Study: Not Reporting Income Changes Could Cost Consumers in New Marketplaces

Unless they report income changes and adjust their tax credits in a timely manner, many families could owe the IRS large repayments at their next tax filing for receiving health insurance premium subsidies the government deems too large, according to a Health Affairs study.

Under the Patient Protection and Affordable Care Act, premium subsidies — distributed in the form of federal tax credits — will be available for people purchasing their own coverage through the new exchanges. People who have incomes from 100 percent to 400 percent of the poverty level, which amounts to $24,000 to $94,000 per year for a family of four in 2014, will be eligible. If an enrollee's income changes over the course of the tax year, they can report the change online, by phone, by mail or in person. The exchange will then send the enrollee a redetermination notice and will implement the changes on the first day of the month following the date of the notice.

Subsidy repayments are determined on a sliding scale depending on income. For example, those with an annual income of less than 200 percent of the federal poverty level have a cap of $600 per family and $300 per individual in repayments. Despite the caps, the repayments could financially strain some insurance consumers, according to the analysis. If a family of four with two working spouses received a year-end bonus that put their family income just over 400 percent of the poverty level, the spouses could face a repayment of up to $11,200 — 12 percent of their annual family income.

The study analyzed the population eligible for subsidies in California and inflated incomes to 2018-19 levels. The 2019 data were used to determine potential subsidy repayments. Based on this data, the researchers found 73.3 percent of the predicted subsidy recipients were in families with projected income changes of more than 10 percent between the two years. Furthermore, 9 percent of those eligible for a subsidy at the beginning of 2018 would end the year with an annual income of more than 400 percent the poverty level and would have to repay the federal government.

The researchers recommend the exchange administrators educate enrollees about how the tax credits work. Prompt reporting of income changes would reduce the number of recipients who owed repayments by 7 percent to 41 percent, depending on the changes reported and the subsidy adjustment method, according to the study.

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