But not everyone is aware of this. And many who get their income from a variety of sources, such as contracting jobs, investments and Social Security, are not always clear on what they should report as income.
It is unclear how many Americans are paying back some or all of the financial assistance they received to buy health insurance because their income turned out to be higher than they projected. The most recent analysis of the issue was done in 2015 by H&R Block, which found that 52 percent of people who enrolled in health insurance through Affordable Care Act marketplaces around the country ended up paying back some of the subsidies. The average amount was $530.
In the Stapps’ case, one complication was that the health insurance premium subsidies are structured as advance tax credits. So people have to make an educated guess as to what their income will be the next year. This can be especially tricky if their income is close to the cutoff for eligibility, which is 400 percent of the federal poverty level — $48,200 for a single person and $64,960 for a family of two like the Stapps.
Neither Bill, 68, nor Cathy, 62, have been on Covered California plans for more than two years — Bill is now on Medicare and Cathy receives health insurance through her new employer. But they are still paying off their IRS bill, making minimum monthly payments of $250 or, in months when they have extra cash, more. They still owe about $9,000 for what is essentially a loan from the federal government they didn’t realize they were signing up for.
The couple had remained on the Covered California plans until the end of 2015 because they thought they could make changes only during the open enrollment period, which is November to January. Because their income exceeded $63,000 in 2015 as well, they ended up owing the IRS an additional $13,000 in 2016.
Cathy Stapp acknowledges that they could have been more vigilant when it came time to renew the plans. Covered California subscribers can in fact cancel their plans at any time, not just during open enrollment. But Bill is frustrated because he feels Covered California should have done more to inform them they earned too much to qualify for the subsidized insurance plans. They said an enrollment counselor who initially helped them sign up over the phone told them their income qualified them for Covered California, but did not factor in Bill’s Social Security income.
The Stapps spoke with representatives at a Covered California call center in 2014 and 2015, but there is no certified agent listed on their account as having assisted with their initial application, according to Covered California. The person the couple said they spoke with said he did not enroll them.
“We make our best estimate of the tax credit for consumers based on the information they provide in their application,” said Covered California spokeswoman Amy Palmer. “But … the official premium tax credit they receive or have to pay back is determined in the tax process with the IRS.”
To pay off the IRS bill, the Stapps are delaying other expenses, such as repairs and improvements for their home.
“It’s a big financial burden,” Bill Stapp said. “We made a mistake accepting Covered California.”
By many measures, California is viewed as a standout success story when it comes to the Affordable Care Act. The state’s uninsured rate is at all-time low 7 percent, and 1.5 million people signed up for Covered California insurance during the most recent open enrollment period — a statistic state officials consider a feat, especially given that the Trump administration and the Republican-led Congress have repeatedly sought to repeal the health law.
But the Stapps’ predicament shows that for some Californians, the health law has created unexpected and inconvenient consequences.
“The difficulty is for some people, (paying back the subsidies) ends up being a lot of money,” said Larry Levitt, a health policy analyst at the Kaiser Family Foundation. “You bought health insurance under the assumption you’d be getting a big tax credit, and all of a sudden you have to pay it all back. This makes planning very difficult for people.”