Look back period for Health Subsidies

We have established that health subsidies will be available to many Americans towards health insurance starting in 2014.  The health subsidies are calculated based on income levels with two critical rules that drive eligibility and amount of subsidy if eligible:  the 400% rule and the 9.5% rule.  A person that makes less than 400% of poverty may be eligible for the subsidies but during what period of time?  Let's touch base on how the Health Exchanges will view this income threshold in terms of timing.

The first income period for 2014

For 2014 health care subsidies, the Exchange will look at your 2012 year of income (your tax filing numbers in April 2013) to establish if you are eligible or not.  This is the look back period that has been described.  Keep in mind that the Subsidies are based on your MAGI or Modified Adjusted Gross Income.  MAGI is essentially your adjusted gross income plus interest.  This means that so called "passive income" will figure into whether you qualify for a health subsidy starting in 2014.  Since the MAGI is a tax term and associated with actual lines on the tax form, the Exchange will need to look at past income to establish eligibility which is true with many Government programs from Medicaid to the amount you can fund into a 401K.  What happens if income changes significantly since your last tax filing?

Income goes up since health subsidy look back period

2008 was tough and many people lost their jobs or had their hours reduced significantly.  Hopefully, we're starting to see the opposite trend with people finding work and adding hours.  What if your income (MAGI) has gone up sizeably since the look back period and you had qualified for a health subsidy?  Let's take an example.   An individual makes under $25K (well below the 400% of poverty level) in 2012 as reported on his taxes in April, 2013.  Based on this and assuming other qualifications are met (citizen, etc), the person would receive a health subsidy for the year of 2014.  What if this same person get a big job increase in 2013 from $25K to $50K at which point he/she is no longer eligible for the subsidy?   In this situation, the law requires that the recipient would pay back (at tax time) the difference between what they received as a health subsidy and what they were eligible for.  There will be caps on this payback amount depending on how much the person actually did make as a percentage of the Federal Poverty Level. 

What if income drops prior or during the year in question?

If your income drops significantly (let's say you lose your job or have hours cut), you may be eligible for a subsidy even though your prior year's taxes do not reflect the new drop.  In this case, you can submit allowed paperwork to prove your new MAGI in order to get health subsidy advances (as opposed to credits at the time of taxes) in order to afford coverage now.  The health subsidy is essentially a credit but the law establishes these advances for those that would find paying the full premium up front too expensive.  




Los Angeles, Family of 4
making $60K.

Iowa, Single Adult making $30K

*Based on age, expected costs, and other assumptions according to Kaiser Calculator.  Actual subsidies will vary and official subsidy amounts will be available Oct 1st, 2013. 

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