As healthcare reporters begin to focus on Obamacare open enrollment, one major, but overlooked issue comes to mind. That’s the messy business of reconciling at tax time what the government paid in health insurance subsidies–based on projected income for the year–with what consumers were actually entitled to.
Poor understanding of this aspect of the law may lead to nasty surprises when some policyholders learn they owe money to the government instead of getting a refund they may have counted on. If it turns out a family or individual’s income estimate was too low and the government therefore paid a too-large subsidy, the family or individual must pay it back. They will either owe money at tax time or receive a smaller refund. If the estimate was too high and the subsidy was too low, then the government will give money back at tax time.
Reporters need to understand this aspect of the Affordable Care Act, follow how navigators and others assisting people signing up are explaining it, and find out what the government is doing to make this part of the law easier to grasp. What follows are five tips for reporters looking to clarify subsidy reconciliation for themselves and their audiences.
Understand how subsidies are determined. The Affordable Care Act calls for tax-based subsidies. This means those signing up estimate their income for the year, and at tax time the IRS looks back to see how close the estimate was to actual income. This is different from how Medicaid determines income eligibility: Medicaid is based on current income, and people generally remain eligible for a year unless they report a change that makes them ineligible before they are due for renewal.
Advise those applying for subsidies to report income changes during the year. More than 80 percent of people who bought policies on the insurance exchanges received subsidies this year, and data suggest that most individuals with exchange policies have incomes of $25,000 or less. It’s not uncommon for this income to fluctuate during the year. Reporting such changes to the state exchange during the year means one’s subsidy could change–and, depending on whether someone’s income has gone up or down, what someone pays out-of-pocket for the premium could change as well. If a person or family’s income has increased, they have to return any overpayments for premiums paid on their behalf. The question is, do people pay it now or later? To avoid a big surprise at tax time, it may make sense to pay as you go.
Beware of what constitutes a change in income. Such changes are not intuitive. For example, subsidies vary with family income relative to the federal poverty level, which is defined by both earnings and family size. When an adult child moves out during the year, family size declines and the family is considered to have more available income. This might result in a lower subsidy and having to pay back money at tax time. Similarly, if a high school student gets a part time job in the summer, that money can be added to household income and can also affect the size of the subsidy. Currently, notices given when someone receives a subsidy don’t tell how the estimated subsidy is calculated. Reporters should press the federal government on how they are notifying policy-buyers of this important information.
Offer advice for minimizing tax surprises. One thing families or individuals can do to lessen the risk of owing the government more money in April is to estimate a higher income and receive a lower subsidy–if they can afford to do that. Of course, people can estimate a lower income and get a larger subsidy, but they need to plan accordingly and understand that they may get no tax refund, a much smaller one, or even owe the IRS money.
Sit in on some counseling sessions with navigators. Doing a little field work here is a good way to find out what consumers are being told and it also offers a window into how well navigators in your area are being trained. Watching how people were signed up last fall made for some very good stories.
Consider income reconciliation both a federal and local story. Follow implementation and reconciliation as it goes forward the rest of this year and into next. Look into how the government is tracking the size and scope of the tax adjustments. Interview people signing up for policies on the exchanges to find out if they know their potential risks at tax time. Their comments can give a sense of how much or how little people really know about what they’ve purchased.
Related content:
6 ways reporters can cover Obamacare open enrollment
An Obamacare reality check from reporters on the ground
Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for CJR's Covering the Health Care Fight. She also blogs for Health News Review and the Center for Health Journalism. Follow her on Twitter @Trudy_Lieberman.