Q: I’m self-employed, so my income varies from one year to the next. I enrolled through the exchange and projected an income that makes me eligible for premium subsidies, but what if my income actually ends up being low enough that I would have been eligible for Medicaid instead? Will I have to pay back those subsidies? What if I don’t take monthly subsidies and use my savings to pay premiums, hoping my income will increase? What’s the best strategy for me right now?
A: Income volatility and its impact on subsidy eligibility have been addressed by various provisions of the ACA and IRS regulations. But starting with 2019 coverage, if an applicant attests to having an income that would make them subsidy-eligible, and the electronic data the government already has on hand (eg, tax returns, Social Security data, etc.) indicates that the person’s income is likely below the poverty level (and thus not subsidy-eligible), the exchange will request additional documentation from the applicant to verify the attested income (this is assuming the difference between the attested income and the government’s electronic data is more than a “reasonable threshold,” which has to be at least a 10 percent difference).
If the applicant can’t provide documentation to support the attested income, the exchange will make a subsidy eligibility determination based on the income data that the government already has — in other words, the applicant will be found to be ineligible for premium subsidies and cost-sharing subsidies. This is detailed in the 2019 Benefit and Payment Parameters, finalized in April 2018. The new rule does not apply to recent immigrants, who aren’t eligible for Medicaid and are thus eligible for premium subsidies with income as low as $0. But otherwise, if you’re projecting an income that’s subsidy-eligible and the government has data showing that your income is lower than you’ve projected (and not subsidy-eligible), be prepared to show documentation to back up the projection you’ve made.
If you’re not able to provide documentation and the exchange denies your subsidy eligibility based on the income data they have, you can still enroll and pay full price. If you later obtain data to document your higher projected income (a quarterly tax filing, for example), you can submit it to the exchange and start receiving premium subsidies at that point. But you would not be able to enroll for the first time at that point, if open enrollment has already ended.
The other possibility is to pay full price for your health coverage throughout the year, and then claim your full premium subsidy on your tax return. As long as your income does end up in the subsidy-eligible range and your health plan was purchased through the exchange, you’ll receive the full amount of your subsidy as a tax refund. Rest assured that even if the exchange determines that you don’t have enough documentation to prove your projected income, you will eventually get your subsidy if your assumption that your income would be subsidy-eligible was correct. But it’s harder than it used to be to just project an income that’s subsidy-eligible and receive a premium subsidy based on that projection, without documentation.
Here are some additional tips to keep in mind when you’re enrolling:
Update the exchange when your circumstances change
It is essential to notify the exchange of any income fluctuations (or other changes that could impact subsidy eligibility, such as a change in family size) when circumstances change throughout the year. The exchange can recalculate your subsidy or Medicaid eligibility at that time, and make changes as necessary.
Enroll on-exchange if your income is uncertain
Enroll in Medicaid if you’re eligible. For people who aren’t eligible for Medicaid but who have uncertain incomes, it’s essential to enroll through the exchange during open enrollment. If you shop outside of the exchange and then your income drops to a subsidy-eligible level during the year, you would not be able to enroll in a subsidized exchange plan until the next open enrollment period (for coverage effective the first of the following year) unless you experience a qualifying event. A change in income does not count as a qualifying event if you’re not already enrolled through the exchange (but you would be able to enroll in Medicaid at any time if your income were to drop to a level that makes you Medicaid-eligible).
You can switch from Medicaid to a private plan and vice versa if your income fluctuates during the year
You can switch between Medicaid and a subsidized plan if your income fluctuates, as long as you’re in a state that has expanded Medicaid. Medicaid enrollment is available year round, and conversely, loss of Medicaid is a qualifying event that allows you to enroll in an exchange plan. Efforts have been made to minimize this “churning” in order to provide more stability for low-income insureds, but the estimate was that half of adults with incomes below 200 percent of poverty level would switch between subsidized private insurance and Medicaid at least once a year due to income fluctuations.
Understand how premium subsidies are reconciled at tax time
Premium subsidies are available on “metal” plans if your household income is between 100 percent and 400 percent of poverty level (the lower limit is 139 percent in states that have expanded Medicaid). If your subsidy is overpaid, you may have to pay back all or part of the subsidy, depending on your actual income for the year. There are caps on how much of the subsidy must be repaid, unless your income ends up being more than 400 percent of the poverty level; in that case, the full amount of the subsidy would have to be repaid.
On the other hand, if your subsidy is underpaid throughout the year (ie, your income ends up lower than you projected, but still subsidy-eligible), you’ll receive your premium tax credit when you file your taxes the following year.
If you receive an advance premium tax credit and then your income actually ends up being under 100 percent of poverty level, you do not have to pay back the subsidy. (the lower threshold is 138 percent of the poverty level in Medicaid expansion states — here’s what all of those percentages translates to in terms of dollars). HHS noted in the 2019 Benefit and Payment Parameters that this is part of the reason for the new rule that requires documentation when an applicant attests to having an income that’s subsidy-eligible when federal data show otherwise, stating that “Particularly to the extent funds paid for APTC [for tax filers whose income ends up being under the poverty level] cannot be recouped through the tax reconciliation process, it is important to ensure these funds are not paid out inappropriately in the first instance.”
But with the new rules that have been implemented for 2019, this situation (being deemed subsidy-eligible but actually having an income that’s too low for subsidies) will be less common. For example, it’s no longer possible for a person to consistently earn less than the poverty level but project a higher income each year and receive premium subsidies based on the projection.
On the other hand, if you pay full price for a private plan – expecting your income to increase – and then your income ends up being below 100 percent (138 percent in Medicaid expansion states) of poverty level, there is no tax credit available to assist you, even if you’re in a state that has expanded Medicaid. You have to enroll in Medicaid when you’re eligible – there’s no provision for switching to Medicaid retroactively and recouping premiums you paid for private coverage.
So make sure you’re enrolled in a “metal” exchange plan during open enrollment (with premium subsidies if your projected income at that point makes you eligible) – or Medicaid if you’re eligible – and then keep the exchange updated during the year if your circumstances change. And if you’re projecting an income that’s significantly different from what the government already has on file, be prepared to provide documentation to back up your projection.
Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.