October 14, 2013

SF Chronicle’s Obamacare Advice: ‘Working a Bit Less’ Can Get You a ‘Huge Health Care Subsidy’

Kathleen Pender at the San Francisco Chronicle (HT Zombie at PJ Media) had some Obamacare-related financial advice for her readers on Saturday: “Consider reducing your 2014 income by working just a bit less,” because doing so could get you a “huge health care subsidy.”

This is not news to anyone who has studied Obamacare in detail, and shouldn’t be a revelation to anyone in the business press, especially a financial advice columnist like Pender. Among several others, Robert Rector at the Heritage Foundation and yours truly sounded the alarm about Obamacare’s work-demotivating impact — as well as how it will encourage marital breakups and discourage couples from getting married — in early 2010. I also wrote related columns here and here in late September. Excerpts from Pender’s prose follow the jump (bolds are mine):

Lower 2014 income can net huge health care subsidy

People whose 2014 income will be a little too high to get subsidized health insurance from Covered California next year should start thinking now about ways to lower it to increase their odds of getting the valuable tax subsidy.

“If they can adjust (their income), they should,” says Karen Pollitz, a senior fellow with the Kaiser Family Foundation. “It’s not cheating, it’s allowed.”

… If your income is higher than 400 percent of poverty, you can purchase a policy on or off the exchange, but in either case, you won’t get a subsidy and the policy must provide certain essential benefits that many low-cost individual policies lack today, such as maternity care.

For older people, getting below the 400 percent poverty limit could save many thousands of dollars per year.

Take, for example, Jacqueline Proctor of San Francisco. She and her husband are in their early 60s. They have been paying $7,200 a year for a bare-bones Kaiser Permanente health plan with a $5,000 per person annual deductible. “Kaiser told us the plan does not comply with Obamacare and the substitute will cost more than twice as much,” about $15,000 per year, she says.

This new plan, Kaiser’s cheapest offering for 2014, would consume about 25 percent of their after-tax income. The new plan still has a $5,000 deductible but provides coverage for things her current policy does not, such as maternity care, healthy child visits and coverage for dependents up to age 26. Proctor has no use for such coverage, since her son is 30.

… To determine eligibility for a subsidy, the government uses modified adjusted gross income, or MAGI. To get this figure, start with the line labeled adjusted gross income on your tax return (it’s the last line on the first page of Form 1040). Then add in non-taxable Social Security benefits, tax-exempt interest and foreign earned income, and housing expenses for Americans living abroad. (For a synopsis, see www.tinyurl.com/k8jwk4h.)

There are several ways to reduce MAGI. If you are working, you can make a tax-deductible contribution to an individual retirement account, 401(k) or other workplace plan for 2014. (IRA contributions for 2014 can be made until April 15, 2015.)

You might be able to take advantage of other deductions that appear above the AGI line on your tax return, such as student loan interest and tuition and fees.

You can also consider reducing your 2014 income by working just a bit less.

Pender completely avoided an important point. MAGI can be very difficult to determine, and especially difficult to monitor. Doing so is of necessity going to become an obsession for people at the 400 percent of poverty level break point — and they still might end up going over the threshold. She also didn’t mention that income reporting under Obamacare this year (at least) is on the “honor system,” which will lead to many accidental and deliberate errors.

Here is a graphic example of what Pender described for a couple where both spouses are 60 years old with no dependents:


$1 more in income (in the example, from $62,400, the 400 percent poverty line threshold, to $62,401) triggers the loss of a $10,000-plus subsidy.

There are two “best” solutions for couples near the threshold involved. One would be to work a lot less, so that their combined income is well below the threshold. But the “foolproof” solution which wouldn’t require working less would be to get divorced and cohabitate. As seen here, if each spouse/now former spouse has equal earnings, they could exceed that pesky combined income threshold by getting divorced and still receive well over $10,000 in subsidies.

Since the Supreme Court led by John Roberts called the Obamacare penalty for not having health insurance a tax, it stands to “reason” (as the Supremes define it) that the health insurance subsidies themselves are tax credits. Thus, the marginal “tax” rate on that extra dollar of income is over 1,000,000%.

I’ll give the inimitable Zombie the last word on this (bold is Zombie’s):

It is now a rational economic decision for the average American to earn less money.

… Giving a poor man a hand to help him back on his feet is a kind act of charity. But creating a permanent welfare culture for the poor in general is corrosive to families and destructive to society. And when that corrosive system is forced on the middle class, it’s a recipe for disaster.

… Obamacare may not bring about this collapse all on its own, but it’s a big first step in that direction. And for that reason alone it must be opposed at all costs.

Sadly, it was completely predictable that many in the press knew of these subsidy “cliffs” and decided either that they really aren’t that important or that doing so would be committing a sin against the “grand experiment.” But it is a complete mystery to me, and in my view a critical strategic error, why those so strongly opposed to Obamacare failed to strenuously argue against it using the financial objections described here.

Cross-posted at NewsBusters.org.


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