Q: I’ve just become self-employed and I have no idea what my income will be next year. 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. 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 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 between Medicaid and a subsidized plan if your income fluctuates. 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 current estimates are that half of adults with incomes below 200 percent of poverty level will switch between subsidized private insurance and Medicaid at least once a year.
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 138 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). However, you are required to notify the exchange of changes in circumstances, so it’s unlikely that you would remain on a subsidized plan when you actually qualify for Medicaid. The protection against having to pay back subsidies in this scenario is helpful however for people who have variable and/or self-employed income and don’t really know what their income will be until the end of the year.
But 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.