The most common reasons for repayments or refunds are changes in income or family size. The law allows consumers to report these changes to the Marketplace throughout the year, but with the law being so new, most 2014 reconciliations will happen during tax filing.
Projections published today by the Kaiser Family Foundation found that 50% of households that received a 2014 tax subsidy to buy health coverage under the Affordable Care Act (ACA) will face repayment, while 45% will get a refund.
The analysis is based on the Survey of Income and Program Participation, which models historic income volatility among households in the ranges eligible for subsidies under the law. Researchers found that 3% to 5% of all US households that file taxes will have some adjustment to the ACA tax credits for 2014. This represents 4.5 million to 7.5 million households, according to a statement from the Kaiser Family Foundation, which released the report this morning.
“There are several reasons that may cause people to need to reconcile their advance credits. The simplest is just that their income may change. Another is that there may be a change in the size of the family (from a birth, death, or divorce), which affects the family’s income as a percent of poverty,” wrote the authors, Cynthia Cox, Anthony D’Amico, Gary Claxton, Rose Ma, and Larry Levitt.
Persons receiving the subsidies can report the changes to Marketplace during the year to avoid repayment when they file their taxes, but with the ACA being so new, the authors say notification is unlikely in most cases until taxes are filed.
The subsidies in question are the subject of the pending case before the US Supreme Court, King v. Burwell, which was argued March 4, 2015. Plaintiffs in that case argued that language in the ACA should limit subsidies only to those consumers in states that set up their own exchanges. A decision is expected in early June.
Benefits Beyond Subsidies
Even if the lowest-income enrollees owe repayment, obtaining coverage may have been worthwhile financially if they used their coverage during 2014. The authors point out that enrollees at the lowest incomes levels were eligible for 2 types of assistance: the premium tax credit and a second form of assistance called cost sharing reductions, which limit out-of-pocket costs for those at the lowest-income levels. Cost-sharing reductions are not subject to reconciliation.
The average repayment will be $794 and the average refund will be $773, according to the report. However, those numbers do not apply across all income levels, as the law caps repayments to limit unexpected payouts for those least able to pay. Maximum repayments are as follows:
· For those earning between 100% and < 200% of the federal poverty level (FPL): $300 for an individual and $600 for a couple or family;
· For those earning between 200% and < 300% of FPL: $750 for an individual and $1500 for a couple or family;
· For those earning between 300% and < 400% of FPL: $1250 for an individual and $2500 for a couple or family;
· Those earning above 400% of FPL must repay the full amount.
Will This Process Improve?
The authors describe the reconciliation of premium subsidies during tax season—a time of year already unpopular with Americans—as a “natural outgrowth” of attaching the subsidies to the tax system and annual income, which they note, “can only be known after the fact.”
ACA subsidies, however, pose special challenges as they are targeted at those with the least discretionary income, so unexpected repayments can prove burdensome. A benefit designed to encourage the purchase of insurance that becomes a source of uncertainty could make some would-be buyers hesitant to buy insurance, the authors write.
However, they also write that navigators, brokers, and others who assist in the enrollment process can play a role in helping consumers understand how reconciliation works. “Over time, this reporting may improve as subsidy beneficiaries become more familiar with the process,” the authors said.
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