A new study suggests that, for many families, the Affordable Care Act (ACA) will be less affordable than they expect.
The ACA, also known as Obamacare, mandates that most Americans who are currently uninsured purchase their own health insurance by Jan. 1, 2014. To make the process a little easier, state-based health insurance marketplaces will open around Oct. 1, offering plans at various price points. To make sure that plans stay affordable, individuals and families whose total annual income falls between 100 percent and 400 percent of the Federal Poverty Level (FPL) will be eligible to receive tax credits (also called subsidies) to help them pay for insurance. For most consumers, the subsidies will be paid directly to the insurance companies, to offset premiums.
Since subsidies determined on a sliding scale based upon annual income, if your income changes, you may have to pay back some of that subsidy once tax time rolls around in April.
According to a recent study, funded by the California Program on Access to Care at the University of California, Berkeley, School of Public Health, up to 38 percent of families may have to repay some portion of their subsidy due to changes in income.
"Like any other tax-based program," lead author Ken Jacobs explains, subsidies are "reconciled at the end of the year when you do your taxes." But unlike other tax-based programs, consumers must report income changes directly to the Internal Revenue Service (IRS).
With companies like IBM, Home Depot, Walgreens and Time Warner pushing retirees and employees out of their companies' group insurance plans and into the state-run marketplaces, thousands of additional consumers will be expecting subsidies, unaware that they may be forced to give some of the money back to the government. Accurately reporting their income will be especially important. "The good news is that if people do make those reports, the share of the people who owe money and the amounts they owe become relatively small," Jacob says.
When signing up for insurance, if your income has changed since your last tax filing, make sure you have reported that change.Certain life events -- moving to a different region or state, marriage, divorce, birth of a child, changing jobs, or taking a child off of your health insurance plan – can affect your income. No matter if your income increases or decreases, any change must be reported online, by phone, by mail or in person to the Internal Revenue Service. Your subsidy eligibility will then be reevaluated, and the new amount will become effective on the first day of the next month.
The greatest risk is for individuals or families who are close to the 400 percent federal poverty line cut-off for subsidy eligibility. In 2013, that limit is $45,960 for individuals and $94,200 for families of four.
Under the law the highest amount you would owe back to the government for changes in your subsidy amount is capped depending on income level, according to Jacobs. If your income is between 200 and 300 percent of the Federal Poverty Level, the maximum repayment amount is $1,500 for families or $750 for individuals. (You can calculate your potential subsidy here.) If you fall between 300 percent and 400 percent of the Federal Poverty Level, the maximum repayment is $2,500 for families or $1,250 for individuals. If your income is less than 200 percent of the FPL, the maximum repayment is $600 for families and $300 for individuals. In Washington, D.C., the health insurance exchange, DC Health Link, offers subsidies that are 85 percent of what a consumer would be entitled to unless they specifically ask for the entire amount up front. The idea is to ensure that consumers will get some of the subsidy on their tax return, and not be faced with high repayment rates if their income changes.