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Obamacare’s ‘subsidy cliff’ eliminated for 2021 and 2022

The subsidy cliff has been temporarily eliminated, saving some enrollees thousands of dollars per year in 2021 and 2022

For 2021 and 2022, the American Rescue Plan has eliminated the ACA's subsidy cliff | Image: ike / stock.adobe.com

For the first several years after the health insurance marketplaces/exchanges debuted for 2014 coverage, the premium subsidy (premium tax credit) eligibility range was capped at household incomes of 400% of the federal poverty level (FPL). People with incomes above 400% of FPL were on their own when it came to paying for health insurance. But that has changed for 2021 and 2022, thanks to the American Rescue Plan’s provision that eliminates the subsidy cliff. (The version of the Build Back Better Act that passed the House of Representatives in November 2021 — see Section 137304 — would continue to eliminate the income cap for subsidy eligibility through 2025. The legislation is under consideration in the Senate as of December 2021.)

Obamacare subsidy calculator *

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Include yourself, your spouse, and children claimed as dependents on your taxes.

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Modified Adjusted Gross Income (MAGI)

For most taxpayers, your MAGI is close to AGI (Line 7 of your Form 1040 in 2018, and Line 8b in 2019).

* This tool provides ACA premium subsidy estimates based on your household income. healthinsurance.org does not collect or store any personal information from individuals using our subsidy calculator.

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The initial assumption, when the ACA was being drafted in the late aughts, was that when incomes are above 400% of the poverty level, health insurance would be affordable (as a percentage of household income) without the need for a subsidy. But that did not prove to be the case in many areas of the country, particularly for older enrollees.

American Rescue Plan: No subsidy cliff in 2021 or 2022

For 2021 and 2022, Section 9661 of the American Rescue Plan simply caps marketplace health insurance premiums (for the benchmark plan) at no more than 8.5% of household income. This applies to people with household incomes of 400% of the poverty level or higher; for people with lower incomes, the normal percentage of income that has to be paid for the benchmark premium has been reduced across the board.

If your household income is more than 400% of the poverty level and the benchmark plan’s premium would already be no more than 8.5% of your income in 2021 or 2022, you won’t qualify for a premium subsidy (ie, the American Rescue Plan wouldn’t change anything about your situation). This is more likely to be the case for younger enrollees in areas of the country where health insurance is less costly than average.

But if the full-price cost of the benchmark plan would be more than 8.5% of your income, you’re eligible for a premium subsidy in 2021 and 2022 (assuming you’re otherwise eligible, meaning that you’re lawfully present in the U.S. and not eligible for Medicaid, premium-free Medicare Part A, or employer-sponsored coverage that’s considered affordable and provides minimum value). So for some people, especially older enrollees in areas of the country where health insurance is particularly costly, subsidy eligibility in 2021 and 2022 extends well above 400% of the poverty level.

The subsidy cliff: What it is, who was affected, and how the ARP has improved affordability

Before the American Rescue Plan (ARP) was enacted, eliminating the income cap for subsidy eligibility in 2021 and 2022, subsidies were available in the continental US for a single person with an income of up to $51,040. For a household of two, the income limit was $68,960, and for a household of four, it was $104,800 (Alaska and Hawaii had higher limits, as the poverty level is higher there).

(Note that these numbers were for 2021 coverage, and were based on the 2020 poverty level; the prior year’s numbers are used to determine subsidy amounts because open enrollment takes place before the coming year’s poverty level numbers are published. Also, note that household income means an ACA-specific calculation of modified adjusted gross income.)

An example: Prior to the American Rescue Plan (older enrollees, expensive area)

Consider a couple, ages 60 and 63, living in Charleston, West Virginia. We’ll consider their pre-ARP coverage options if they earn $68,900, versus an income of $69,000, and then we’ll take a look at how the ARP dramatically changed the picture for 2021 and 2022.

For 2021 coverage for this couple, there were 17 plan options available through the health insurance exchange (HealthCare.gov is the exchange in West Virginia). Prior to the American Rescue Plan, if their projected household income for 2021 was $68,900, the subsidies were structured so that they kept this couple’s premiums for the benchmark plan to no more than 9.83% of their income in 2021. That’s $6,773 for the year, or $564/month. The full-price cost of the benchmark plan in their area is a whopping $3,273 for this couple, so their premium subsidy would have been $2,709/month — a grand total of more than $32,500 in subsidies over the course of the year. And the lowest-cost plan available to them would have been just $297/month in after-subsidy premiums. (In a moment, we’ll take a look at how much lower their premiums are under the ARP, even at this income level that already made them eligible for subsidies under the normal rules.)

But if their income was $69,000 — just $100 higher — they would not have qualified for a premium subsidy at all pre-ARP. In that case, the cheapest health plan they could get was $3,006 per month in premiums in 2021, amounting to more than $36,000 for the year. That’s more than half of their annual income, for the lowest-priced plan available to them (it has a deductible of $7,700 per person, and a family out-of-pocket maximum of $17,100). The other 16 available plans have premiums that ranged upward from there, reaching as high as $4,438/month.

So for this couple, an income increase of just $100 would have resulted in the loss of more than $32,000 in premium tax credits, and almost certainly made health insurance unaffordable — very few people can afford to spend more than half their income on health insurance premiums.

This potentially huge jump in premiums when a household’s income went above 400% of the poverty level is referred to as the subsidy cliff. It’s described as a cliff because it’s a sharp and sudden spike. For people with income that doesn’t exceed 400% of the poverty level, the subsidies are designed in a way that results in gradual increases in after-subsidy premiums as income increases. But before the ARP was enacted, if income exceeded 400% of the poverty level, the subsidies ended abruptly. And if the subsidies were particularly large (as is the case for the West Virginia couple in this example), the results were particularly harsh.

The American Rescue Plan’s impact

Now let’s take a look at how the American Rescue Plan changes things for this couple. If they earned $68,900 in 2021, that’s a little over 399% of the poverty level. We’ll round to 400%, which means they had to pay 8.5% of their income for benchmark premium — as opposed to 9.83% under the pre-ARP rules (note that if they had a lower household income, the ARP’s sliding scale would have them pay as little as 0% of their income for the benchmark plan; it ranges from 0% to 8.5%, depending on income).

So they would only have to pay $5,857 in annual premiums for the benchmark plan, or $488 per month (as opposed to having to pay $564/month for the benchmark plan under pre-ARP rules). That would increase their premium subsidy by $76 per month, and the subsidy can be applied to any metal-level plan available in their area. So the cheapest plan’s premium dropped to $221/month, instead of $297/month under the previous rules.

This is obviously beneficial, but the ARP has a much more significant impact if this couple was otherwise hit by the subsidy cliff. If their income was $69,000 in 2021, they were not subsidy-eligible at all pre-ARP. But under the ARP, they only have to pay 8.5% of their income for the benchmark plan. That’s $5,866 in annual premiums, or $489 per month. That would make them eligible for a premium subsidy of $2,784/month (as opposed to $0/month under the pre-ARPrules), and the cheapest available plan would cost them just $222/month.

As you can see, under the ARP, this couple’s 2021 premium subsidy only dropped by $1/month when their annual income increases by $100. This is a much more reasonable approach, and it results in a smooth curve where subsidies eventually disappear, but not suddenly and not leaving people with health insurance premiums that amount to a substantial portion of their income.

Because this couple is older and in an area where health insurance is much more expensive than average, they would have had to earn an income of $462,000 in 2021 in order to become ineligible for subsidies under the ARP. That’s because the benchmark plan in their area has a full-price premium of $39,276, and you need a very high income for that to be no more than 8.5% of it.

For 2022, if their income continues to be $69,000, they will qualify for a subsidy of $3,101 per month. (We’ve kept their ages at 60 and 63 to help make the apples-to-apples comparison easier; in reality, their increasing age would result in larger premiums and correspondingly larger subsidies. The larger subsidy for 2021 is due to overall rate increases and the fact that West Virginia’s insurers are adding the cost of cost-sharing reductions only to Silver plans for 2022.)

Subsidy cliff less burdensome for younger enrollees, but ARP still beneficial

If the couple in Charleston were younger – say 30 and 33 – but had the same $68,900 household income in 2021, they would have qualified for a premium tax credit of $784/month prior to the American Rescue Plan. This would have brought down the prices on the available plans to a range of $454/month to $1,043/month. If their income was just $100 higher, at $69,000, they didn’t qualify for a premium tax credit. In that case, the premiums for the available plans would have ranged from $1,238/month to $1,827/month.

Although the subsidy cliff wasn’t as harsh for younger enrollees — since their full-price premiums are lower — this couple would have still missed out on $9,408 in annual premium subsidies just because their income increased by $100. Both couples faced a “subsidy cliff” but it was a much more substantial cliff for the older couple.

Under the ARP, the younger couple also saw a reduction in their premiums regardless of which income level they have, but it was much more pronounced if their income was just over 400% of the poverty level. At an income of $68,900 in 2021 (which put them at more than 399% of the poverty level, so we’ll round up and say they have to pay 8.5% of their income for the benchmark plan), they had to pay the same $488 in monthly premiums for the benchmark plan as the older couple, and their subsidy would increase to $860/month — an increase of $76/month (the same as the older couple, since they have the same income).

And at an income of $69,000, the younger couple would have to spend $489/month for the benchmark plan, reducing their subsidy by just one dollar per month, to $859/month. Just like the older couple, the younger couple would see a gradual decrease in subsidy amounts as their income increased.

But subsidies for the younger couple under the ARP would cease by the time their income reached a little more than $190,000 (as opposed to more than $462,000 for the older couple), because the full-price cost of the benchmark plan for the younger couple is $16,176… still substantial, but the 8.5% of income threshold would be reached at a much lower income level than it would be for the older couple with a benchmark plan price of more than $39,000.

For 2022, the larger subsidies in West Virginia (due to the ARP’s subsidy structure in addition to the state’s approach to premiums for 2022) will benefit the younger couple as well. With an income of $69,000 (and ages still 30 and 33), their subsidy will increase to $993/month in 2022, resulting in plans priced as low at $233/month (as opposed to the lowest-cost plan being $1,238 with that income before the American Rescue Plan eliminated the subsidy cliff).

Location, location, location

We used West Virginia as the example here because individual/family health insurance premiums in West Virginia are much higher than the national average. As you can see in this comparison sheet, people in some areas with income a little above 400% of the poverty level saw little or no difference in their premiums under the ARP, because the benchmark plan was already priced at a level that’s considered affordable under the new rules (ie, no more than 8.5% of household income).

If the couples in our example above were living in Bismark, North Dakota, they would have still faced a subsidy cliff at an income of $69,000 in 2021 prior to the ARP, but it would have been much less harsh: The older couple would have missed out on about $16,000 in premium subsidies over the course of the year, and the younger couple would have missed out on about $2,600 in premium subsidies (in both cases, that’s in comparison with the situation they’d be in if their income were just slightly lower, at $68,900; in both cases, they now qualify for lower-cost coverage under the ARP).

West Virginia is a good example of a place where the subsidy cliff is particularly harsh, because full-price premiums there are so much higher than average. But as we can see from the North Dakota example — where premiums are much lower than average — the subsidy cliff has been a problem nationwide, particularly for older enrollees.

ARP fix is a welcome relief, and lawmakers are working to extend it

The subsidy cliff is part of the ACA, but the ARP has eliminated it for 2021 and 2022. The ARP also eliminated excess subsidy repayments for the 2020 plan year, meaning that people whose 2020 income ended up being over 400% of the poverty level — and who were facing the prospect of having to pay back the entire subsidy to the IRS — did not have to repay any subsidies that were paid on their behalf in 2020 (based on an initially projected income that was subsidy-eligible).

But additional legislation will have to be enacted to prevent the subsidy cliff from coming back in 2023. Democrats have been trying for years to eliminate the subsidy cliff, and their latest effort is the Build Back Better Act, which passed the House in November 2021 and is under consideration in the Senate as of December 2021. The legislation initially called for permanently eliminating the income cap for subsidy eligibility. But the version of the legislation that passed the House calls for the income cap to be eliminated through the end of 2025. If that’s enacted, the issue of the subsidy cliff would then be pushed to a future legislative session.

Additional subsidies retroactive to January 2021

Although the ARP’s subsidy enhancements debuted in the spring of 2021, they’re retroactively available back to January 1, 2021 (or when the enrollee’s coverage began, if they signed up later in the year). So if you were already enrolled in a marketplace plan before the new subsidies became available, you’ll be able to claim the subsidies for the earlier months of 2021 when you file your 2021 tax return.


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.

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Edward
Edward
1 year ago

This article came up first when I Googled “Obamacare cliff” so I hope others will find it and will read up on what I discovered…

Users of HRBlock’s self-directed tax software, BEWARE: the program does NOT adequately understand or deal with the implications of the ObamaCare “cliff”. 

The problem for me was that they did not catch the fact that my numbers were straddling the cliff or that one of the choices it offered to me (on a completely unrelated topic) could make a $10000 difference for me.  In fact, it chose the WRONG option by default and never mentioned the possibility that a different option would be better for me.  Making matters worse, once it chose the default option during its “interview process”, it was very difficult to find the screen to reset to a different choice.

What was the particular option, you ask? I am paying for my kid’s college tuition and have the choice of taking one of 2 tax credits, or a third choice, a tax deduction. HRBlock defaults to the tax credit but, in may case, (and if you are close to the “Cliff”), the deduction could be much better for you.

Clearly, an oversight on their part, so beware. They (and probably other tax packages) probably don’t really worry about the Cliff, as so few people can be effected by it and it’s not worth their time to build it into their software,

(Another trick that HRBlock missed that would have help get me below the line: Traditional IRA contributions.)

Louise Norris
Editor
1 year ago
Reply to  Edward

Glad you were able to get it sorted out in the end. We have an article all about how things like Traditional IRA contributions and HSA contributions (or any other “above the line” deduction) can help to get a person into the subsidy-eligible income range if they’d otherwise be a little above it: https://www.healthinsurance.org/faqs/with-my-income-im-barely-over-the-eligibility-limit-for-a-premium-subsidy-is-there-anything-i-can-do-to-lower-my-income-so-i-become-eligible/

Bill
Bill
1 year ago

Will the 2021 and 2022 APTC repayment limits (currently at $2700 for married filing jointly) apply only to those under 400% FPL (as it works today) OR will the the repayment limits apply regardless of your MAGI, even if over 400% FPL?

Louise Norris
Editor
1 year ago
Reply to  Bill

The American Rescue Plan does not specifically address that issue. I would expect the IRS to address it in the regulations they’re working on related to the ARP: https://www.irs.gov/newsroom/irs-statement-american-rescue-plan-act-of-2021

JE Matthews
JE Matthews
1 year ago

I signed up for marketplace coverage on 3/19. I panicked about having to claim the subsidy as additional income at the end of the year and canceled the coverage on 3/20. The effective date was to be 4/1/21. Will I still have to claim the subsidy and pay taxes on it for the whole year even though the coverage literally never started. When I canceled it said the effective date would be 5/1.

Louise Norris
Editor
1 year ago
Reply to  JE Matthews

If your coverage was never in force, there won’t be any subsidy reconciliation at the end of the year. However, premium subsidies are not added to your taxable income, if that’s your concern?

If you do qualify for a subsidy (premium tax credit) and choose to have it paid to your insurer each month (instead of waiting to claim the whole amount on your tax return), you do have to square up with the IRS at the end of the year (this is what most people do — very few people pay full price and wait to claim the whole amount on their tax return). Here’s how that works: https://www.healthinsurance.org/faqs/what-happens-if-my-income-changes-and-my-premium-subsidy-is-too-big-will-i-have-to-repay-it/

Basically, once the years is over, you and the IRS know exactly how much you earned, as opposed to just looking at an estimated projection. So they can tell if the subsidy you received was too big, too small, or just right. If it was too big, you have to repay some or all of it. If it was too small, they’ll give you the additional amount when you file your taxes. And if it was just right, nothing changes. (For 2020 only, the IRS is not making people repay any excess premium subsidies).

If you think you’re eligible for a subsidy, especially under the enhanced subsidy structure created by the American Rescue Plan, it’s a good idea to enroll before the current COVID-related enrollment window closes (May 15 in most states). Here’s more about the extra subsidies that are available for this year and next year: https://www.healthinsurance.org/blog/2021/03/05/how-the-american-rescue-plan-act-would-boost-marketplace-premium-subsidies/

Mary Beth Hebert
1 year ago

This is a great article and very helpful, but I’m trying to find a way to accomplish this: “And you’ll also have the option to return to the marketplace later in the year and activate your subsidies to be paid to your insurer in real-time, . . .” Any progress on this front, yet? I’ve checked at healthcare.gov and it doesn’t even have the FAQ left if you have an account. Thank you!

Louise Norris
Editor
1 year ago

HealthCare.gov will debut the new subsidy eligibility rules on April 1. They’ve explained the process here, in terms of what enrollees need to do to start claiming the new subsidy amounts: https://www.cms.gov/newsroom/fact-sheets/extended-access-opportunity-enroll-more-affordable-coverage-through-healthcaregov

David DeRosa
David DeRosa
1 year ago

So, one good thing did come out of the American Rescue Plan… But to be clear, when it say it’s lifted for 2021 and 2021 does that mean IN 2021 for tax year 2020??

Louise Norris
Editor
1 year ago
Reply to  David DeRosa

For the 2020 tax/plan year (taxes filed in 2021), people do not have to repay any excess advance premium tax credits, regardless of the reason they would otherwise have had to do so: https://www.healthinsurance.org/blog/how-the-covid-relief-law-will-rescue-marketplace-plan-buyers/

The subsidy cliff has been eliminated for the 2021 and 2022 plan/tax years. Those subsidies will be reconciled on tax returns that are filed in 2022 and 2023.

Greg
Greg
7 months ago

Great article! I have a unique situation this year 2021. My normal income is just below the 400% poverty level so I’ve been receiving a subsidy. However, recently I had a very very large capital gain payout that was unexpected (a company takeover). I assume I’ll have to payback the subsidies, but anything else, like a penalty? What income will the subsidy be based on? Thanks.

Louise Norris
Editor
7 months ago
Reply to  Greg

Congratulations on the windfall! You’re correct that you’ll likely have to pay back any subsidy that was paid on your behalf this year. Although there’s no income cap for subsidy eligibility in 2021, a subsidy is not available if the unsubsidized cost of the benchmark plan would be no more than 8.5% of your household income. It sounds like that will probably be the case for you, which means you’ll need to repay the subsidy when you file your 2021 taxes.

But there’s no additional penalty.

For reference, here’s how ACA-specific MAGI is calculated: https://www.healthinsurance.org/glossary/modified-adjusted-gross-income-magi/ Although your advance premium tax credit is based on your projected MAGI for the year, your actual tax credit (calculated on your tax return) is based on your actual MAGI, after the year is over. Then the difference is reconciled, if necessary.

Mark Broeckelman
Mark Broeckelman
6 months ago

I have just discovered (through this article and other research) that the ARP likely would impact me. But I purchased my current insurance in December 2020 directly from Kaiser Permanente for 2021, not the federal or state marketplace. I did so because at that time I did not qualify for any subsidy. Now it appears I do (or did) qualify with the ARP changes. Is there any way that I now can qualify for the premium tax credit for 2021, or did I miss a sign up window? If so, what do I need to do?

Louise Norris
Editor
6 months ago

Unfortunately, there is no way to go back and claim the premium tax credit for a month when you had non-marketplace coverage. If you currently have a qualifying life event, you could switch to the marketplace version of your plan for December. And there are a few states where a COVID-related special enrollment period is still underway (CA and DC are the only ones with Kaiser, however). If you happen to be in one of those states, you may be able to switch to the marketplace version of your plan for December, and claim the premium tax credit for one month in 2021.

But even if that’s not possible, be sure to switch to the marketplace for 2022 coverage. That enrollment window is currently underway, and there continues to be no income cap for premium tax credit eligibility in 2022. Here’s my guide to open enrollment: https://www.healthinsurance.org/open-enrollment/

T Smith
T Smith
6 months ago

Is the APTC repayment limit for 2021 tax year the same for 2022 plan year? $2,700 for a couple under 400% FPL?

Louise Norris
Editor
6 months ago
Reply to  T Smith

We won’t know that until sometime in late 2022. The IRS just put out the draft version of the 2021 Form 8962 last week: https://www.irs.gov/pub/irs-dft/i8962–dft.pdf It still has the same $2,700 cap for a couple with income under 400% FPL. But those forms are yet final for the 2021 tax year.

Mark Malaspina
Mark Malaspina
5 months ago

Thank you for a thorough and understandable explanation of a complicated subject. Currently I have a non-marketplace private policy with Anthem that includes my wife and me. She has no available coverage through her employer. My question: If my wife gets her own 2022 marketplace policy, does the affordability of my workplace policy for me individually apply to her ability to claim a subsidy? We currently file our 1040 jointly. Depending upon 2022 income, it’s likely that individual coverage premium for me through work would be “affordable” but joint coverage through work that includes my spouse would not be affordable.

Mark Malaspina
Mark Malaspina
5 months ago

Following up on my question, it appears I’m in the “family glitch” situation. The benchmark for affordability is an individual work-based policy, even if a spouse (or child) has no other available coverage.

Louise Norris
Editor
5 months ago
Reply to  Mark Malaspina

Unfortunately, that’s correct. Here’s more about the family glitch: https://www.healthinsurance.org/obamacare/no-family-left-behind-by-obamacare/ Although the American Rescue Plan made coverage more affordable, it did not address the family glitch. The Build Back Better Act would lower the affordability threshold for employer-sponsored coverage to 8.5% of household income, but it would not fix the family glitch. So the affordability determination would still just be based on the employee’s coverage, yet it would continue to affect subsidy eligibility for any family members who are eligible to enroll in the employer’s plan.

Walt
Walt
5 months ago

For 2021, my wife was on Covered CA, for 6 months, after which she went on Medicare(I was already on Medicare in 2021).The Family Size should refer to the two of us, correct(although only one is enrolled in ACA)? For some reason the, confirmation letter back in April. seems to show a calculation based on 1 person, if you look at the income used and the plan placement. Second, if one is only on the plan for half a year, do they just prorate for 50% of the annual MAGI when it’s calculated on your tax return?
Thank you.

Louise Norris
Editor
5 months ago
Reply to  Walt

This will all get sorted out when you file your 2021 tax return, and we recommend that you consult with a tax advisor to be certain you’ve got it correct. But in terms of what you should expect:

The IRS will use a household of two, which means the poverty level they’ll be using (to determine what percentage of the poverty level you earned) will be $17,240 (that’s for a household of 2 in 2020; the 2020 numbers are used for 2021 subsidies).

They’ll compare the cost of just your wife’s coverage with your total household income to determine her subsidy amount. They’ll still use the total annual income even though she only had coverage for half the year. In terms of the calculation, you’ll determine the total annual subsidy and then take 1/12 of that to see what the monthly subsidy amount is. Then she’s eligible for that monthly amount for the months she had coverage.

This is the form that’s used to reconcile the premium tax credit on your tax return: https://www.irs.gov/pub/irs-pdf/f8962.pdf

Sa C
Sa C
3 months ago

I am at the other end of the ACA eligibility window – is there any help for me? I’m a professional living in a state that did not expand Medicaid. I left my job voluntarily in August 2020 over COVID safety concerns (so I was ineligible for unemployment), and didn’t find substantial work again until June 2021. I slowly cobbled together 3 part-time jobs, none with insurance. I knew it would be tough, so in open enrollment for 2021, I had guesstimated my 2021 income would be $13,000 [just above FPL = $12,880 for a single person], and then accepted subsidies of $600/month on an ACA Silver plan, paying what I could above that amount. The terribe news is … I didn’t make enough in 2021. My AGI is less than $12,880, and I am afraid I have no recourse, but will have to somehow pay back $7200 out of that. Please tell me that I am wrong! That the help isn’t just for the higher earners, but for those of us really down in a hole.

Louise Norris
Editor
3 months ago
Reply to  Sa C

You should be fine. The short story is that as long as you provided a good faith income projection that was as accurate as possible when you enrolled, you do not have to repay subsidies if your income ends up below the poverty level. This article explains more details: https://www.healthinsurance.org/faqs/if-my-income-is-less-than-expected-this-year-i-might-be-eligible-for-medicaid-what-can-i-do-during-open-enrollment-to-cover-my-bases/

Craig Cheek
Craig Cheek
3 months ago

It appears to me that you only covered half of the subject. What happens to those taxpayers who are in the 200% of the poverty level range? At the same time the ARP was helping “cliff dwellers” it was screwing those barely above the poverty level by replacing the IRS’ Applicable Figure Table with one of their own. Isn’t this going to be a huge tax increase for those on Obamacare who are between 150% and 400%?

Louise Norris
Editor
3 months ago
Reply to  Craig Cheek

No, it’s actually the opposite of that. The ARP’s applicable percentages are all lower than the percentages that were being used pre-ARP: https://www.healthinsurance.org/faqs/is-the-irs-saying-ill-have-to-pay-more-for-my-health-insurance-next-year/ The ARP not only made subsidies available for people above 400% of the poverty level, it also increased the size of subsidies for people with income below 400% of the poverty level. Subsidies got larger for those individuals as of 2021, and continue to be larger this year, thanks to the new applicable percentages that the ARP implemented. Here’s more about this: https://www.healthinsurance.org/blog/how-the-american-rescue-plan-act-would-boost-marketplace-premium-subsidies/ (whether this will be extended into 2023 and beyond is still up to Congress).

Earl Alderson
Earl Alderson
3 months ago

Now that it looks like the Build Back Better plan will not happen. Do you think the ACA cliff will return for 2023?

Louise Norris
Editor
3 months ago
Reply to  Earl Alderson

We just don’t know at this point. Eliminating the ACA’s subsidy cliff does have some level of bipartisan support, and it was one of the provisions that Sen. Manchin agreed to in his own pared-down version of the BBB. My guess is that Congress will figure out a way to continue the enhanced premium subsidies past the end of 2022, but it is still very much up in the air.

Melissa
Melissa
2 months ago

Any word on whether the IRS will cap APTC repayments for those with incomes at 400% FPL and above in 2021? 

As self-employed folks, our MAGI fluctuates $15K to 30K each year. It’s hard to estimate our income, but we took less than full subsidy each month in 2021 and are deducting the SEP max, off-market health insurance premiums for our grad school child, and 1/2 SE tax. So we might be under 400% of FPL. Waiting on final draft return.

This year we’re trying to file our 2021 taxes by April deadline because of ID theft/fraudulent return last year after filing via October extension. How will our APTC repayment amount be treated if the IRS doesn’t issue an update on repayment caps/income levels until late 2022 (per your earlier comments)? If we are over 400% FPL, then will we owe the full subsidy amount taken? Or just the excess if we are still within close range/only slightly over the correct (adjusted) subsidy amount based on final MAGI?

Louise Norris
Editor
2 months ago
Reply to  Melissa

Hi Melissa,

My earlier comment was referring to the possibility of an extension of the American Rescue Plan subsidy enhancements that eliminated the “subsidy cliff” that normally exists at 400% of the poverty level. I’m optimistic that will happen, which would mean that people with income above 400% of the poverty level could continue to receive subsidies if the benchmark plan would otherwise be more than 8.5% of their household income (but of course, we don’t know how this will work out until Congress takes action on it).

But capping excess subsidy repayments is a different issue altogether. The American Rescue Plan eliminated all excess subsidy repayments for 2020 only. But it did not change anything about excess subsidy repayments for 2021 or future years. There was some uncertainty throughout 2021 in terms of whether the IRS might adjust their rules for excess subsidy repayments given the fact that subsidies were newly available to people with income above 400% of the poverty level. But they finalized the 2021 instructions for Form 8962 in late 2021, and they did not include a cap on excess subsidy repayments for households with income above 400% FPL: https://www.irs.gov/pub/irs-pdf/i8962.pdf (see Table 5 on page 16).

So if your income for 2021 was over 400% of the poverty level AND you received a larger premium subsidy than you were actually supposed to get, you’d have to repay all of the EXCESS subsidy. That’s also how it works for 2022. But that doesn’t mean you’d have to pay back the full subsidy amount. For 2021 and 2022 (and possibly future years), subsidies are available above 400% of the poverty level. But if the subsidy that’s paid on your behalf throughout the year ends up being more than it’s supposed to be and your income is over 400% of the poverty level (based on your actual income at the end of the year), you have to repay all of the excess (as opposed to households with income below 400% of the poverty level, who may or may not have to repay all of the excess, depending on whether the excess is more or less than the repayment caps).

Melissa
Melissa
2 months ago
Reply to  Louise Norris

Thanks for clarifying. Very helpful!

Greg
Greg
1 month ago
Reply to  Louise Norris

Quick question with ref to the above question and answer. So if you are over the 400% of poverty level in 2021 with a family of 2. Would you pay all subsidies back or pay a total of 8.5% of your adjusted gross income for the year 2021? Also yes we were signed up for Obama care for the entire 2021 year from the beginning. Finally as of today-do you know when congress will vote on this or if they have at this time vote for the extension of the American Rescue Plan?

Louise Norris
Editor
1 month ago
Reply to  Greg

For 2021 and 2022, you would not have to pay back all subsidies if you end up over 400% of the poverty level (as opposed to previous years, when all subsidies would have to be paid back if you ended up over 400% FPL, since no subsidies were available at that income level).
Instead, for 2021 and 2022, you would only have to pay back EXCESS subsidies, meaning whatever is over the amount that you should have received. The amount that you should have received is calculated based on keeping the cost of the second-lowest-cost Silver plan at no more than 8.5% of your income for the year.
So for example, if you received $5,000 in subsidies but it turns out (based on your actual income) that you should only have received $4,000 in subsidies, you’d have to repay that extra $1,000. But not the entire $5,000 (as would have been the case in previous years).
There is not currently a timeframe or details for a bill to extend ARP subsidies. The Build Back Better Act would have done that, and the House passed it last fall. But it did not advance in the Senate. Here’s a recent article we published about this: https://www.healthinsurance.org/blog/what-will-happen-if-arps-insurance-subsidies-expire/

Dan
Dan
1 month ago

My wife and I were pushed over the cliff in 2019. We were both over 60 and retired. We had to get health care from the market place in 2019 because neither of us were working.

There was only one choice, Ambetter, in Missouri and our family premium was $25,000 before the credit and we paid $2500 in monthly premiums. I had high medical expenses in 2018 and 2019 and I finally got SSDI in 2021. But in 2019 I took out about $1000 more than the 400% limit to pay off medical debts.

As a result we were sattled with a $22,000 IRS tax liability on an AGI of about $45, 000. Is there any relief for us? We’re making a $350 monthly payment to the IRS for ever. Basically a car payment with no car.

I hired a tax relief firm but, because we have a few assets and our modest home is paid for, the IRS will get its money from us one way or another. The only thing that’s changed is the American Rescue Plan.

Louise Norris
Editor
1 month ago
Reply to  Dan

Dan,
I’m sorry you’re in this situation. If you’ve already worked with a tax relief firm, I can’t think of any other avenue besides making the payments until the debt is paid off. Your situation is a perfect example of why the American Rescue Plan’s subsidy enhancements were so desperately needed, and why it’s so important that Congress extend them past the end of this year.

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