are right on about there being no advantage to consumers who are not subsidy eligible to buy through Covered California. In fact, there are more advantages to shopping off-exchange and dealing directly with the insurers. For example, there are more choices off-exchange, like CIGNA plans, and the application process takes only a fraction of the time it takes to enroll through Covered California.

6 Comments

Freelancer wrote: As the law is written, the full amount of the premium is deductible. But this allows the self-employed to get a dual benefit: they can deduct the full premium and get the benefit of reduced AGI, and then get a tax credit on top of that for the same amount. So I think this is an unintended loophole in the law that would have been corrected already, but for the dysfunctional state of Congress.

I gave it some thought. IMO, it is not as much as an oversight as it reflects the lunacy of basing our health care on employer provided health insurance.

When the employer pays for your insurance (in whole or part), this is exactly what happens — it is not counted in your AGI — i.e. that benefit is tax free as it bypasses the W2 income. Here the same courtesy is afforded to the self-employed as technically they are their own employer and they even pay double the FICA to prove it!

In case of subsidy for self-employed, it is a hybrid where the government supplants the “employer” payment to make it affordable per ACA definition. But the end result is the same, and is no more a “double benefit” or loophole than a decent insurance provided by the employer. Think of Google or Facebook paying an employee’s full-up cost in the form of 1099. Then you will see it all adds up.

Because of Union negotiations and for competitive reasons, large corporations that can afford to pay well have loaded up the insurance benefit rather than increasing the taxable pay. Over time, this has had two detrimental effects — make the health care expenses less cost sensitive, and increased the Government tax-expenditures (potential taxes given away). The Cadillac tax that is part of ACA tries to remedy that in a modest way.

Although some people may (mistakenly) call it socialism, in reality it is reducing the government largess given under an ill-designed system in the guise of capitalism. Many many notable conservatives have vehemently argued in the past to do away with the benefit completely and make the entire employer provided healthcare benefit fully taxable.

The law re MAGI is 26 USC § 36B - see: http://www.law.cornell.edu/uscode/text/26/36B

(B) Modified adjusted gross income The term “modified adjusted gross income” means adjusted gross income increased by— (i) any amount excluded from gross income under section 911, (ii) any amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax, and (iii) an amount equal to the portion of the taxpayer’s social security benefits (as defined in section 86 (d)) which is not included in gross income under section 86 for the taxable year.
I think the insurance premiums themselves too are a deduction to the MAGI. But, I am not 100% sure of this last one.

As the law is written, the full amount of the premium is deductible. But this allows the self-employed to get a dual benefit: they can deduct the full premium and get the benefit of reduced AGI, and then get a tax credit on top of that for the same amount. So I think this is an unintended loophole in the law that would have been corrected already, but for the dysfunctional state of Congress. I also think that IRS will see the problem when they have to design a form or worksheet, and they may issue some sort of reg that puts some sort of limitation on it.

So I wouldn’t count on it.

Again: I think the safest practice for the self employed is to buy on the exchange, but waive the advance credit — you’ll get the credit if you are entitled to it in 2015.

The next best practice is to take the premium but bank the full amount, so it’s available at tax time in 2015. There is no penalty or interest if your income comes out higher than plans, but there will be penalties and interest running if you can’t pay back the money by April 15, 2015 — so you don’t want to be caught short then.

Bob, MAGI = AGI (Line 37 on 1040) + untaxed social security income + untaxed dividends + untaxed foreign income

So all deductions on lines 23-35 of the 1040 will reduce income for calculation of premium subsidy tax credit.

See: https://obamacareguide.wordpress.com/2013/10/14/figuring-your-household-income-part-one/

https://obamacareguide.wordpress.com/2013/10/20/figuring-your-household-income-part-two/

They would have to amend the law to change this.

Bob:

I am absolutely sure. I have checked it with many many sources, including the actual text (!) of the ACA.

For a quick and accurate summary of how MAGI is calculated for ACA, please see: http://laborcenter.berkeley.edu/healthcare/MAGI_summary13.pdf

One common confusion is that MAGI is defined differently for different purposes. You have to make sure you are looking up MAGI definition specifically as defined for ACA purposes.

In addition to the IRA deductions, you can further reduce your income by choosing a HSA compatible insurance and contributing the max towards your HSA.

For example, for a couple, you can potentially reduce your MAGI income by:

IRA: $6500 + $6500 = $13,000 (both over 50) HSA: $6550 + $1000 + $1000 = $8550 (both over 55)

i.e. You can reduce your MAGI by $21,550, and if you can get under 400% FPL, you would qualify for the subsidy.

Of course, the above example assumes both the husband and wife are above 55; by the same token, that is when the insurance gets really expensive and you need to find creative ways to keep your premiums affordable.

If you are self employed and are on a 1099 income, half of self employment tax comes off of MAGI too. I think the insurance premiums themselves too are a deduction to the MAGI. But, I am not 100% sure of this last one.

Deep, are you sure MAGI can be lowered with IRA contributions?

It is true that if you don’t qualify for subsidies you can shop outside the exchange and there are some benefits such as quicker processing and broader selection (at least currently).

But, if you want to keep your subsidy option open in case of some contingency.. such as a layoff in mid-year, or some unexpected downward revision of income, you may be better off buying inside the exchange even if you initially don’t qualify for the subsidy. Should the worst happen, you will still be eligible for the subsidies for the entire year. If you work for someone else, there are very few jobs in the US where you can say with 100% confidence that would not qualify for subsidy.

You should also look into the possibility of intentionally reducing your MAGI by contributing to your deductible IRAs (if you qualify and are not doing so currently) and check if you can come under the 400% FPL. You may be pleasantly surprised that Uncle Sam may be fulling paying for you to save multiple thousands of $ for your retirement.

Also, if you are philosophically pro-ACA you should take the extra trouble to shop inside the exchange. If enough of us do so, the opportunistic insurance companies that are taking the wait and see attitude would feel the pinch, and help in the success of the program.

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