First you save money on insurance. Then you give it back. Meet yet another puzzling anomaly buried within the Patient Protection and Affordable Care Act.
Researchers from UC Berkeley, UCLA and the Economic Policy Institute in Washington, D.C., examined the fine print that constitutes the rules and regulations surrounding subsidies for individuals and families buying insurance through the state exchange markets.
In findings published in the September issue of Health Affairs, they began with the following recitation:
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"Subsidies for health insurance premiums under the Affordable Care Act are refundable tax credits. They can be taken when taxes are filed or in advance, as reductions in monthly premiums that must be reconciled at tax filing. Recipients who take subsidies in advance will receive tax refunds if their subsidies were too small but will have to make repayments if their subsidies were too high."
In other words, the feds will subsidize your insurance coverage depending upon your income. However, if that income increases by a certain amount, you may have to give back the subsidy that allowed you to buy coverage in the first place.
Also read: Feds: PPACA subsidy claims will be checked
As the researchers reported: "We analyzed predicted repayments and refunds for people receiving subsidies, using California as a case study. We found that many families could owe large repayments to the Internal Revenue Service at their next tax filing."
How many? Perhaps 38 percent of families, the researchers said.
With consequences like that, people might decide to turn down raises or reject bonuses that tipped the balance in favor of a repayment. Repayments could be in the thousands of dollars, the researchers estimated.
The bottom line? Getting a subsidy for coverage, and then having to repay it, could generate resistance to using the exchange. After all, the subsidy may not be transparent to the purchaser. But the repayment certainly will be.
"We recommend that the health insurance exchanges mandated by the Affordable Care Act educate consumers about how the subsidies work and the need to promptly report income changes," the researchers said. "We also recommend that they provide tools and assistance to determine the amount of subsidies that enrollees should take in advance."
The subsidies are designed to help make insurance more affordable for individuals earning less than $46,000 a year and families below $94,000 annually.
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
