Mickey Kaus tackles a question that occurred to me many months ago when I was immersing myself in the Byzantine weirdness of the way Obamacare subsidies would be working (see this, for example). Here’s Kaus’ question:
We know what happens when people who claim subsidies on the Obamacare exchanges underestimate their income–the IRS will grab the unwarranted part of the subsidy back at tax time. And we know what happens if they overestimate their income–they’ll be refunded the subsidy to which their lower income entitled them.
But the poorest Americans don’t qualify for subsidies on the exchanges. If they make less than the poverty line –about $20,000 for a family of three–they’re steered to Medicaid. (In states with expanded programs, they’re apparently sent to Medicaid if they make less than 138% of poverty, according to the Kaiser subsidy calculator). So what if someone is near the income boundary between the two programs–and what if this person overestimates their income, and thinks they qualify for a subsidized policy on the exchange–but it turns out they didn’t make what they thought they’d make. Maybe they didn’t get some work they usually got in the past, or their wages got cut, or they got laid off. According to the income they actually earned, they should have been sent to Medicaid. They didn’t just get too much or too little subsidy. They used the wrong program.
What’s the IRS going to do to them?
That question leaped into my mind back in October or November, when I learned about the claw-back rule concerning overestimates and underestimates of income, a particular problem for the self-employed, whose incomes can vary quite wildly.
Kaus says he doesn’t know the answer to the question. Neither, of course, do I. But I would guess that the government does, for the simple reason that, even before Obamacare, Medicaid eligibility was predicated on income estimates, and underestimation of income could affect a person’s eligibility for those benefits. So when I was considering the question for Obamacare I came up with a guess at the answer, which was that such underestimations would just be ignored ex post facto, and that the original estimate—if made in supposed “good faith”—would be allowed to stand. An Emily Litella “never mind” attitude will probably prevail, because the alternative of trying to sort out these cases after the fact would be so onerous and result in so little government reward, especially since the people involved don’t for the most part have a whole lot of excess income to claw back. However, people who had underestimated their income in this way in order to qualify for Medicaid would probably find they no longer qualified for Medicaid for the coming year.
It’s hard to find much online about this, but in a quick perusal I discovered the following, which I think may be relevant:
Everyone applying for [Obamacare] subsidies must estimate their 2014 income. For the poor, the difference between qualifying [for Obamacare vs. Medicaid]– or not — could be $1,000 or less a year. Since many rely on hourly or seasonal work, their incomes often fluctuate by a few thousand dollars each year. That’s one reason why people often lose eligibility for Medicaid, the state federal insurance program for the poor.
While there are steep fines for knowingly lying on a government application for financial assistance, if someone merely miscalculates their income above the poverty level in 2014, and is later found to have made less than the poverty level, they won’t have to pay any money back, according to the Treasury Department.
“There’s little risk because under the rules you don’t have to pay anything back,” said Richard Trembowicz, vice president for Celtic Insurance Co., a subsidiary of Centene Corp. which is offering plans on several exchanges, including Mississippi.
Is Trembowicz correct? I guess we’ll see, but my hunch is “yes.”
As time goes on, people on the income cusp may learn how to game the system under the Obamacare rules, deciding whether they would prefer Medicaid (where they’ll pay virtually nothing but will have fewer choices of doctors and services) and Obamacare (where they’ll pay a little something but will have more choices), and estimate their incomes accordingly.
[*In case you don't remember the provenance of that wonderful word, see this.]