The vast majority of enrollees in Obamacare plans will not pay the higher premiums, since modest incomes make them eligible for another type of government subsidy that will hold their premiums flat or close to it.
But upper-middle-class people like Ms. Cornwell and her husband are expected to pay full price, feeling the blunt force of what experts and health economists agree are unbearable escalations.
Some people could qualify for Affordable Care Act subsidies through less extreme measures than those taken by Ms. Cornwell, such as shifting money into a tax-preferred savings account, like a 401(k), and reducing their taxable incomes, said Frank Caccavale, an accountant from Staten Island, N.Y. But when that is not sufficient, he counsels clients to do what Ms. Cornwell did: “This is your only option. You have to take a pay decrease.”
Ms. Cornwell hit upon her solution on her own after a month of poring over spreadsheets.
“When I saw what the premium was going to be in 2017, I had to sit down. I was shocked,” Ms. Cornwell said of the $2,100-a-month figure — for a plan that didn’t even cover care until they had each spent a $6,500 deductible. The couple simply couldn’t afford it.
Ms. Cornwell, 62, made $80,000 a year as a project manager for a small consulting firm that doesn’t offer health insurance. Her husband, Donald Donart, 63, and a cancer survivor, receives Social Security and a small pension, bringing their pretax household income to $92,000. Finding insurance required radical action.
Between 5 and 7 percent of Americans with insurance — about 17.6 million — buy it on the individual market. Of those, 7.5 million, or nearly half, don’t get subsidies, according to Robert Laszewski, an insurance industry consultant. Many in this latter group are professionals who work for small companies or are self-employed.
When Ms. Cornwell saw that premiums for 2017 would rise by hundreds of dollars a month — to three times as much as the couple paid in 2015 — they looked hard at the options:
Should they get divorced and file taxes separately so Mr. Donart’s lower income would qualify him for cheaper insurance? Too impractical because of Tennessee’s legal requirements, Ms. Cornwell decided.
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Should they form a business that paid Ms. Cornwell a smaller salary than she was making? That would have taken too long.
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Mr. Donart was ready to go without insurance for a year until they could figure out something else. But Ms. Cornwell worried about his cancer history, and both have chronic health conditions.
Under the Affordable Care Act, subsidies are available for people whose annual incomes are from 100 percent to about 400 percent of the federal poverty level. For 2017, that was $16,020 to $64,080 for a family of two.
So Ms. Cornwell sat down to figure out how to reduce their income to qualify.
Four spreadsheets later, Ms. Cornwell asked her boss to reduce her hours 30 percent, dropping her pay by $24,000 a year. She became a part-time hourly employee — at $56,000 a year. The couple now qualified for a $27,000 subsidy that made up for Ms. Cornwell’s lost income. They claimed their subsidy as an advance tax credit — an option under the health law — to reduce their upfront insurance costs as much as possible. The Internal Revenue Service paid their insurer directly, which reduced the couple’s premium.
Their subsidized premium was so low that they upgraded to a better silver-level plan, which carried a lower deductible than the bronze plan they had passed up.
Katy Votava, president of goodcare.com, a consulting firm that advises people about health care costs, suggests people use a financial planner for taxes and health care. “The anxiety, the uncertainty and the culture is so high, it gets in the way of people making solid decisions,” she said.
Ms. Votava generally doesn’t recommend the radical approach of drastically cutting salaries, although that may work in some cases. Instead, she tells clients to contribute as much pretax money as the Internal Revenue Service allows — and as they can afford — each year into tax-advantaged retirement and health savings accounts. That reduces taxable income, which determines whether someone qualifies for a subsidy and how much.
In 2018, people can contribute up to $18,500 a year each to a 401(k) retirement account. If they are older than 50, they can put in $6,000 more — a total of $24,500 annually. Health savings accounts, which can be used to pay eligible medical and dental expenses, provide a similar tax break. Neither was an option for Ms. Cornwell, whose small employer doesn’t offer those kinds of benefits.
Ms. Cornwell and her husband were satisfied with the subsidized plan they had this year. But she is deeply frustrated by the system and the somersaults she had to turn to make it financially viable. “This is when I should be maximizing income and putting it away, paying off the mortgage, but we’re going the other way,” she said.
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She said she and her husband were looking ahead, running down the clock until they turn 65 and qualify for Medicare.
They intend to keep the same health plan in 2018 and are approaching this year’s open-enrollment event with anticipation instead of dread. Their insurer has told them to expect much higher premiums. But the government’s premium subsidies are also up significantly this year. According to healthcare.gov’s calculator, they’ll receive a much higher subsidy.
That will drop their monthly premium to zero.
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Article source: https://www.nytimes.com/2017/12/01/business/a-radical-move-giving-up-income-to-get-health-insurance.html