Researchers call for public outreach on healthcare subsidy, tax implications

In a new article in the September issue of Health Affairs, the leading journal of health policy, researchers from the University of California, Berkeley, UCLA, and the Economic Policy Institute are calling for expanded educational efforts to ensure that consumers signing up for health coverage under the Affordable Care Act (ACA) take maximum advantage of possible tax credits while avoiding repayments to the IRS.

In Large Repayments of Premium Subsidies May Be Owed to the IRS If Family Income Changes Are Not Promptly Reported,” researchers explain that subsidies for health insurance premiums offered under the ACA are classified as refundable tax credits. These credits can be taken when taxes are filed or in advance, as reductions in monthly premiums. Recipients who take subsides in advance will receive tax refunds if their subsidies were too small, but will have to make repayments if their subsidies were too high. The authors predict that many individuals will need to repay all or part of their insurance premium subsidy to the Internal Revenue Service if they fail to report income changes during the year.

The researchers estimate that if no income changes are reported during the year, 38 percent of subsidy recipients would owe repayments at the time they file taxes, with a median repayment of $857. If all changes are reported and subsidies are adjusted in a timely manner, that number would fall to 23 percent with a median repayment of only $343. The greatest risk is for subsidy recipients in families of four that make $95,000 a year or more — families that start off the year eligible for subsidies but end the year over the threshold.

The researchers recommend that the insurance exchanges educate consumers on the process and provide tools to help enrollees determine the advance subsidy amounts they should receive.

“The subsidy was designed to ensure access to affordable health care,” said Ken Jacobs, lead author of the article and chair of the Center for Labor Research and Education (CLRE) at the University of California, Berkeley.  “Exchanges can take simple steps like educating consumers about how tax credits work, informing them about the importance of promptly reporting changes in income, family size or tax filing status, and through exploring additional methods of periodically reminding enrollees to report any changes that have occurred beyond what is already required under federal regulations.”

The article was co-authored by Economic Policy Institute Director of Health Policy Research Elise Gould; Dave Graham-Squire, a CLRE research associate; and Dylan Roby, a University of California, Los Angeles, assistant professor of health policy and management at the Fielding School of Public Health. Roby also directs the Health Economics and Evaluation Research Program at UCLA’s Center for Health Policy Research.