- New rules require proof of income if you project an income above the poverty level but government records indicate a lower income.
- It’s generally a good idea to enroll on-exchange if your income is uncertain.
- How premium subsidies are reconciled on your tax return: Repayment amounts depend on your actual income.
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 insurance 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 generally a good idea to enroll through the exchange during open enrollment. If you do, and your income ends up being in the subsidy-eligible range for the year, you can notify the exchange of your new income and start claiming premium tax credits at that point. And when you reconcile your premium tax credit on your tax return, you’ll be able to claim the tax credit for each month of the year, since you were enrolled in an exchange plan throughout the year.
Prior to 2020, there was no provision to allow people enrolled in plans outside of the exchange to switch to an on-exchange plan if their income changed mid-year and made them newly-eligible for premium tax credits, since an income change was only considered a qualifying event if the enrollee already had a plan in the exchange.
But that changed as of 2020, as off-exchange enrollees now have the option to switch to the exchange mid-year if their income changes to a subsidy-eligible level (note that this transition has been somewhat complicated, and enrollment assisters report difficulties with obtaining this special enrollment period in many states). In that case, however, the subsidies would only be available on a pro-rated basis for the months that the person ends up having on-exchange coverage, rather than for the entire year (regardless of income, subsidies cannot be used to offset premiums for plans purchased outside the exchange).
Some people who don’t qualify for premium subsidies prefer to shop outside the exchange because they want to purchase a silver plan and are able to get lower-priced silver plans outside the exchange. That continues to be true in many states for 2020, so this is a decision that enrollees have to make on a case-by-case basis.
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 the 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 federal 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; this is confirmed in the Form 8962 instructions (line 6, on page 8, under “Estimated household income at least 100% of the federal poverty line”; here’s what 100 percent of the poverty level translates to in terms of dollars).
But note that IRS Publication 974 does include a caveat, clarifying that the exception from the subsidy repayment rules for people with income under the poverty level “does not apply if, with intentional or reckless disregard for the facts, you provide incorrect information to the Marketplace for the year of coverage. You provide information with intentional disregard for the facts if you know that the information provided is inaccurate. You provide information with a reckless disregard for the facts if you make little or no effort to determine whether the information provided is accurate and your lack of effort to provide accurate information is substantially different from what a reasonable person would do under the circumstances.”
In other words, you cannot intentionally misrepresent your income as being over the poverty level and then avoid having to repay the subsidy that was paid on your behalf throughout the year. But it’s unclear how well that particular provision is able to be enforced. In implementing the new rule that prevents a person from receiving a premium subsidy based on an attested income above the poverty level when government data show otherwise, HHS noted 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 were implemented as of 2019, this situation (being deemed subsidy-eligible but actually having an income that’s too low for subsidies) is less common than it used to be. 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 states that have expanded Medicaid) of the 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.