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Some millionaires qualify for health plan subsidies under the ACA

A provision in the Affordable Care Act means coverage assistance based on income, not net worth

Due to a provision in the Affordable Care Act that bases subsidies on income rather than net worth, some millionaires are obtaining financial aid for their health plans, according to a CNBC article.

The article explains that these people, while having relatively high net worth due to investments and real estate, are also in a position to have taxable income that is low enough to qualify for ACA subsidies. If their incomes fell below 100 percent of the poverty level, they would not qualify for the subsidies to help buy private plans.

So how can people, who are worth millions, claim they have an income low enough to qualify them for financial assistance? The answer lies in the use of bond ladders, CNBC says, which gives them steady income as the bonds mature over time, and also spins off interest payments from the bonds' coupons. While the interest payment is taxable, the initial investment in the bonds is not, and most people aim to show that they have an income of about $18,000 to $19,000 annually from these bonds, the article says.

On the lower end of the spectrum, some may qualify for a $423-per-month subsidy, and on the high end, some qualified for a $737 subsidy each month. That equates to a savings of anywhere between $5,000 and $8,800 annually. Additionally, some individuals had an income that was low enough to qualify for "cost-sharing reductions," which are available to people with taxable incomes below about $29,000 who enroll in silver plans.

Some of those with high net worth who applied for subsidies have come under scrutiny from the federal government, however. Carolyn McClanahan, a Jacksonville, Florida-based financial adviser and medical doctor, tells CNBC each of her clients were flagged for review when they applied for subsidies because tax forms revealed they previously had high incomes. They had to provide very detailed documentation, she says, since the penalty for making too much to qualify could result in owing some or all of the subsidy back when they file their tax returns the following year.

Other subidy-related provisions of the ACA have also come under scrutiny recently. For example, what's known as the "affordability firewall" penalizes families for having employer-plan access despite the fact that their household income would make them eligible for subsidies for marketplace plans.

To learn more:
- read the CNBC article

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