Monday, November 13, 2017

Misadventures in Medicine: What I Learned About SSDI and ACA Health Insurance

Disclaimer: I am not an accountant. Nor a tax lawyer. Nor a disability lawyer. 

There probably exist solutions that better suit what you, as an individual, are trying to accomplish. 

My best advice is to contact an accountant or a lawyer to figure this out. I am mostly writing this to illustrate how crazy a situation it is. But also because it is a trickier situation than it seems and I hope that in writing this, I can encourage others to make careful and well-informed choices!

Second disclaimer: this is NOT a political post, and I do not want my story to become a political football. I will turn off the comments if they veer into politics. 

Also, I am NOT writing this to complain or to imply that I should deserve more - or different- assistance than I am receiving. My biggest frustration is not that there is not more help available, but that it is such a difficult situation to try to navigate, and I can be severely penalized for making a mistake.

Third disclaimer: this was written in the Fall of 2017. No idea what might change next year.

This Crazy Illness has taken me on a strange journey through the medical world, but nothing has been stranger than what I've encountered in Social Security Disability and navigating the ACA Health Insurance market.

The bottom line:

There's a lot of crazy stuff at the intersection of 'filing for disability' and 'qualifying for ACA tax credits', and making even a small mistake can cost literally thousands of dollars. 

The thing that is most frustrating to me is that this seems like a pretty obvious situation for lawmakers and government agencies to have planned for, but it is very difficult to find good answers.

The specific situation I am in is basically this: 
1. I became ill in my mid-thirties. (Which is old enough to have started saving for retirement, but a long way from being able to retire.) 
2. I am single. (If I was married there would be different options available, like spouse's health insurance) 
3. I don't have kids. (I don't qualify for Medicaid, SSI assistance, etc) 
4. I have a mortgage on a house. (Which means I itemize tax deductions)

Very Simplified Background on The Deal With Disability 

The thing about filing for disability is that it takes a very long time to get approved. The story of how I applied is complicated but the gist is this: It took around 12 months to receive an approval, and I was lucky. If it had been denied, there is at least a 12 month wait to get a hearing.

During this wait, patients are (obviously) not earning any income, and there really aren't a lot of options -- blow through savings (if you have any), and borrow from personal connections, or run up credit card debt.

When you are finally approved, you then receive a large, lump sum, covering the amount of time that you've officially been disabled (minus a 6 month waiting period). 

In other words, this lump sum amount suddenly appears in your bank account, but keep in mind that most of that money is probably going to be spent paying off bills, credit cards, and personal debts that patients have accumulated while waiting for it to arrive.

The way that traditional taxes work, there are ways to make sure that it doesn't really cause a huge problem, because you can apply it to previous years. From my point of view, it's a headache, but something the average accountant probably has dealt with before.

But here is the thing: It doesn't just affect traditional taxes, it also affects whether you qualify for tax credits to pay for ACA health insurance.

Enter: ACA Health Insurance And Tax Credits

There are really two crazy situations people find themselves in when filing for disability: before it is approved, and after. Eventually, patients become eligible for Medicare but it's a 2 year qualifying period.
ACA Tax Credit Brackets (for North Carolina): 
Below $12,060
Since your state hasn't expanded Medicaid, you won't qualify based purely on income. You also won't qualify for financial assistance on a health insurance plan. 
$12,060 - $30,150
A health plan with lower monthly premiums PLUS extra savings. 
$30,151 - $48,240
A health plan with lower monthly premiums. 
Above $48,240
You won't qualify to save on a health insurance plan.

Before approval:

A patient is no longer able to work, and earning no income.

In my state, this person does not qualify for any tax credit assistance because income is less than $12,000.

In other words, it's a catch-22: if you were working, you wouldn't be disabled, and you would qualify for some sort of assistance. But because you're disabled, you aren't earning any income, so you don't qualify for any assistance.

This seems like such a ridiculous situation for people to be placed in, and at least three very easy options to let them fall into: Medicaid, ACA Tax Credit, or Medicare. I'm sure there are a lot of very good policy arguments for all three, or something else entirely. My biggest frustration is that people in this situation are falling through the cracks completely.

After approval:

The lump sum counts as income when determining whether the patient qualifies for any tax credits or extra savings.

But, in theory, (I believe -- I've seen conflicting information) you can choose whether to apply it to prior years, or keep it all in the current year.


Before approval, there is only one solution I found: I was able to pull money out of a 401k/retirement account and count it as income to qualify for tax credit.

This has to be done very carefully. It needed to be a specific amount. In my case, I wound up needing to switch from a 401k to an IRA (which took time, so this should definitely not be tried at the last minute!), and because I had not been approved for disability yet, I was risking a large penalty for taking it out early.

This year I find myself in the After Approval situation. I have a couple theories, but still have not come up with a great solution. 

Spreading the lump sum over the year previous will cause one set of problems, while keeping it all in this year causes another set.

Largely this is a catch-22 because of the 'solution' for last year's taxes to establish income. It underscores how badly a disabled person could be penalized for taking 'too much' money out of retirement savings.

Ie: if you are disabled, and need to withdraw a large amount from a 401k/IRA, then it might help you qualify for tax credits that year, but could wind up causing you to lose those tax credits if the lump sum is then added to it.

Luckily I am not in such a sticky situation, but I am incredibly frustrated with how complicated this is. This is literally the energy I should be using for doctors appointments and dealing with medications. Last year, there were several months of appointments I had to postpone so that I would deal with this instead.

Additional Notes/Common Questions I Get:

SSI and SSDI are two different things. SSI does not count as income (for ACA tax credits), while SSDI does.

SSI is based on income, and if I have more than $2,000 saved, I don't qualify

Even if I go through all my savings, I won't qualify for SSI because I will receive more than $2000 a month from Disability.

Disability basically (I'm simplifying this considerably) considers you 'no longer disabled' if you are able to earn enough money to reach the poverty line (which means that you would earn a little over $1000 a month).

Disabled persons become eligible for Medicaid Medicare* after a 2 year qualifying period (this is actually 2 years, plus 6 months from the date that you officially become disabled).

I don't know if this is common but I will be paying more on Medicaid Medicare* than I was for my silver ACA plan with tax credits

Over three years, my ACA plan deductible has gone from about $800 to $3600. Out of pocket max has gone from about $1500 to $5800.

The most astonishing thing I have learned through this, and the one thing that I will jump on a political soapbox about is this:

Money saved in a Health Care Savings Account (ie: you have a HCSA from work where you've been saving money through healthy years) will count against you when applying for SSI or additional assistance. Given that disabled persons are likely to need expensive procedures and equipment, wouldn't it be in our best interest to allow them to protect that money and keep it in savings for their medical needs, instead of requiring that they withdraw it, blow through it all, and only then allow them to apply for more assistance?

In any event, it doesn't apply to me, as HCSA's were fairly new to my company when I stopped working, and I wouldn't qualify for SSI regardless. I'm just saying, that this seems like an obvious thing to want to encourage people to be able to save as much as possible for future medical needs. Also crazy is the fact that the government employees I asked about this had no idea what the answer was. Again, I shouldn't have to hire an accountant and a lawyer to make a good decision about health insurance.

But that's the end of the soapbox.

I would love to post links to good resources, but unfortunately, most of this information has been difficult to find, and has mostly come through direct conversations with professionals. 

If you know of any good online links, please feel free to post them in the comments!

*I knew I would write those backwards at least once.


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  2. This was a very interesting window into the American healthcare system! We have no such thing as disability here, so it's fascinating and confusing to me as to how it works. We have subsidies depending on income/selected hospital plans. But apart from that you're on your own and lots of the expensive meds here aren't subsidised because 'they are too expensive to be subsidised'. Lol. Wouldn't know what to do without my parents and partner! Take care and I hope you find good solutions sooner than later!

  3. I feel your pain. Virginia ACA continues to be a challenge, but I really worry about the loss of medical deductions. My deductible has increased 6 times from 17 to 18.