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Covered California News & Commentary

Topics of interest to both consumers and agents related to Covered California and the ACA biased in favor of the successful implementation of the Exchange and deliberately apolitical.

November 2013 Archives

Covered California is open for business, more or less, but many Californians won’t go there if they need health insurance for themselves or their families. Instead they’ll turn to health insurance agents and buy coverage directly from insurance companies.

The On-Exchange Plans

For the roughly two million Californians who currently buy health insurance on their own, only about a third will qualify for government tax subsidies - and to get the subsidy, people must buy through Covered California.

Subsidy Eligible vs Ineligible.jpg

The Off-Exchange Plans

Without a subsidy to offset rates, there’s no compelling reason for the majority of individual health insurance customers to shop on the exchange. People who earn too much to expect government help will be shopping for off-exchange plans, where they’ll have more options and the process is much faster.

What are Off-Exchange Plans?

Off-exchange plans will still be required to meet 10 benefits standards outlined in the health care law. People shouldn’t make any rushed decisions. Many of the off-exchange plans are not yet available because government regulators still need to approve them. So you are still not seeing all the options that are going to be available.

There’s No Rush

The ACA plans will go live on Jan. 1. People have until Dec. 15 to enroll in a plan that will start on the first of the year. And they can enroll as late as Mar 31, 2014 for guaranteed-issue coverage.

Most people with existing individual policies in California will get new plans by the end of the year. That’s because those individual plans don’t meet the standards outlined in Obamacare and must be upgraded to comply with the law. So when that letter from your insurance carrier shows up in the mail, pay attention.Grandfathered vs Non-Grandfathered.jpg

If the plan you have now is grandfathered, you don’t have to do anything. If it is not grandfathered and you do nothing, you health insurance carrier will transition you to a ACA compliant plan that is closest in coverage and rate to your current plan.

All new plans will have to cover a minimum set of medical costs and include standardized benefits. That means that the more than one million California residents who now have individual plans, and are not eligible for subsidies, will very likely be paying a higher monthly premium.

Guest Author, A.Marshall, is a retired attorney whose blog, An Ad Hoc Guide to the Affordable Care Act, seeks to make sense of buying health care under Obamacare. A. Marshall has been a frequent commenter on our Q&A Advice blog under the name, Freelancer.


We Are Confused

Many individuals and families with complicated income situations are confused about how to calculate their MAGI (modified adjusted gross income) for purposes of determining eligibility for premium support under the Affordable Care Act (ACA). Official web sites such as the Healthcare.gov site or IRS.gov tend to focus only on earned income and do not provide much guidance as to how to handle other forms of income or various tax deductions. Much of the information posted on other internet sites is mistaken or misleading. Part of the confusion stems from the fact that the tax code uses the phrase “modified adjusted gross income” to mean different things for different purposes. Some web sites or blogs have posted worksheets based on IRS forms developed for very different purposes. In fact, MAGI is defined in different ways in well over a dozen different sections of the tax code. Although this statutory framework is confusing, it does leave one thing clear: the definition of “modified adjusted gross income” varies depending on the purpose of the income calculation, and it is always clearly stated within the particular statute which defines a particular income-related tax or benefit. The term is defined for purposes of the Affordable Care Act in 26 USC 36B.

Adjusted Gross Income Plus

The term “modified adjusted gross income” means adjusted gross income increased by—

  1. any amount excluded from gross income under section 911,
  2. any amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax, and
  3. 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.

This means that MAGI is the combined total of:

  1. the adjusted gross income of the taxpayers within a household, plus
  2. any amounts excluded from taxation by section 911 (the exclusion from gross income for citizens or residents living abroad),
  3. any tax-exempt interest received or accrued during the tax year, and
  4. any portion of the taxpayer’s social security benefits that are excluded from gross income.

Tax Deductions Not Included

Other than the items specified by the statute, there are no other add-backs to the calculation. That means that the various types of tax deductions listed in the Adjusted Gross Income sections of the IRS 1040 or 1040A forms are also income reductions for purposes of the ACA. This means that in determining subsidy eligibility, taxpayers can continue to benefit from a variety of tax deductions, including the following:

  • Deductions related to college expenses (student loan interest and college tuition deductions
  • Deduction for contributions to a traditional IRA
  • Health Savings Account (HSA) deduction
  • Self-employment deductions, including:
  • One-half of the amount of self-employment tax
  • 100% of the amount of self-employed health insurance premiums
  • Contributions to a qualified retirement account, such as a Simplified Employee Pension (SEP) plan.

Keep in mind that these rules are subject to change - in fact, the definition of MAGI in the Affordable Care Act has already been changed by Congress twice since the law was first written. Taxpayers with complex profiles should seek the advice of a tax preparation professional

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