Study Touts Timely Reporting of Income Changes Under ACA


Timely reporting of income changes is essential for residents of California and other states to avoid owing the federal government refunds for health insurance subsidies under the Affordable Care Act, according to a study by UC-Berkeley, UCLA and the Economic Policy Institute, Payers & Providers reports (Payers & Providers, 9/12).

Background on Exchange

The ACA's health insurance exchanges -- which primarily will serve individuals and small businesses -- are designed to function similarly to websites like Amazon and Expedia, allowing users to choose among various health plans through an easily navigable online store.

California's exchange is expected to open for registration in October (California Healthline, 9/10).

Under the ACA, individuals with annual incomes between 100% and 400% of the federal poverty level who do not have access to affordable coverage through their employer are eligible for subsidized coverage through the exchanges (California Healthline, 9/9).

Details of Study

Researchers found that mid-year income changes could cause individuals to owe money to the federal government for exchange subsidies.

However, researchers said individuals can avoid higher repayments by reporting such changes as soon as possible.

Elise Gould -- a health policy researcher at EPI -- said that reporting income changes quickly "will make a significant difference in both the share of people who will owe repayments and the size of those repayments."

For example, if no families report income changes during a single year, 38% of those receiving subsidies would owe the government a median of $857 each, the report found. If families report income changes in a timely manner, only 23% would owe money to the government and those that do would pay a median of $343 each.


Gould said that "[c]onsumer education is essential" for residents to avoid higher payments to the government.

Ken Jacobs -- chair of UC-Berkeley's Center for Labor Research and Education -- suggested that exchanges in California and other states:

  • Inform consumers about how tax credits work;
  • Educate consumers about the importance of promptly reporting changes in income, family size and tax filing status; and
  • Periodically remind enrollees to report such changes (Payers & Providers, 9/12).
Ken Jacobs
Frank Neuhauser raises an important consideration in his comments that is worthy of further research. Since our progressive income tax system is based on marginal rates, however, it is unlikely to have much of an impact. My quick calculation for a family with an income of $85,000 at enrollment and a final year income of $95,000, which puts them over the 400% FPL eligibility threshold, is that they would have less than $2 in over-withholding on their income taxes as a result of the change, a small fraction of the potential repayment obligation. This also assumes the increase is in earned income and subject to withholding. The good news from the research is that repayments can be minimized with timely and accurate income reporting and subsidy adjustments. That will require good consumer education about the issues. Tax prepares can also play an important role by letting people know their options in contributing to retirement plans to reduce their modified adjusted gross income.
Frank Neuhauser
While generally well done and informative, the study is overly alarmist and misses other dynamics that would offset repayments of subsidy at tax time. Generally, persons whose income increases, say in the last half of the year, leading to potential repayment of subsidies, will also be eligible for tax refunds because under our progressive tax structure, they will usually have overpaid withholding over the last half of the year more than they underpaid the first half, both relative to their final average tax rate. In addition, most economic models assume that expenditures are not fully responsive to income changes, suggesting that recent savings will be higher for those whose incomes increase substantially, period-to-period. Both of these effects will cushion the impact of subsidies owed for substantial swings in income.

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