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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.


A Bird in the Hand?

By on | 9 Comments

Question: My income fluctuate from month to month. I prefer to pay the premium first then get the premium in tax credit, if any, in one lump sum after I do my tax for 2015. Can I do that? If so, what happens to the case if my AGI qualifies me for medi-cal? Would I still be able to get any tax credit in that case?

Answer: Yes you can opt to take your tax credit at the end of the year. However, if your income makes you eligible for Medi-Cal you will receive no tax credit. On the other hand, should you take your tax credit as an advance and later be found eligible for Medi-Cal, your income tax liability will be much lower than the tax credits you received and your payback will be limited to a fraction of what you got. I'm not recommending gaming the system, but at least for now, that is the way it is.

9 Comments

Max Herr wrote: “It appears that the real problem is caused when a person “returns to the Exchange” and is redetermined to be eligible for Medi-Cal. It appears that they would lose the refundable premium tax credits for each month of such eligibility. If they don’t return to the Exchange, then they are Medi-Cal ineligible for the entire year, even if their MAGI for the year is below 138% FPL.

A real conundrum, don’t you think?”

/ / /

Not in the situation raised by the question: a person with a fluctuating income, presumably self-employed. Since the fluctuating income is the norm, there would be no reason to return to the exchange because of a bad month- the self-employed person is hoping the next month will be better. If that person came back to the exchange to report every change in income, they could be bouncing around between MediCal and subsidized insurance all year long.

The system was never intended for that — I think that we self-employed understand that the exchange wants our best estimate of what we expect to make, not what our most recent monthly income is (even if the question is framed that way).

So Example 6 would apply to someone who is employed and loses their job: That is, in May they have a job that pays, say, $2500 a a month — and in June they have nothing, or are living off of an unemployment check that is far less than their monthly salary.

But contrast that with a person who relies on sales commissions for a living. Their earnings can fluctuate between nothing in some months, and a bonanza in others. That person is not going to go to the exchange in June and report that May was a bad month —instead that person is going to put their energies toward closing sales and earning more money.

FWIW, I’ve figured out that the easy way for a self-employed person to get their app through is to enter income numbers that are good match to the most recent reported tax return. I made the mistake this year of trying to truthfully reported anticipated income for next — and I got a notice that I was approved only “provisionally” and would need to provide income documentation. So I went back and amended my income figures to match my 2013 tax return, and it then cleared the system, no problem. So from my perspective it makes more sense to do it that way. But I’m not in the situation where I am concerned about MediCal eligiblity — for me it it is a matter of whether my income ends up above or below the 400% cutoff, so I’m probably better off to waive the advance subsidy and just claim the credit at tax time, if my income ends up falling on the short side of the cutoff.

Freelancer …

While you are correct about persons whose income falls below 100% FPL, the real issue involves households with incomes between 100% and 138% FPL. Please reread the opening part of the IRC you point to:

(a) In general. An applicable taxpayer (within the meaning of paragraph (b) of this section) is allowed a premium assistance amount only for any month that one or more members of the applicable taxpayer’s family (the applicable taxpayer or the applicable taxpayer’s spouse or dependent)— (1) Is enrolled in one or more qualified health plans through an Exchange; and

* (2) Is not eligible for minimum essential coverage (within the meaning of paragraph (c) of this section) other than coverage described in section 5000A(f)(1)(C) (relating to coverage in the individual market). *

Medi-Cal is one of the government-sponsored plans in paragraph (c) which can prevent a person from obtaining premium tax credits. Hiowever, there are two specific examples related to the question, and they appear to be opposing situations.

Example 5. Determination of Medicaid ineligibility. In November 2014, Taxpayer G applies through the Exchange to enroll in health coverage for 2015. The Exchange determines that G is not eligible for Medicaid and estimates that G’s household income will be 140 percent of the Federal poverty line for G’s family size for purposes of determining advance credit payments. G enrolls in a qualified health plan and begins receiving advance credit payments. G experiences a reduction in household income during the year and his household income for 2015 is 130 percent of the Federal poverty line (within the Medicaid income threshold). However, under paragraph (c)(2)(v) of this section, G is treated as not eligible for Medicaid for 2015.

Example 6. Mid-year Medicaid eligibility redetermination. The facts are the same as in Example 5, except that G returns to the Exchange in July 2015 and the Exchange determines that G is eligible for Medicaid. Medicaid approves G for coverage and the Exchange discontinues G’s advance credit payments effective August 1. Under paragraphs (c)(2)(iv) and (c)(2)(v) of this section, G is treated as not eligible for Medicaid for the months when G is covered by a qualified health plan. G is eligible for government-sponsored minimum essential coverage for the months after G is approved for Medicaid and can receive benefits, August through December 2015.

It appears that the real problem is caused when a person “returns to the Exchange” and is redetermined to be eligible for Medi-Cal. It appears that they would lose the refundable premium tax credits for each month of such eligibility. If they don’t return to the Exchange, then they are Medi-Cal ineligible for the entire year, even if their MAGI for the year is below 138% FPL.

A real conundrum, don’t you think? I guess the answer is: Enroll in health insurance through the Exchange but then do not return to report a loss of income later in the year. Just keep paying those health insurance premiums if you can afford them with your reduced income.

Jade,

My answer is based on IRS regulations.

Here’s a link: http://www.law.cornell.edu/cfr/text/26/1.36B-2

Look for the section called ” Special rule for taxpayers with household income below 100 percent of the Federal poverty line for the taxable year”

The only wrinkle is that to qualify under that section, it appears that an advance premium credit must have been paid for at least one month of the year (subsection (6) (iii) — so if the person waived all advance payments then the benefits of that section might not apply.

So the person who is uncertain about their income and thinks it could fall below the 100% poverty level might do well to take at least a small subsidy - bearing in mind that you can always opt to take less than the full amount you seem to be entitled to.

Thanks for all the replies but does anyone has the definitive answer on wether one can receive PTC at the end of year if one pays premium in advance and in full but later found to be qualified for Medi-cal at tax time? The replies from Max and Phil say no and the reply from Freeelancer says yes. Just wonder if anybody came across an official CC or IRS document on this matter?

Thanks

At the end of the year, if your income would have made you eligible for Medi-Cal, you cannot claim the PTCs,

This is not true. If you are determined to be eligible for premium credits when you sign up on the exchange, and if your income falls short at the end of the year, then you will be treated for purposes of calculation of the PTC as if your income was exactly 100% of the FPL. So you don’t get extra money for falling short of that level, but you certainly can qualify for the tax credit.

Null, You don’t state the number of persons in your household, but a single person who earns $16,105.00 or less is eligible for Medi-Cal. If you earn $16,105.01 or more, you are not eligible. Add $5603 in annual income per person for households of two or more to determine eligibility.

Does anyone know where I can find the absolutely positively OFFICIAL Medi-Cal eligibility income amount for tax year 2014 ? Is it on the IRS form ?

The recapture of APTCs only applies to the husband and wife on a joint tax return. If household MAGI is below 200% FPL, then the recapture is limited to $600 ($300 for a single person). If between 200% and 300% FPL, the amount increases to $1,500 ($750 for a single person), and if between 300% and 400% FPL, the recapture is $2,500 ($1,250 for a single person). If MAGI exceeds 400% FPL, the APTCs must be repaid 100%.

A person with fluctuating income who can afford to pay the full premium without the subsidy is advised to do so. This way you can enroll in an individual health plan, be in a position to receive PTCs at tax filing time, and not be concerned about Medi-Cal eligibility.

At the end of the year, if your income would have made you eligible for Medi-Cal, you cannot claim the PTCs, but there is no penalty for not being enrolled in Medi-Cal, and you can still renew your health plan for the next year by estimating your income above the 138% FPL amount. You would never have to apply for Medi-Cal unless you chose to do so.

Then, again, people should understand that they may have a disfavorable mental image of Medi-Cal, which is unfounded. In many counties in CA, Medi-Cal operates as a contracted service provided through an HMO. This improves the enrollee’s access to health care, because all of the HMO network providers will accept the individual as a patient, whereas, in other circumstances, a person would have to find and use only Medi-Cal participating providers.

So, anyone who ends up having been eligible for Medi-Cal but received a subsidy would have to pay back the subsidy (or at least part of it)?

We might end up in this situation with our children falling into the Medi Cal trap. Our year end isn’t done, so we won’t know fully until December 31st what we are actually making. If it turns out that the children would have been (for at least part of the year) under Medi-Cal are we going to have to pay back our subsidy?

I don’t want to get caught in some governmental trap. For next year do we go in each month and record that month’s income….one month qualifying and one month not? Seems like it would be a nightmare for all involved!

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