Thursday, December 05, 2019

Interesting ACA case: Tax Credit Conundrum edition

Sometimes Open Enrollment can be interesting. Case in point: Pastor Jerry.

Pastor Jerry is the newly hired clergyman for a local church, with a nice compensation package made up of three parts: a salary, a housing allowance, and a reimbursement arrangement for medical insurance. The salary and housing allowance are fixed, known costs, while the health insurance budget is "up to $2,000 a month." And therein lies the rub:

Based on his salary/housing allowance, his family qualifies for about $800 in tax credits (aka "subsidy"). Nice, but not the end of the story. The problem is that if his employer reimburses him for the premium and/or out-of-pocket expenses that increases his annual income and screws up the subsidy calculation. It's kind of chasing its own tail. I spent quite a bit of time in separate phone calls with the nice folks at; the best advice (well, the easiest advice) was to just forgo the subsidy and avoid the whole mess.

There's a lot to be said for this: indeed, the KISS Principle holds much sway. But I really hate to leave (government) money "on the table," and wracked my brain trying to come up with a better way.

Lying in bed the other evening, it hit me: when choosing how much of one's subsidy to use, folks almost always pull the trigger for the full amount (which makes sense: results in lowest premium). But one can, in fact, choose to use $0 upfront, and just claim it the following April. This was a true epiphany: it means there's no real downside, nor is there any possibility of "clawback." Indeed, the worst case scenario is that he gets very little money back, but it's still better than having to cough it up in the following year's taxes.

Pretty nifty.

Oh, we also discussed precisely how to handle that out-of-pocket reimbursement, and decided on an HSA over an HRA. They'll be working with our friends at FlexBank on this.

Exit question:  given the facts above, what potential issue do you see regarding the employer's reimbursement versus the delayed tax credit?
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