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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.


Estimating Income for Part of a Year?

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Question: Currently enrolled in CoveredCA with a subsidy. When I turn 65 in August of 2015 I will change my plan to medicare, will my subsidy for the first 7 months of 2015 be calculated on my income from Jan 1 - Aug 31 of 2015 of will my subsidy for the first 7 months of 2015 be calculated on my income for the entire year of 2015?

Answer: This seems tricky, but it's not. Your subsidy for the first 7 months of 2015, should be based on your estimated monthly income from Jan 1 to Aug 31 of 2015. The Covered California application software will convert this monthly average to an annual income number from which your subsidy is computed. This may seem to overestimate your subsidy eligibility, but since you will only drawing 8 months of the subsidy before moving to Medicare, you will not be drawing too much, or more importantly, leading to any unpleasant surprises on your tax return.

7 Comments

Barbara …

Social Security Retirement or Disability Income benefits are indeed included in MAGI for purposes of determining household income under the PPACA. When you state that you “notified” CoveredCA that you were turning 65 in December, how did you do this? Did you officially “terminate” coverage under CoveredCA?

I had a client who also turned age 65 in December and I enrolled her into a Medicare Advantage plan in October 2014, effective December 1. The only way to report a termination effective December 1 was through the CoveredCA website. The insurer would not accept a termination over the phone or by any other means.

However, the “Terminate Participation” function within the CoveredCA website had already been disabled by that time, and was not reenabled until mid-December. Even by calling the CoveredCA Call Center I could not get her termination recorded in October or November. As a result, my client could not be reported to her CoveredCA health plan as terminating on December 1, but only at the earliest possible date of December 29, and she was billed in arrears by the insurance company for nearly a full month’s premium for December. (Her MA-PD plan is with the same insurance company, but the Individual Insurance and Medicare Advantage divisions do not communicate with each other concerning these things.)

The insurance company has refused to reverse the billing because they can only go by what CoveredCA reports to them, and for more than three weeks now CoveredCA has not yet figured out how to backdate the termination to December 1. So my client may be forced to sue CoveredCA for the $200 owed to the health insurance company if her account is sent to collections + an unknown amount for “emotional distress” and damage to her creditworthiness. It might even form the basis of a class action lawsuit.

I have not heard from any of my clients as to how APTCs are being reported to them by CoveredCA on Form 1095.

A sample of Form 8962 is available here http://www.irs.gov/pub/irs-pdf/f8962.pdf. Although you may be waiting on the IRS for final instructions on completing Form 8962, the draft instructions have been available for consultation since September 2014 and may only be slightly different than the final instructions when issued, if at all. It is unnerving that the IRS has had four years to figure this out and continues to drop the ball on behalf of taxpayers.

In your situation, though, it is clear that APTCs are reconciled on a monthly basis on Form 8962 (lines 12-23), based on annual MAGI and based on the monthly contribution amount calculated on Line 8 (1/12 of annual (8a) at 8b). You enter each month’s information for yourself and others in your household covered under the same plan. Some of your household will have up to 12 months of expense while you may only have 11.

It’s up to CoveredCA to report the correct amount of APTCs paid on your household’s behalf, and the total premium charged by the health plan. You should be able to verify the amounts independently through your health insurer, but some insurers (such as LA Care) do not provide complete details without making a phone call to Customer Service.

I turned 65 in December so i notified covered California in October of starting medicare. Based on form 8962 it’s being calculated for 12 months, when should be for eleven. I started my taxes I need to fill out a its worksheet, also there’s a hold up because the irs instructions are not available for this situation for someone in the tax household is turning 65 during the tax year and form 8962 that calculates pic. I’m put on hold till the irs releases instruction on this. I also thought that magi which is on this amount should not include social security.

With regard to Medicare eligibility, there is a process for apportioning premium tax credits for the number of months a person was not eligible for Medicare Part A. Still, it is dependent on 2014 MAGI of less than 400% of FPL, which for a single person is $46,680. A single person with MAGI of $46,681 or more for 2014 is disqualified from all premium tax credits.

Max - yes, you are saying what I am saying when you say: “MAGI is an annual test. It is not prorated on a monthly basis.” I phrased it more delicately as a question rather than a statement.

I think, then, that you agree that Phil’s original answer is incorrect. The original question asks “will my subsidy for the first 7 months of 2015 be calculated on my income from Jan 1 - Aug 31 of 2015 of will my subsidy for the first 7 months of 2015 be calculated on my income for the entire year of 2015?”

The questioner is asking if there is a month-by-month calculation to determine if they were eligible for subsidy during a 7-month period, and Phil’s answer is essentially 7 months (whether or not he is off by a month I’m not considering) when he wrote “Your subsidy for the first 7 months of 2015, should be based on your estimated monthly income from Jan 1 to Aug 31 of 2015. The Covered California application software will convert this monthly average to an annual income number from which your subsidy is computed.”

That may be how Covered California will work, but it may result in an incorrect value that if significant may cause problems when filing 2015 income taxes.

I believe subsidy eligibility and amount for the first 7 months of 2015 will be based on the full income received in 2015, divided by 12. Not 7 months divided by 12. The questioner should ignore the monthly income inputs at Covered California, and estimate their full income for 2015, then report that number.

If there is no proration as you state, the correct answer is that subsidy eligibility depends on the full year’s income, not the income of that 7-month period. I suggested that full year MAGI is what matters to the IRS.

Secondly, I did mean Medicare, not Medicaid/Medi-Cal, when I wrote “I don’t see how leaving an IFP plan for Medicare …” The questioner is asking about moving into Medicare.

My prior references to Medicaid were just examples of how non-workable a month-to-month subsidy evaluation would be in another context, where a self-employed person under age 65, whose income fluctuates widely, would be found eligible for Medicaid some months, eligible for IFP with APTC other months, and no subsidy others. I think that is ridiculous. Everyone is asked to estimate their annual income. And I gave that example to show that annual, not monthly, is what matters to the IRS.

My point was: month by month reporting is wrong, a simplification by Covered California that isn’t how the IRS looks at subsidy eligibility. The problem may be that the Medicaid program does look at monthly income, so presumably Covered California asks about monthly income to determine if you are eligible for Medi-Cal. (Here I do mean Medicaid, not Medicare. I am making a point.) But the IFP APTC calculations look at annual income and that is what someone really needs to worry about if there is any chance their income will be fluctuating through the year.

Another example: Someone with a million dollars in the bank can’t take APTC and even CSR for half a year based on low monthly MAGI (living off non-taxable savings and a small amount of taxable pension withdrawals just to stay out of Medicaid), then withdraw very substantial taxable pension money the second half of their year and expect to keep the APTC from the first half of the year. (Or they might even choose to drop health insurance altogether for the second half of the year if they were willing to pay the penalty.) Their annual income will show the IRS they were not eligible for APTC at any time, and they got away with the CSR benefit. This might be hit with a $25,000 (negligent return) or even $250,000 penalty if IRS believes intentional fraud was involved. It might be difficult for a person of substantial means to avoid at least a charge of negligence when they can easily afford professional financial advice.

Now, I may be wrong, but at least I have hopefully clarified what I was trying to say.

A better point than the one I’m making might be that the system as it’s presently set up is incomprehensible, and anyone whose income fluctuates at all during the year will get different advice about how to report that, and may easily make mistakes.

In the case of this questioner, it may not even be a question of fluctuations. If the questioner is a single person earning around $5000 a month, that’s 35,000 in 7 months making them look eligible for subsidy. But it’s 60,000 annually - not eligible for subsidy.

Anon …

MAGI is an annual test. It is not prorated on a monthly basis. That’s why the whole system of Advance Premium Tax Credits is a cruel joke. It disguises the true cost of health insurance, allowing people to believe that they are getting something for nothing (or close to it).

If a person’s income changes as you ask about, then all the PTCs that person has received will fail to materialize, and the person will have to repay some or all of them when they file their income tax return the following year. Think that might lead to an increase in non-filers and/or tax-cheats beginning in 2015? At least there is no charge for health care in prison, however good or bad it may be.

You also wrote “I don’t see how leaving an IFP plan for Medicare … .” I think you meant Medi-Cal (Medicaid in other states). There is a difference. Medicaid, for institutionalized persons at any age, and generally for persons over age 55, is a no-interest loan for which the governmentc comes looking for repayment after the person is dead. It, too, like Obamacare, is NOT free.

Will IRS look at full year MAGI to determine if subsidies were allowed? Let’s imagine the questioner’s income soars during the second part of the year. Their MAGI will be way outside of the limit where they were entitled to the subsidies they got - maybe they will end up entitled to no subsidies at all and have to pay them all back.

How is questioner’s situation different from that of the self-employed? The self-employed need to estimate their full income for the year and divide by 12. If they go month-to-month and report monthly changes in income, in a bad month they might have 0 revenue and even show a loss - making them eligible for the month for Medicaid. Then, say, the next month all the revenue comes in, and they would be out of Medicaid and in an IFP plan and entitled to some, or no, subsidies. Sometimes they would be eligible for Silver CSR plans. It makes no sense and Covered California has made it clear people should estimate annual income and either report it in application as annual income, or divide the number by 12 and report it as monthly income. I was advised to do the latter because the representative said it was more reliable than letting their system do that arithmetic of dividing annual income by 12.

If IRS will permit some kind of annualization showing they were subsidy eligible in some months, I could see this being the right answer. But if the self-employed were required to annualize (that is, show revenue and expenses and retirement contributions and basically everything that goes above the line into AGI), then all kinds of insanity would result.

I don’t see how leaving an IFP plan for Medicare would be any different. If their annual income happens to jump, I don’t see how their subsidies won’t be reduced or eliminated on their 2014 taxes.

Please clarify this! Thanks.

The guidance from Phil is off by one month. If you turn age 65 on any day in August, even 8-31, you are enrolled in Medicare as of August 1. Your APTC subsidy will end with July, not August, so only 7 months not 8. Nevertheless, you should still estimate your income for all of 2015.

You have the option of continuing your CoveredCA plan to the end of the year, but you cannot receive APTCs beyond July 31. You would pay the full premium. Of course, enrolling in a Medicare Advantage plan would, in most areas of California, eliminate all premiums except for Medicare Part B, and, depending on which MA-PD plan you choose, perhaps obtain better benefits than the CoveredCA plan.

The problem with such mid-year changes has to do with deductibles. As far as I know, there is no provision to carryover the CoveredCA deductibles and out-of-pocket expenses to a MA-PD plan, which is why you might want to wait until 2015 to start coverage under a MA-PD plan. You would enroll during the Oct 15-Dec 7 Annual Election Period.

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