Healthcare.gov income estimate and CHIP

[bpgdeg1234]

Looking to see if anyone has any potential insight into the following healthcare.gov and Children Healthcare Insurance Program (basically child medicaid) situation:

We provided a family income estimate to healthcare.gov in 2015 enrollment for 2016 for a family of 4 which included a child under the age of 19. We qualified for a subsidy for all of us based on that estimate. The estimate dollar amount was above the Children Healthcare Insurance Plan (CHIP) income limits for a family of 4 so the child under 19 was also eligible for a subsidy to buy insurance via exchange versus getting redirected to state CHIP program.

Now seeing that our actual income may come in lower than what we estimated as one family member's income was lower and some other factors, the child under 19 would have been eligible for the state CHIP program and not warranted a subsidy to buy via the healthcare exchange.

It's too late at this point to do anything with CHIP as the year is over so we either just let it go at this point or look to add additional income for the year via a ROTH conversion or something to get to the estimated amount we provided? This particular situation isn't addressed during the income tax subsidy reconciliation process.

Any perspectives would be appreciated. Thanks.

 

[MBSC]

This particular situation isn't addressed during the income tax subsidy reconciliation process.

If it is determined in early 2017 when you file your tax return that your actual 2016 income was lower than your 2016 estimate, you will receive additional PTC in the form of a refund (or lower tax due). The income estimate determines eligibility. There is no clawback of insurance benefits when the exchange accepts your income estimate.

2017 enrollment in CHIP will be dependent on the 2017 income estimate you provide to the exchange.

 

[bpgdeg1234]

Thanks MSBC for your perspective. I understand that we would receive additional PTC in the form of a refund for 2016 actual income being lower than originally estimated and accepted by the exchange in our 2016 application.

Additionally in reading IRS 2016 Instructions for Form 8962 it indicates that if the marketplace determines that someone is eligible for a subsidy and the individual enrolls in a qualified health plan via the exchange then regardless of actual income the individual is eligible for the subsidy the entire year even if the actual income at the end of the year suggests that the individual may have been eligible for CHIP.

So the marketplace subsidy that was given for the child, who would have otherwise been eligible for CHIP based on actual 2016 income, is still valid for the entire 2016 year since the marketplace accepted our 2016 income estimate.

The question I have though is that the marketplace determination was based on this original 2016 income estimate we provided so unless we increase our income to be above the CHIP limit it could be construed as gaming the system because what would stop anyone in providing an income estimate above the CHIP level to avoid a child being designated to the state CHIP program as part of the marketplace application process but then simply reporting lower actual 2016 income (still well within family subsidy range) when they file their taxes?

Also, any other perspectives on any of this would be appreciated.

 

[GTFan]

There is no penalty or clawback for having income less than the minimum required for subsidy. What MBSC said is as clear as it gets.

See specifically the instructions for line 6:
Household income below 100% of the Federal poverty line.
If the amount on line 5 is less than 100%, you can take the PTC if you meet the requirements under Estimated household income at least 100% of the Federal poverty line, next, or Alien lawfully present in the United States below.
Estimated household income at least 100% of the Federal poverty line.
You may qualify for the PTC if your household income is less than 100% of the Federal poverty line and you meet all of the following requirements.
- You or an individual in your tax family enrolled in a qualified health plan through a Marketplace.
- The Marketplace estimated at the time of enrollment that your household income would be at least 100% but not more than 400% of the Federal poverty line for your family size for 2016. APTC was paid for the coverage for one or more months during 2016
- APTC was paid for the coverage for one or more months during 2016.
- You otherwise qualify as an applicable taxpayer (except for the Federal poverty line percentage).

CHIP/Medicaid has nothing to do with whether you get the federal subsidy if income ends up below the minimum. All that matters is that your income estimate was accepted for an exchange plan.

 

[bpgdeg1234]

There is no penalty or clawback for having income less than the minimum required for subsidy.

https://www.irs.gov/pub/irs-pdf/i8962.pdf

See specifically the instructions for line 6:
Household income below 100% of the Federal poverty line.
If the amount on line 5 is less than 100%, you can take the PTC if
you meet the requirements under Estimated household income
at least 100% of the Federal poverty line, next, or Alien lawfully
present in the United States below.
Estimated household income at least 100% of the
Federal poverty line.
You may qualify for the PTC if your
household income is less than 100% of the Federal poverty line
and you meet all of the following requirements.
- You or an individual in your tax family enrolled in a qualified
health plan through a Marketplace.
- The Marketplace estimated at the time of enrollment that your
household income would be at least 100% but not more than
400% of the Federal poverty line for your family size for 2016.
APTC was paid for the coverage for one or more months
during 20
- You otherwise qualify as an applicable taxpayer (except for
the Federal poverty line percentage).


CHIP has nothing to do with whether you get the federal subsidy if income ends up below the minimum (100% or 138% of FPL depending on state Medicaid expansion).

Thanks I understand that but the question remains though is that the marketplace determination was based on this original 2016 income estimate we provided so unless we increase our income to be above the CHIP limit it could be construed as gaming the system because what would stop anyone in providing an income estimate above the CHIP level to avoid a child being designated to the state CHIP program as part of the marketplace application process but then simply reporting lower actual 2016 income (still well within family subsidy range) when they file their taxes?

 

[GTFan]

I give up.

 

[bpgdeg1234]

I give up.

I appreciate you trying to explain and apologize for my apparent ignorance.

Yes it is clear one will get the tax subsidy if income is lower than originally estimated since the income tax process is tied to actual income and I understand it is not tied to CHIP/Medicaid enrollment process.

There are no repercussions, however, within the exchange application process itself other than them potentially the next year questioning your income estimate for the new year?

If though they again accept your income estimate for the new year, which once again is above the CHIP level, you're still good to go even though same situation could happen again with actual income coming in lower where the child could have qualified for CHIP instead?

 

[MBSC]

The question I have though is that the marketplace determination was based on this original 2016 income estimate we provided so unless we increase our income to be above the CHIP limit it could be construed as gaming the system because what would stop anyone in providing an income estimate above the CHIP level to avoid a child being designated to the state CHIP program as part of the marketplace application process but then simply reporting lower actual 2016 income (still well within family subsidy range) when they file their taxes?

You accidentally discovered a process others deliberately use to avoid Medicaid or CHIP. When a person starts an exchange application they agree under penalties of perjury that the information provided (including income estimate) is accurate to the best of their knowledge at the time. You have nothing to fear if this was the case. The ACA has a civil penalty up to $25,000 for providing false or fraudulent information due to “negligence or disregard of any rules or regulations". For “any person who knowingly and willfully provides false or fraudulent information,” the civil penalty can be up to $250,000.

The marketplace exchange will request income verification documentation when it believes someone may be gaming the system by estimating a lower than anticipated income. There is no review process when applying and estimating higher. It would be difficult to tell if the higher estimate is false, a slight "fudge", or legitimate anticipation of a pay raise. The applicant's ethics and moral compass need to guide their decision when completing the application.

 

[bpgdeg1234]

You accidentally discovered a process others deliberately use to avoid Medicaid or CHIP. When a person starts an exchange application they agree under penalties of perjury that the information provided (including income estimate) is accurate to the best of their knowledge at the time. You have nothing to fear if this was the case. The ACA has a civil penalty up to $25,000 for providing false or fraudulent information due to “negligence or disregard of any rules or regulations". For “any person who knowingly and willfully provides false or fraudulent information,” the civil penalty can be up to $250,000.

The marketplace exchange will request income verification documentation when it believes someone may be gaming the system by estimating a lower than anticipated income. There is no review process when applying and estimating higher. It would be difficult to tell if the higher estimate is false, a slight "fudge", or legitimate anticipation of a pay raise. The applicant's ethics and moral compass need to guide their decision when completing the application.

Thanks MBSC as this is what I was missing and forgot an applicant agrees to during the healthcare.gov application process as I thought there needed to be some deterrent on ACA end to help control potential abuse (even if relies on potential civil penalty and/or moral compass, etc.). If the actual income legitimately comes in lower for a justifiable reason (e.g. didn't get yearend bonus, contract fell through late in year, etc.) then no need for concern.

Thanks again for your thorough response to my question.

 

[GTFan]

Rather silly to pursue this line of thinking for the ACA - there are always penalties, fines, etc. for misreporting income for any purpose under tax law, the PTC is no different.

Many of us ERs are gaming the system by intentionally keeping income low to maximize subsidies. That's not fraud and neither is estimating income just high enough to avoid Medicaid if you truly believe that you will reach that number. I seriously doubt the IRS will care about the latter as long as you make a good faith estimate and it's accepted by the exchange.