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Covered California and Obamacare related questions from consumers, employers and agents are answered by Phil Daigle with the best information available at the time. Archived entries may no longer be accurate as the Covered California and Obamacare knowledge-base is evolving quickly. TO REQUEST A PERSONAL RESPONSE INCLUDE EMAIL ADDRESS.


Overestimating Income to Avoid Medi-Cal?

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Question: If a consumer overestimates their income in order to stay out of Medi-Cal and when they file their taxes it is determined they should have had/qualified for Medi-Cal, is the consumer penalized? Or what happens?

Answer: The consumer is liable for repayment of any excess tax credit received in the year. In your scenario, that would be the entire annual subsidy. However the amount of the”clawback” provision is limited by the household income according to the ACA law. If the household income (expressed as a percent of poverty line) is :

  • Less than 200%, the amount of the clawback is limited to one-half of $600
  • At least 200% but less than 300%, the amount of the clawback is limited to one-half of $1,500
  • At least 300% but less than 400%, the amount of the clawback is limited to one-half of $2,500.

10 Comments

what is the minimum income requirement for a couple to stay out of medi-cal and through the exchange

What happens if in a one person household a person’s MAGI is, say, under $16,000, suggesting that person should qualify for Medi-Cal. BUT, under Medi-Cal, it looks like gifts (which are not part of MAGI) disqualify that person for receiving Medi-Cal. Then, shouldn’t that person qualify for Covered California even though it would appear that that person’s income disqualifies them? Also, shouldn’t they get the maximum premium assistance based on MAGI?

Congress likes to screw the poor…

Can I decline Medi-Cal and enroll in a Covered California health insurance plan and receive the federal premium assistance?

Under federal law, you are not eligible to purchase subsidized coverage through Covered California if you are currently enrolled in or are eligible for Medi-Cal. You are eligible for unsubsidized coverage through Covered California if you are eligible for Medi-Cal, so you can still purchase a health insurance plan through Covered California, but you cannot receive premium assistance to reduce its cost.

https://www.coveredca.com/FAQs/#faq-G

If your income falls below the amounts shown, you may qualify for coverage under your state’s Medicaid program. But if your state is not expanding Medicaid in 2014—and you don’t qualify for Medicaid under your state’s rules—you can’t get lower costs on Marketplace coverage based on your income. You’d have to pay the entire cost of a Marketplace insurance plan.

https://www.healthcare.gov/will-i-qualify-to-save-on-monthly-premiums/

In reply to James W — if you get an advanced subsidy, you HAVE to file a tax return for that year. No exception — once you take $1 in subsidy money, then you are going to have to file a return. The “subsidy” is a tax credit— one that IRS is going to want back if you don’t give them documentation. So if you take a subsidy and then don’t file a return, you can expect a nasty letter from IRS— plus you could own additional penalties if it turned out you needed to pay any part of that subsidy back.

MediCal may be a little different — that is, if tell them at the beginning that you are unemployed and you remain unemployed — so don’t file taxes— then IRS isn’t involved. I’m sure there are procedures in place for MediCal recipients to periodically verify their income status, but that would not necessarily entail filing a tax return.

What would happen if one was to estimate an income of ~16,000 to avoid Medi-cal and gain access to the subsidized plans but then ended up making less and not filing a tax return?

If a person did not notify CoveredCA of any income change, would the income verification system be triggered by the lack of taxable income and automatically force someone out of the subsidized plans?

I think the answer is not correct. There is no ‘clawback’ and nothing is owed to the IRS the yearly income is in Medi-Cal territory but you signed up originally reporting $15600+ yearly earnings. You made less money you ‘thought’ you were going to make. I called Covered California to confirm this.

This ‘loophole’ allows people with very little income but with assets to report ~$16000 in earnings and get the maximum subsidy plus reduced cost sharing plans knowing they will end the year in medicaid territory. Doing this you avoid Medi-Cal managed Care and you can actually choose from one of the fancier exchange plans with little cost.

I’m sure someone will frown along the way with people doing this specially if your last year taxes were way off. From here http://goo.gl/INLlkw there is this part where it says that Covered California: “Shall make a reasonable effort to identify and address the causes of such inconsistence by contacting the application filer to confirm the accuracy of the information.” Which if I understand it right if you have a way to justify you are going to make $16000 this whole thing may just fly.

Hi Phil, Two points in response to your post. First, for an individual taxpayer, the clawback is limited to one-half the amount specified — so a single taxpayer would pay $300, not $600. See http://www.law.cornell.edu/uscode/text/26/36B:

” the amount of the increase under subparagraph (A) shall in no event exceed the applicable dollar amount determined in accordance with the following table (one-half of such amount in the case of a taxpayer whose tax is determined under section 1 (c) for the taxable year)

Second, and more important, there is another regulation that effectively reduces the clawback for anyone whose income is less than the poverty line to -0-. You can find that here: http://www.law.cornell.edu/cfr/text/26/1.36B-2

(6) Special rule for taxpayers with household income below 100 percent of the Federal poverty line for the taxable year. A taxpayer (other than a taxpayer described in paragraph (b)(5) of this section) whose household income for a taxable year is less than 100 percent of the Federal poverty line for the taxpayer’s family size is treated as an applicable taxpayer if— (i) The taxpayer or a family member enrolls in a qualified health plan through an Exchange; (ii) An Exchange estimates at the time of enrollment that the taxpayer’s household income will be between 100 and 400 percent of the Federal poverty line for the taxable year; (iii) Advance credit payments are authorized and paid for one or more months during the taxable year; and (iv) The taxpayer would be an applicable taxpayer if the taxpayer’s household income for the taxable year was between 100 and 400 percent of the Federal poverty line for the taxpayer’s family size. (7) Computation of premium assistance amounts for taxpayers with household income below 100 percent of the Federal poverty line. If a taxpayer is treated as an applicable taxpayer under paragraph (b)(5) or (b)(6) of this section, the taxpayer’s actual household income for the taxable year is used to compute the premium assistance amounts under § 1.36B-3(d).

I interpret this to mean that, come the time for reconciliation of the subsidy with the 2014 tax return, anyone whose income is below the 100% FPL mark will be treated as if their income was exactly 100% - unless there are other disqualifying factors, such as simultaneous eligibility for employer-provided health insurance.

Note: I’m a retired lawyer. I don’t have much experience with health insurance, but I do know how to look up the actual law and regulations.

So, in this scenario, it will be best to take no monthly subsidy at all, and see how it resolves at the end of the year when taxes are filed. The Silver 94 plan will be the next plan available, which will be low-cost and high benefit anyway.

Is this tax credit ‘clawback’ issue addressed in agent training materials as provided by Covered California (thumb drive)?

What happens also if mid-year one begins with GENUINE INTENT of expecting a certain annual income which provides for subsidy tax credit eligibility, only to later find at year’s end that s/he was (per annual income) actually eligible for Medi-Cal and should not have been paying any premium, not to mention also receiving any tax subsidy? Does one get their paid premium back, as well as having to pay back any tax subsidy received?

Medi-Cal eligibility is based upon current monthly income, while tax credit subsidy eligibility is based upon annual income.

It will be important to notify Covered California of income changes as to the affect upon health plan and tax credit eligibility during the year, which may then necessitate a change in health plan and tax credit. Yet Medi-Cal is a ‘current month income eligibility’ program which contrasts with tax subsidy ‘annual income’ eligibility. One may be holding out to enroll in Medi-Cal in anticipation of their genuinely expected annual income of a certain amount; future annual income assessment which triggers advance subsidy eligibility with correspondingly eligible health plan (if income is not steady each month). There is this potential ‘middle ground.’ Does one need to go on Medi-Cal for each month, or none month (as that month’s earnings determine that month’s eligibility) and then drop Medi-Cal the next month one earns more above the Medi-Cal monthly earnings eligibility? One could potentially have to change plans and providers, regularly or multiple times during the year. How short-sighted to base health care continuity (not health care insurance) on how much one makes.

Where can agents find good reliable information and training on this subject of changing eligibility and clawback, etc. Covered California has not provided it, as far as I can determine.

Phil, did you not post at one point that clawback will not occur?
Or is it that clawback will be a non-issue with regard to PLAN BENEFITS only; for just any change in income eligibility and subsequent health plan enrollment changes in and out of the various non-Medi-Cal Covered California subsidized health plans?

This bizarre law that can penalize someone for earning too little income is easily avoided. The solution is to overreport your income. If someone is near the Medi-Cal level, they are probably paying very little if any income tax. The IRS is focused on finding people who underreport income, not exaggerate it. If you claim to have made a little extra cash income, what can the IRS do to prove otherwise? At just above the Medi-Cal level, this extra “income” it wouldn’t require much if any income tax. It would certainly be less than the $600 penalty if you reported that you earned just a little less than the Medi-Cal cutoff.

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