tax credits

How to avoid a tax surprise from marketplace health coverage

Billie S. Dickenson July 27, 2022

Kateryna Onyshchuk | iStock | Getty Images

If your income is trending much higher this year than you anticipated, it's likely a welcome shift.

However, for anyone who gets their private health insurance through the public marketplace, that extra cash could mean an unexpected tax bill when they prepare their 2022 return next spring. A midyear income check could help avoid that.

Basically, if you receive premium subsidies (technically, advance tax credits) through the marketplace, having annual income that's higher than what you estimated when you enrolled could mean you're not entitled to as much aid as you're receiving. And any overage would need to be paid back at tax time.

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Report changes that may affect insurance subsidies

"You really should go into [your account] and take the steps to change your estimate so they can revise the subsidies as soon as possible," said Kristin Esposito, director for tax policy and advocacy with the American Institute of CPAs.

Esposito said a drop in income should also be reported — which could result in you getting bigger monthly subsidies. Make sure your account reflects other life changes, too, including marriage or a new member of your household, which also can impact the size of the aid.

"There are a lot of circumstances that can change and affect your insurance coverage," said Cynthia Cox, a vice president at the Kaiser Family Foundation and director of its Affordable Care Act program. 

Changing your information generally involves calling the exchange or going to your online account and updating your application (or calling the exchange). If you used an insurance agent or broker to sign up, or were assisted by a community organization, you should be able to get help from them, as well.

Income cap changes may reduce tax surprises

Roughly 89% (12.9 million) of the 14.5 million people enrolled in private health insurance through the public marketplace — which was authorized by the Affordable Care Act of 2010 — are receiving subsidies. Generally speaking, people who get coverage this way — either through healthcare.gov or their state's exchange — are those who can't get workplace insurance or who don't qualify for Medicaid or Medicare.

Subsidies through the exchange were expanded for 2021 and 2022 due to the American Rescue Plan Act of 2021. (Senate Democrats are trying to get the current expansion extended for two more years, although it's still uncertain whether it will happen.)

It's still important to report an income change to avoid any kind of surprise, but hopefully the worst kinds of surprises won't happen as much this year.

Cynthia Cox

Kaiser Family Foundation and director of its Affordable Care Act program

Prior to the temporary expansion, the aid was generally available to households with income from 100% to 400% of the federal poverty level.

The cap on income was eliminated for 2021 and 2022, and the amount that anyone pays in premiums is currently limited to 8.5% of their income as calculated by the exchange. 

The temporary removal of the income cap means there may not be as many cases of people having to repay all of their subsidies: Before, if someone estimated their income was at 399% of poverty but it ended up at 401%, they'd have to account for those subsidies on their tax return.

"It's still important to report an income change to avoid any kind of surprise, but hopefully the worst kinds of surprises won't happen as much this year," Cox said.

Review key tax forms next spring

When you start getting tax forms early in 2023 (for example, your W-2, or 1099 forms due to interest or dividend income), one of them generally will be a Form 1095-A from the insurance marketplace, which details how much you received each month in tax credits.

That document is then used to complete Form 8962, which shows whether you received the correct amount in subsidies — and if not, what the excess or shortfall is, Esposito said.

Any amount you weren't eligible for would reduce your refund or increase the amount of tax you owe. Likewise, if you are entitled to more than you received, the difference will either increase your refund or lower the amount of tax you owe.

Health insurance premiums through marketplace poised to jump in 2023

Billie S. Dickenson July 1, 2022

The Good Brigade | Digitalvision | Getty Images

If you get your health insurance through the government Health Insurance Marketplace, you may want to brace for higher premiums next year.

Unless Congress takes action, enhanced premium subsidies — technically, tax credits — that have been in place for 2021 and 2022 will disappear after this year. The change would affect 13 million of the 14.5 million people who get their health insurance through the federal exchange or their state's marketplace.

"The default is that the expanded subsidies will expire at the end of this year," said Cynthia Cox, a vice president at the Kaiser Family Foundation and director of its Affordable Care Act program. "On average, premiums would go up more than 50%, but for some it will be more."

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Most enrollees — which includes the self-employed and workers with no job-based health insurance — receive subsidies, which reduce what they pay in premiums. Some people also may qualify for help with cost-sharing such as deductibles and copays on certain plans, depending on their income.

Before the temporary changes to the calculation for subsidy eligibility, the aid was generally only available to households with income from 100% to 400% of the poverty level.

The American Rescue Plan Act, which was signed into law in March 2021, removed — for two years — that income cap, and the amount that anyone pays for premiums during the reprieve is limited to 8.5% of their income as calculated by the exchange.

Assuming Congress does not extend the expanded tax credits, only people with household income from 100% to 400% of the federal poverty level will once again qualify for subsidies.

Exactly how much of a premium increase a person would see depends on income, age, the premium cost where they live and how the premiums charged by insurers change for next year, according to Kaiser.

Here's a hypothetical example, based on a report from the Congressional Budget Office: Say a 64-year-old with $58,000 in income — about 430% of the 2022 poverty level of $13,590 — has insurance through the exchange. The 8.5% limit currently in place means they would pay no more than $4,950 for premiums this year. However, if faced with a 400% cap on eligibility in 2023, that same person would pay $12,900 for premiums because they'd no longer qualify for subsidies.

A proposal to extend the extra subsidies through 2025 was included in the Democrats' Build Back Better bill, which cleared the House last year but fell apart in the Senate.

It's uncertain whether the provision will be revived in some form via other legislation that Democrats may try to get through the Senate before a new Congress starts in January — the makeup of which could look very different due to the midterm elections Nov. 8.

Possible Expiration of Pandemic-Era Measures Among Drivers of 2023 Health Insurance Premium Changes

Billie S. Dickenson June 25, 2022

WASHINGTON, June 22, 2022 /PRNewswire/ -- The American Academy of Actuaries has released a public policy issue brief that points to the possible expiration of two signature pandemic-era measures that boosted health insurance affordability and coverage as among the drivers of potential premium changes for individual and small group plans in 2023.

American Academy of Actuaries. (PRNewsFoto/American Academy of Actuaries)American Academy of Actuaries. (PRNewsFoto/American Academy of Actuaries)

American Academy of Actuaries. (PRNewsFoto/American Academy of Actuaries)

"Proposed health insurance premium rates reflect many factors, which can include the effects of legislative and regulatory changes," said Academy Senior Health Fellow Cori Uccello. "This is especially true for 2023 rates, due to the possible expiration later this year of enhanced Affordable Care Act (ACA) premium subsidies and of a key support of Medicaid coverage during the pandemic."

The issue brief, developed by the Academy's Individual and Small Group Markets Committee, Drivers of 2023 Health Insurance Premium Changes, discusses these key factors and others that may account for differences in premium rates being filed with state insurance departments this year for 2023, compared to 2022 rates. The factors are illustrated in a new infographic as well.

The American Rescue Plan Act of 2021 (ARPA) increased advanced ACA premium tax credits in 2020 and 2021 for all eligible income brackets, including extending tax credits to those who earn over 400% of the federal poverty level. These subsidies, which make plans more affordable, are set to end with the expiration of ARPA on Jan. 1, 2023, reversing enrollment gains and possibly worsening plan risk pools.

Provisions in the Families First Coronavirus Response Act (FFCRA) increased federal fiscal aid to states for covering Medicaid enrollees during the pandemic-related Public Health Emergency (PHE), contingent on the states suspending their usual processes for redetermining eligibility for Medicaid coverage. These provisions are set to expire at the end of the quarter in which the PHE is not renewed, which could happen this year. In that event, states could restart the usual redetermination process, meaning some individuals who received Medicaid coverage during the pandemic could no longer be eligible for Medicaid and shift to the individual market, the employer group markets, or become uninsured—a shift that could affect risk pools in the individual and small groups markets.

Other factors expected to drive premium rate changes for 2023 include changes to the composition of the small group market due to the continued shift of small employers to self-funded, level-funded, or other risk-rated coverage, or otherwise leaving the market; changes in utilization patterns for telehealth visits and for mental health care; and changes in provider contracting including the expected impacts of medical inflation. The costs of preventing, testing for, and treating COVID-19, while expected to stabilize, could also be important factors for certain health insurance plans, depending on projected trends in the pandemic, particularly should a new variant emerge that is not mitigated by the immunity provided by prior infections or vaccinations. State-level measures such as reinsurance programs aimed at lowering premiums could also reduce premiums, with an outsized reduction in the first year of new reinsurance programs.

Learn more about the Academy's health policy work under the public policy tab at actuary.org.

The American Academy of Actuaries is a 19,500+ member professional association whose mission is to serve the public and the U.S. actuarial profession. For more than 50 years, the Academy has assisted public policymakers on all levels by providing leadership, objective expertise, and actuarial advice on risk and financial security issues. The Academy also sets qualification, practice, and professionalism standards for actuaries in the United States.

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SOURCE American Academy of Actuaries

Millions could lose health coverage if premium subsidies expire later this year, officials say

Billie S. Dickenson June 23, 2022

Absent Congressional action, many consumers will see health-coverage costs skyrocket next year, Biden administration officials warned Wednesday. 

The American Rescue Plan, signed into law in March 2021, temporarily expanded premium tax credits available to consumers signing up for health coverage through the Affordable Care Act marketplaces. Those expanded tax credits are set to expire at the end of this year, and extending them would require Congressional legislation. 

“Time is of the essence,” Chiquita Brooks-LaSure, administrator of the Centers for Medicare and Medicaid Services, said on a call with reporters Wednesday. As this fall’s open enrollment for 2023 marketplace coverage draws near, “we want to make sure that people know the subsidies will be in place,” she said. 

A record 14.5 million people signed up for coverage through the marketplaces during the open enrollment period that ended in January. The average monthly 2022 premium for HealthCare.gov enrollees was $111. Without the additional tax credits provided by the American Rescue Plan, that average monthly cost would have been 53% higher, according to the Department of Health and Human Services. 

If Congress does not act, more than 10 million people will see their premium tax credits reduced or lose them entirely, according to federal estimates, and about 3 million people could lose their health insurance. 

If lawmakers were to act by midsummer, marketplaces and insurers would have time to prepare for the 2023 open enrollment period, which starts in November, according to a recent report from the Urban Institute. The process of setting rates for 2023 plans has already begun.   

Congressional action later in the year could generate confusion as people are signing up for 2023 coverage, Brooks-LaSure said. “Of course we will pivot as quickly as we need to,” she said. But if action comes in the middle of open enrollment, it “would be so difficult for people to understand what was happening.” 

In addition to boosting premium tax credits for people who were previously eligible for subsidies, the American Rescue Plan expanded eligibility to people who were previously ineligible because their income was greater than 400% of the federal poverty level. An additional 2.8 million consumers received premium tax credits in 2022, compared with 2021, according to federal data. 

Without the American Rescue Plan’s enhanced premium tax credits, the average monthly 2022 premium in some states would have been roughly double what it is now. Among states that use the federal marketplace platform, the average 2022 monthly premium in Wyoming would have been 132% higher, according to federal data, while South Dakota average premiums would have been 95% higher.  

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