They're millionaires, and they get Obamacare subsidies
This one weird trick can help even rich people buy Obamacare at sharply reduced prices. Really.
A number of wealthy individuals, some of whom were "disgusted" with Obamacare when it first went into effect, nonetheless are now taking advantage of federal financial aid available under that health-care law to help significantly reduce their monthly insurance premiums.
Carolyn McClanahan, a Jacksonville, Florida-based financial advisor and medical doctor, told CNBC that she's steered at least five such clients, whose individual net worths range between $1 million and $3 million, toward buying Obamacare health plans because of the federal subsidies available due to their taxable income levels.
Those clients are saving between $4,600 and $8,800 in annual premium payments as a result of subsidies. On top of that, McClanahan said, those customers are getting extra financial help to pay their out-of-pocket health expenses — the copayments, coinsurance and deductibles that aren't covered by their insurance plan.
The idea of giving rich people discounted Obamacare plans raises the eyebrows of even McClanahan's clients, who were initially skeptical when she described the option.
"Everybody was like, 'Are you sure this is going to work?'" McClanahan said of her clients' reaction.
"And I'm like, 'Yes, I'm sure it's going to work.'"
And it's legal as well, because of the way the Affordable Care Act focuses on income rather than net worth to establish eligibility for Obamacare aid.
"The law was set up that way, so I'm going to help them take advantage of it."
The ACA was enacted primarily to help uninsured people get health coverage at a price they could afford. To help do that, the ACA authorized the federal government to issue tax credits, or subsidies, to people with low or moderate incomes who buy health plans sold on government-run Obamacare exchanges.
For 2016, individuals with annual taxable income between $11,770 and $47,070 qualify for such aid.
McClanahan's Obamacare customer clients were all retirees who stopped working before they were 65 years old. They no longer had the option of getting health insurance through their jobs, and were too young to qualify for Medicare, the federal health insurance program for senior citizens.
Those people, while having relatively high net worths due to investments and real estate, also were in a position to have taxable income that was low enough to qualify for Obamacare subsidies.
But that income could still be high enough to keep them above 100 percent of the poverty level. If their incomes fell below that, they would not qualify for the subsidies to help buy private plans, and also would not qualify for government-run Medicaid because Florida rejected expanding that program to cover more low-income people.
McClanahan said she helped the clients structure their income stream — and the taxable component of it — "just right."
"The first thing you've got to figure out is how much money do they need to live on," she said.
The clients, all of whom had paid off their homes, needed "anywhere between $5,000 and $7,000 a month" to live on, she said.
Helping that strategy was the clients' use of bond ladders, which gave them steady income as the bonds matured over time, and also spun off interest payments from the bonds' coupons. While the interest payment is taxable, the initial investment in the bonds is not, McClanahan noted.
"For most people, we're aiming for like $18,000, $19,000 in income" that is taxable, she said.
That level of income also was low enough that all of the clients qualified for the added Obamacare aid of "cost-sharing reductions," which are available to people with taxable incomes below about $29,000 who enroll in so-called silver plans. Without cost-sharing reductions, silver plans cover about 70 percent of customers' medical expenses, with the balance owed out-of-pocket by the customer.
Angie Koury Lieb, a Jacksonville insurance broker, helped McClanahan's clients get into those plans, which in Florida are sold on the federally run Obamacare exchange HealthCare.gov.
Lieb said that some clients initially "were pretty disgusted about the subsidies and how it all works" when Obamacare first began taking effect.
"I think a lot of it was very politically motivated, that they didn't necessarily agree with the Affordable Care Act itself," she said.
"Then they said, 'Well, shoot, I'm going to try to qualify myself,'" Lieb said. "I think they were more, 'If I can't beat them, join them.'"
Lieb said that when she helped McClanahan's clients sign up on HealthCare.gov and pick their plans, "they were usually pretty pleased and excited" when they saw how much subsidies they would be getting to lower their premiums.
On the lower end of the prices, one client qualified for a $423-per-month subsidy, which reduced the price of their plan from $663 per month down to $240 per month, she said. On the high end, another client qualified for a $737 subsidy, reducing their premium from $1,172 per month to $435.
And "with the cost-sharing reduction, I think people were extremely happy," Lieb said. "It reminds people of what health insurance looked like 25 years ago, when they had a $10 copay and no deductible."
Lieb and McClanahan both noted the fact that their clients, due to their financial position, came under scrutiny from the government when they applied for their subsidies. To obtain those subsidies, customers have to indicate how much income they expect to earn in the coming year.
Every client, McClanahan said, was flagged for review of their subsidy eligibility when they applied because tax forms revealed they previously had high incomes.
"We had to provide a lot of supporting documentation," McClanahan said.
Clients also must be conscientious about reporting income changes during the course of the year. If people end up earning more than they had estimated when they applied for their subsidies, they could end up owing some or all of the subsidy back when they file their tax returns the following year.