SEP, Estimating incomes and APTC clawbacks

One of the major provisions of the CARE ACT is a four month enhanced unemployment bump payment of $600 per unemployed individual per week. This is federally funded and it is in addition to regular unemployment insurance. It will have complexity for low income individuals who are currently insured through the ACA.

I want to run through a set of good faith scenarios with the following baseline: single individual working forty hours a week at $10 per hour for all of the first quarter. This person was laid off on April 1 and is trying to provide good faith estimates to Healthcare.gov on a timely basis of their changing circumstances. I am assuming this individual will qualify for regular unemployment insurance at 50% of average weekly wage ($200/week) in addition to the four month bump payment. I am assuming that they go back to work after four months of unemployment.

I am assuming this person started the year with a good faith estimate that they would have constant earnings and no major life events. Under these assumptions, they entered an income of 163% Federal Poverty Level (FPL) for a single individual and their net premium to buy the benchmark silver plan would be $86 per month.

Scenario 1: Update income on a monthly basis where a given month’s estimated income is also the year’s estimated income.

 

Month	Monthly Income	Monthly FPL if annualized	Monthly Expected Contribution for Benchmark	Monthly Expected Contribution Percentage for Benchmark	Actual contribution for Benchmark plan
January	$1,732	163%	$86	4.97%	$86
February	$1,732	163%	$86	4.97%	$86
March	$1,732	163%	$86	4.97%	$86
April	$3,464	326%	$334	9.64%	$416
May	$3,464	326%	$334	9.64%	$416
June	$3,464	326%	$334	9.64%	$416
July	$3,464	326%	$334	9.64%	$416
August	$1,732	163%	$86	4.97%	$0
September	$1,732	163%	$86	4.97%	$0
October	$1,732	163%	$86	4.97%	$0
November	$1,732	163%	$86	4.97%	$0
December	$1,732	163%	$86	4.97%	$0

There is a lot happening here.  Three different actual net premiums will be collected over the course of the year.  The first is $86 per month for the first three months of the year.  However with the enhanced $600/week unemployment benefit that begins to pay out in April and ends on the last day of July, take home pay increases dramatically and therefore eligibility for APTC decreases.  The monthly expected premium for the benchmark plan goes to $334 a month.  However, the administrative apparatus tries to balance out annual APTC over the course of the year so that there is no overpayment or underpayment by the end of the year.  So the system thinks that recipient received way too much APTC in the first quarter, and tacks on an additional amount to the benchmark base so that the monthly premium for the benchmark plan now increases to $416 per month.

However, we’re also assuming that the individual in question goes back to their job on August 1 where their new expected benchmark net premium is back to $86 per month.  However Healthcare.gov thinks that they’ve been massively undersubsidized now so the calculation now tries to pay out more subsidy so that the IRS does not have to write a bigger refund check in the Spring of 2021 for 2020 APTC.  Benchmark premiums are now $0.

There is a lot of yo-yoing happening when a person assumes that their monthly income is annualized in their estimates.  Yo-Yos are bad.

Scenario 2:  Perfect foresight and re-annualization

Here is the perfect behavioral response with perfect foresight.  Annual income increases in April above the initial estimate and the individual perfectly forecasts that they go back to work on August 1.

 

Month	Monthly Income	Estimated Annual FPL	Expected Contribution Annual basis	Additional Payback	Actual Contribution for Benchmark Plan
January	$1,732	163%	$                                                               86	$0	$                          86
February	$1,732	163%	$                                                               86	$0	$                          86
March	$1,732	163%	$                                                               86	$0	$                          86
April	$3,464	217%	$                                                             168	$27	$                        195
May	$3,464	217%	$                                                             168	$27	$                        195
June	$3,464	217%	$                                                             168	$27	$                        195
July	$3,464	217%	$                                                             168	$27	$                        195
August	$1,732	217%	$                                                             168	$27	$                        195
September	$1,732	217%	$                                                             168	$27	$                        195
October	$1,732	217%	$                                                             168	$27	$                        195
November	$1,732	217%	$                                                             168	$27	$                        195
December	$1,732	217%	$                                                             168	$27	$                        195

The net premium yo-yo is far less. There is one jump from $86 to $195 per month. The four months of the enhanced $600/week payments have health insurance premiums cost 5.6% of monthly income. That is not too bad. However, since Q1 has overpayment of APTC to the individual, and the reconciliation is spread out over the remaining nine months, the last five months of the year have the benchmark net premium come out to be 11.3%. That is unaffordable.

Predicting anything, especially the future, is hard.

And that is true in normal times where the near past is usually somewhat similar to the present and the near future. I don’t think anyone can say that the near past is correlated with the near future in 2020 or that year over year comparisons are even facially plausible in a pandemic and an economic coma.

Right now, we are asking for the fundamentally impossible for people to predict their incomes when that prediction is fundamentally correlated with vaccine development interacting with aggressive and effective contact tracing to quarantine people who will be potentially exposed to new infections in the future.  The best epidemiologists in the world can’t make that prediction within a two or four week time frame.  It is absurd to expect someone who is making $10 an hour to be able to perfectly project when the economy will resume normal(ish) operations and if the recovery of the re-opening will be V or U or slightly drunk L shaped.

So what is the policy solution?

One approach could be for the federal government to either waive or significantly reduce repayment of APTC clawbacks for anyone who collected a single week of enhanced, $600/week federal unemployment payments.  Low income workers will catch a break financially and cognitively as the management load will decrease.  These workers are also the class of individuals who are most likely to spend any additional cash so this should be fairly effective stimulus when the economy needs stimulus instead of merely social insurance.