February 7th, 2014

Misunderestimating* income for Obamacare

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.]

13 Responses to “Misunderestimating* income for Obamacare”

  1. DirtyJobsGuy Says:

    Having just done my 2013 taxes I’m reminded that the US tax and subsidy laws are full of financial cliffs like this. In the interest of soaking the rich, almost all tax credits etc. have rapid phaseouts when your reach middle income levels. For parents of college age students the federal FAFSA stuff is the worst. In many cases an additional $1 of income results in $0.9 loss in financial aid and additional tax. Obamacare was built on an entirely fictional number of 9.5% of income to be spent on health insurance (premiums). This is why the policies have huge deductibles to keep premiums below 9.5%.

    A flat tax credit for everyone for the purchase of insurnace would avoid all of this nonsense but since it would apply to mayor bloomberg as well as a minimum wage earner the left hates it.

  2. Mr. Frank Says:

    Won’t it take an army of accountants or at least government workers to verify income levels and insurance cost every year? Am I correct in assuming that subsidies will go directly to the insurance companies? Fraud is going to be rampant.

    Will payments by the insured be monthly, quarterly, semi annually or annually? With employer based insurance the employer will take the insurance premium out of your check, and you never see it. With ObamaCare the payments must be made by the individual. Assuming payments can be made monthly I would expect that millions of people will be in arrears pretty quickly. What is the plan for that likelihood?

  3. Ray Says:

    People may learn how to game the system? Look what happened to Tenncare, the Tennessee version of Hillarycare. One TennCare director admitted during a legislative hearing that the department estimated that one-quarter of enrollees (250,000+) were fraudulent or didn’t actually qualify for the program. TennCare became the line item that was going to consume the entire Tennessee state budget.

  4. neo-neocon Says:

    Ray:

    It’s understood that many people will game the system and fraud will be committed.

    I’m talking about something somewhat different here—the issue discussed in this post. The “gaming” I’m talking about here wouldn’t necessarily be outright egregious fraud. It would be estimating slightly different incomes for the coming year (incomes that can be hard to estimate anyway, especially for the self-employed) in order to qualify for either Medicaid or Obamacare, depending on which one the enrollee sees as more advantageous.

  5. Don Carlos Says:

    The whole thing is effing nuts. What you get from the Elites.

  6. artfldgr Says:

    Debacle: U.S. intelligence agencies report that developers linked to the Belarus government helped create the Healthcare.gov website and may have inserted malicious code making it vulnerable to cyberattacks and hacking.

  7. artfldgr Says:

    Obama administration, through the Department of Health and Human Services, has indirectly contracted with developers in the worker’s paradise of Belarus, a former Soviet republic still closely tied to Russia, to write some of the software code used for the website.
    The Washington Free Beacon’s Bill Gertz quotes one U.S. intelligence official as saying: “The U.S. Affordable Care Act software was written in part in Belarus by software developers under state control, and that makes the software a potential target for cyberattacks.”
    According to Gertz, the company involved in the software was EPAM, a Belarusian firm with U.S. offices and international clients that conducts programming work in Belarus. A spokesman for the company, which has a U.S. affiliate, did not respond to inquiries about the company’s role in developing the ObamaCare software.
    HHS says it has no evidence the foreign code was incorporated in Healthcare.gov’s software. Meanwhile, a spokeswoman for CGI Federal, the main contractor for the health care network, had no comment on the report.
    Strange, because U.S. intelligence agencies last week informed HHS that EPAM may have inserted malicious software by creating a software “back door” that would permit spying and cybersecurity attacks.
    It’s happened before. Last year, Belarusian state-controlled networks were involved in Internet data “hijacking.” The monthlong attack covertly rerouted massive amounts of U.S. Internet traffic to Belarus, where presumably it could have been monitored and/or copied.

  8. blert Says:

    Neo…

    Barry’s entire being is a fudge.

    So, any guesstimate must be good enough.

  9. parker Says:

    artfldgr,

    I came across this info a couple of days ago. It is astounding how inept and careless this regime is, unless of course its all intentional.

  10. KLSmith Says:

    Misunderestimate is one of my favorite words!

  11. jms Says:

    > 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.

    Sounds like another adverse selection situation. Healthy people near the dividing line can underestimate their income just enough to qualify for Medicaid, removing themselves and their subsidy from the Obamacare insurance pools.

  12. Charles R. Williams Says:

    My daughter faces precisely this situation. She has reduced her hours to go back to school. I estimate her income to be between 14k and 15k. But this could easily change if she takes more work than planned during school breaks. My guess is they will do nothing if she makes too much.

  13. Jennifer Rubin Says:

    The state I live in has not expanded medicaid but their qualifications are insane! I am self employed and work from home. some months I make some money, others I’m in the negative. When I applied for medicaid in my state they want my gross income (not ADJUSTED or a profit/ loss from your business). They want the TOTAL before ANY deductions. And they also count child support and any income from ANYONE living in the home (even if you are unrelated and they are not applying, such as room mates). Once they even asked if I received money from family outside my home to help me with bills! When I applied on the Obamacare market place they wanted the ADJUSTED INCOME ONLY and said not to include incomes such as child support. But these numbers put me into this GRAY AREA! So for medicaid I make too much for assistance and for Obamacare I don’t make enough for the subsidies! People making more money than me are entitled to subsidies? But I’m not? Yet I don’t qualify for medicaid?

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Previously a lifelong Democrat, born in New York and living in New England, surrounded by liberals on all sides, I've found myself slowly but surely leaving the fold and becoming that dread thing: a neocon.
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