Kaiser Health News has some good news for people who live in states whose elites are functional sociopaths that refuse to take free Federal money to expand Medicaid. The exchanges won’t claw back money from people who stated that they thought they would be Exchange subsidy eligible (more than 100% of Federal Poverty Line) but are not because they made too little money:
Right about now, some low-income people who just barely qualified for subsidies on the health insurance marketplace are starting to worry: What if my income for the year ends up below the poverty level? Will I have to pay back the premium tax credits I received…
Their concern stems from an unfortunate wrinkle in the health law. Premium tax credits that make coverage on the health insurance exchanges more affordable are available only to people with incomes between 100 and 400 percent of the federal poverty level ($11,490 to $45,960 for an individual this year). People whose income is below the poverty line don’t qualify….
No repayment will be required. According to a Treasury Department rule, if the insurance marketplace estimates that someone’s income will be between 100 and 400 percent of poverty and it turns out that his income for the year is below the poverty threshold, the individual won’t be on the hook for any premium tax credits he received.
Income estimates for subsidies are just that, estimates. 2014 subsidy levels were based on the combination of 2013 reported income on federal tax returns as a default and 2014 estimates if people thought the tax return did not reflect their situation or there would be a material change in expected income. The IRS will be reconciling estimated 2014 income as used by the Exchanges to issue subsidies and reported 2014 income on the tax returns that are due by April 15, 2015. If estimated income is over actual reported income, the filer may get an additional tax refund to help pay for the 2014 insurance premiums. If the estimated income is less than actual income, and premium subsidies were received, some of those premium subsidies will be clawbacked by the IRS.
The Exchanges are set up for good faith estimates. There is an expectation that if circumstances change (lay-off, promotion/pay raise at work, new job, kid being born etc) people will log back into the Exchange and update their information which will update their subsidy going forward. The goal is to minimize the reconciliation. The IRS also recognizes that peoples’ incomes change, so the expecation is good faith estimates are made. If you’ve been making between $36,000 and $41,000 for the past three years straight, and then you estimate that you would have only made $22,000 in 2014 but report $39,000 for taxes, that probable is not good faith. If in that scenario, you estimate you’ll make $37,500 but actually make $41,000, that is a reasonable miss.
The loophole here is that if you estimate that you’ll make 100.1% of Federal Poverty Line for 2015 which is just enough to qualify you for Cost Sharing Assistance Silver Plus plans at 2% of your income and a large subsidy, but your actual reconciled income is 95% of FPL, you’re home free. This is for two reasons. The first is purely pragamatic in that if you are making under poverty line, the ability of the IRS to actually collect anything is fairly low and not worth the effort. Secondly, it is a soft and incomplete work around to the optionality of Medicaid expansion. I would expect an amazingly high number of people in Texas to have 100.1 to 102% of FPL as their estimated income compared to the same demographic adjusted population group in California. It is an expensive work around as Medicaid is cheaper than commercial insurance, but it helps some people hurt by the assholes on the court.
Good faith is still the key. If you project you’ll make 100.1% of FPL and then made 12% of FPL, that invites a fraud investigation. If you make 97% of FPL, that is an honest mistake.