Premium Subsidy Education Urged

Researchers from the UC Berkeley, UCLA and the Economic Policy Institute are advocating that insurance exchanges in California and elsewhere provide clear and compelling information about the tax credits available to reduce premiums for coverage, lest consumers wind up with a large bill from the Internal Revenue Service.

As part of the Affordable Care Act, premium subsidies are being offered in the form of tax credits to individuals and families who purchase insurance through the state exchanges.

The subsidies are capped at 400% of the federal poverty level. That's $45,960 for an individual and $94,200 for a family of four. The subsidies can reduce premiums to $100 or less a month depending on income. However, mid-year changes in income can affect the subsidies and lead to refunds of the tax credit being owed to the federal government.

According to the modeling performed by the researchers, if no families report income changes during the year, 38% of those receiving subsidies would have to pay back credits the following year, with a median repayment of $857. But if adjustments are reported in a timely manner, only 23% of recipients would have to repay anything, and the median would drop to $343.

“Timely reporting of income changes will make a significant difference in both the share of people who will owe repayments and the size of those repayments,” said Elise Gould, who heads health policy research for the Economic Policy Institute. “Consumer education is essential.”

Any household whose income rises above 400% of the poverty level would have to repay their subsidies entirely. If no reporting and adjustment is made during the year, the median repayment would be $1,650. That would drop to $332 with timely reporting.

The study concluded it is critical to remind consumers to report any adjustments to income as soon as possible.

“Exchanges can take simple steps like educating consumers about how tax credits work, informing them about the importance of promptly reporting changes in income, family size or tax filing status, and through exploring additional methods of periodically reminding enrollees to report any changes that have occurred beyond what is already required under federal regulations,” said said Ken Jacobs, chair of the Center for Labor Research and Education at UC Berkeley.

The study was published in the most recent edition of the journal Health Affairs.