The #SilverSwitcharoo is a great workaround for almost everyone. ALMOST.

2019 OPEN ENROLLMENT ENDS (most states)

Time: D H M S

For nearly a year, healthcare wonks like myself, David Anderson, Andrew Sprung and Louise Norris have been heavily getting the word out to promote not just the "Silver Loading" CSR-load workaround, but an even more clever variant which I've coined "the Silver Switcharoo" which takes the concept of Silver Loading and goes one step further.

It gets a bit complicated, but here's my explainer of how the Silver Switcharoo works for ACA individual market policies.

The bottom line is that in theory/on paper, just about everyone either comes out ahead or at least is no worse off if they use silver switching:

  • Subsidized enrollees in Silver plans end up paying the same as they did before.
  • Subsidized enrollees in Bronze plans end up paying far less (and in some cases, nothing at all) in premiums.
  • Subsidized enrollees in Gold (or Platinum) plans end up paying far less in premiums (and in some cases, less than they would for Silver plans!)
  • Unsubsidized enrollees in Bronze, Gold or Platinum plans end up paying only whatever the normal premium increase is (that is, without any CSR load), on or off exchange
  • Unsubsidized enrollees in Silver plans can also avoid paying any CSR load by moving to an off-exchange Silver plan

Everyone wins (or at least no one loses), right? Well, as Norris reminds everyone, there's one exception to this "win-win" situation:

But there’s a downside that has to be considered. As described above, you can’t switch from an off-exchange plan to an on-exchange plan in the middle of the year unless you have a qualifying event — and a change in income is not a qualifying event. So if you’re in a state that allows the “silver switch” option and your income is too high for premium subsidies, you can sign up for a lower-cost off-exchange silver plan during open enrollment. But if your income drops during the year to a subsidy-eligible level, you won’t be able to switch to an on-exchange plan at that point. You’d essentially be stuck with your full-price off-exchange plan until the end of the year.

So it’s a gamble: Do you pay a higher rate for the on-exchange silver plan, just in case you do end up being eligible for subsidies? (you can go back and claim them on your tax return if your income for the year makes you eligible — but only if you bought the plan through the exchange). Or you do take the “silver switch” option and go for the lower-priced off-exchange silver plan, knowing that there’s no way to get subsidies later in the year, even if your income declines? There’s no right answer to this question, but it’s something to keep in mind when you’re deciding where to buy your coverage.

It’s worth noting that a potential solution would be to buy an on-exchange bronze or gold plan in this situation, instead of a silver plan. You wouldn’t have the cost of CSR added to your premiums, but you’d also be able to start getting premium subsidies mid-year if your income were to decline, or go back and claim the subsidy on your tax return after the year is over.

As I've noted many times before, my own family could be faced with this situation in 2018 and/or 2019 depending on how the year goes. We're both self-employed and our income is highly variable from year to year. We might only make 300% of the Federal Poverty Line one year but 500% the next, or vice versa. Since the ACA's subsidy cut-off point is 400% FPL, that presented an annual dilemma for us even before the CSR cut-off and Silver Loading/Switching became a thing.

Here's the problem:

100% FPL for one person is $12,140 this year. 400% of that is $48,560.

Let's say you're a single adult without kids just over that threshold...around $50,000/year. You earn just barely too much to qualify for ACA tax credits, so you have to pay full price for you policy regardless of metal level and whether you buy on or off exchange. In this case, assuming you're 48 years old living here in Oakland County, Michigan, a Silver plan will cost around $425/month ($5,100/year), or 10.2% of your income.

If you're absolutely certain that you're going to earn at least ~$50K/year next year as well, then it doesn't matter whether you buy on or off the exchange, since you wouldn't be eligible for subsides regardless.

However, what if you have a variable income? Let's say there's a chance you'll have a bad year and will only earn, say, $45,000 (370% FPL). If that happens, you will qualify for subsidies.

In that case, you'd likely qualify for $66/month in tax credits ($792/year), so you'd only end up paying a total of $4,308 for the year (9.6% of your income).

But here's the catch:

You'd only qualify for that $792 if you had enrolled in the on-exchange Silver plan.

If you enrolled in the exact same policy (or any other one) off-exchange, you wouldn't qualify for any subsidies, no matter how crappy your income ends up being for the year in question.

This, by the way, is likely the main reason why around 15% of on-exchange enrollees are consistently unsubsidized each year...there's a chunk of mostly self-employed people (like my wife and I) who probably don't qualify for subsidies, but enroll through the ACA exchange anyway just in case they have a bad year and end up qualifying after all.

With Silver loading, the stakes are even higher, because the gap between a Subsidized and Unsubsidized Silver plan is even greater.

As Norris notes, it can be tricky for folks in this situation to know what the best route to take is. Again, if you're certain that you'll earn over 400% FPL in 2019, go for the off-exchange plan. If you think there's a reasonable chance of falling below the 400% threshold, however, you might want to go for an on-exchange Gold or Bronze plan instead...just in case.

UPDATE: It's important to note that folks caught in this situation may have another option available to them: There are several money management strategies they can use to try and keep their official MAGI income below the 400% FPL threshold. Andrew Sprung of Xpostfactoid, along with Norris, lays out some of them here:

...Many but not all resources for reducing MAGI are available only to the self-employed. They include the following.

1. Individual 401k. Ms. Cornwell, the article reports, "made $80,000 a year as a project manager for a small consulting firm that doesn’t offer health insurance." My immediate reaction was that an employee of a consultancy that doesn't offer health insurance -- or, it emerges later, a 401k -- should be able to get herself paid as a contractor -- i.e., get self-employed status. If she did, she'd be able to deduct as much income as she forfeited (or more if she so chose).

...2. Health Savings Account. HSAs are tax-sheltered savings accounts that must be paired with a so-called High Deductible Health Plans (HDHP). An HDHP must have a minimum deductible of $1300 for an individual and $2600 for a family -- rather quaint thresholds at a time when the average silver plan has a deductible approaching $4000 and the average gold plan deductible is over $1000.

...3. Roth IRA or non-retirement savings. This one is for the relatively affluent. Let's say you're in your early 60s, like Ms. Cornwell, and you want to retire early without taking early Social Security or drawing on your main retirement income source -- say, a 401k. Withdrawals from a Roth IRA are not taxable income (in Roth IRAs, contributions are not tax deductible when made, but withdrawals after age 59 1/2 can be made tax free).

...4. Self-employed health insurance deduction. If you're self-employed and buying insurance for yourself and/or your family on the individual market, you can deduct the full cost of the insurance*, as long as your self-employment income exceeds the cost of insurance after various other deductions.This too is an above-the-line deduction that reduces MAGI.

...5 Qualified Business Expenses. If you're self-employed and fill out a Schedule C, Profit or Loss from Business, consider being more liberal in spending to grow your business or improve your capabilities than you might normally be inclined to be. It may do your business good!
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* Note: Norris points out to me that things get a little circular when the deduction increases the subsidy, thereby reducing the cost of insurance and reducing...the deduction. Louise points to the appropriate IRS instructions for squaring this circle here.