ACA what happens if you get a job that offers HI but just keep your ACA subsidy?

[ivinsfan]

Asking for a friend who is planning to do this. Had a small dairy farm with dismal earnings, so they pulled the plug in late December 2019. On a heavily subsidized ACA plan.

The husband has just gotten a job that after a probationary period will offer HI.
I'm better friends with the wife who just told me that the job insurance costs a lot more so they will just stick with what they have now.

What will happen if they go this route, obviously the subsidy will go down since they will have more income, but what about the ramifications of not taking the offered HI? When they applied for 2020 they were honest about their circumstances.

I know they should report the offer of job provided HI but what do you think happens if they don't? For the record I told her that no, they cant keep that cheap insurance if they have insurance available through work. I know the husband and he thinks he know everything and is stubborn to boot.

 

[pb4uski]

My recollection is that if the employer insurance is "affordable" then they can buy an ACA policy if they wish to but they would lose their subsidy. For 2020, if the employer insurance is affordable if it is less than 9.78% of household income.... and most employers design their plans to be affordable.

Employer-sponsored health coverage will satisfy the Affordable Care Act (ACA) affordability requirement in 2020 if the lowest-cost, self-only coverage option available to employees does not exceed 9.78 percent of an employee's household income. This limit is down from 9.86 percent in 2019.

 

[SecondCor521]

If the family has other insurance available, then I am fairly certain they are not eligible to take the premium tax credit, aka subsidies. Unless it is unaffordable or does not provide minimum benefits:

"Employer-sponsored coverage:
• A person cannot claim PTC for his or her Marketplace coverage for any month the person was enrolled in employersponsored coverage; if APTC was paid for a person’s Marketplace coverage for a month the person was enrolled in
employer-sponsored coverage, it must be repaid up to the repayment limitation.
• PTC can be claimed for an individual who was eligible for employer-sponsored coverage, but not enrolled only if:
a. Coverage was unaffordable for the employee (regardless of the cost of family coverage). The cost of coverage is
found on Form 1095-C for those working for large employers, or
b. Coverage did not provide a minimum level of benefits, referred to as “minimum value.” A taxpayer can check
with the employer if he or she suspects coverage did not meet minimum standards."

(IRS 4012 page H-12)

However, the premium tax credits are figured on a monthly basis, so they probably qualify to take them for the first 11 months of 2019, and possibly December depending on when the husband was offered insurance.

 

[ivinsfan]

My recollection is that if the employer insurance is "affordable" then they can buy an ACA policy if they wish to but they would lose their subsidy. For 2020, if the employer insurance is affordable if it is less than 9.78% of household income.... and most employers design their plans to be affordable.

They already have the subsidy in place and just plan to not signup for the employed offered insurance. If they just do nothing and keep the almost free insurance what happens at tax time in Jan 2021. So far everything they have done is aboveboard. The problem will begin when the don't report they have a change in offered HI. Or they want to have their cake and eat it too.

 

[ivinsfan]

If the family has other insurance available, then I am fairly certain they are not eligible to take the premium tax credit, aka subsidies.

(Even if it is unaffordable? Would need to check. I thought the affordability thing only related to whether an individual escaped payment of the penalty for no insurance, not whether they qualified for tax credits.)

However, the premium tax credits are figured on a monthly basis, so they probably qualify to take them for the first 11 months of 2019, and possibly December depending on when the husband was offered insurance.

He started the job this week and so should good for the ACA plan until probably the first of March. The problem is he plans to keep it and not take the employer insurance when offered.

 

[SecondCor521]

He started the job this week and so should good for the ACA plan until probably the first of March. The problem is he plans to keep it and not take the employer insurance when offered.

Note that I edited my post after you quoted it.

If they take subsidies and don't qualify for them starting in March and they complete their 2020 federal income taxes properly next year, they will be required to repay the subsidies with their return about 15 months from now (subject to the repayment cap). There is no repayment cap if they make more than 400% of FPL.

Might be quite a shock to see that large number (monthly subsidy amount times 10 or so).

 

[ivinsfan]

So basically a financial penalty but not a fraud issue. I know this guy and am pretty sure he knows he's not following the law. Don't care too much for him but I do care about his wife and if it's just money so be it.

 

[cathy63]

So basically a financial penalty but not a fraud issue. I know this guy and am pretty sure he knows he's not following the law. Don't care too much for him but I do care about his wife and if it's just money so be it.

If they know they're taking a premium tax credit to which they are not entitled, that certainly is fraud.

That said, it seems pretty unlikely that the IRS or the marketplace would a) be able to figure out that they had an option for 9 months of employer sponsored insurance; and b) go after them for more than the APTC amount, especially if they end up over 400% FPL and pay it all back at tax time so the government isn't actually out any money. Now, if they're getting a huge subsidy because they estimated their income at 150% FPL and they end up with income at 380% FPL, and their payback is capped at much less than they actually owe, that's kind of inviting an audit and they might find themselves in trouble then.

 

[Which Roger]

If it were me, I wouldn't want to find out what might happen. Yes, they were honest about their circumstances when they applied, but the application process also makes it clear that you must report things like significant changes in income and becoming eligible for employer insurance. And as cathy63 points, out, if they don't report the changes and the payback is capped (assuming they don't go over the cliff), they are making money by not reporting the changes and having the subsidy eliminated when it should be.

 

[FrankiesGirl]

The ACA enrollment states that you need to alert them if your status changes - marry/divorce/have a kid, get or lose a job, income changes... because they will take that into consideration for your ACA eligibility.

So that part is definitely going to get them in trouble too. It's not like they can claim they had no idea how this new job happened.

https://www.healthcare.gov/reporting-changes/why-report-changes/

https://www.healthcare.gov/have-job-based-coverage/

If you have a Marketplace plan and then get an offer of health insurance through a job, you’re probably no longer eligible for any savings on your Marketplace plan. This is true even if you don’t accept the job-based coverage offer.

So that means if they get a job and are offered insurance through that job in March they technically could keep their ACA plan, but even if they don't take the employer-sponsored plan... they qualify for zero subsidy at that point. Meaning they'll owe EVERY SINGLE PENNY of the subsidy they received past March back to the IRS.

Even if the new employer had zero health insurance, they will likely no longer qualify for any subsidy if their income is above 400% federal poverty level, and have to pay it ALL (like the entire year, not just from when they got the job) back.They can keep ACA, but they'll be paying full rate.

So they'll see this bite them HARD come tax time next year if they don't fix it.

And likely the employer-sponsored health insurance will be cheaper or at least comparable to what they pay with the ACA, but in any case it's easy to see what they'll owe. They just have to check the unsubsidized monthly cost, what they were getting in subsidy and multiply it by 12... and that's the amount they'll owe come tax time.

Example:

Job insurance: $400/month

ACA with subsidy before they got the job: $200/month

Looks like a no brainer to just keep the ACA? That's likely what your friend is thinking. But here's the scary part...

ACA plan cost WITHOUT SUBSIDY: $1,200/month
WHEN THEY DO THEIR TAXES, THAT SUBSIDY GOES AWAY: 1,000/month OWED to the IRS once they take a look at his income and see he's way above the fed poverty level with his new job for 2020...

$12,000 owed!! And they'll come after him for that, make no mistake. I end up underestimating my income sometimes and get MORE money than what I paid in because I was eligible for additional $ for subsidies, so they absolutely will expect over-payments to be paid back. And doing sneaky things with the IRS is akin to putting out the welcome mat to having their account flagged and scrutinized/audited.

If your friend knows a good ballpark of the income expected, they can figure out if this new job is going to lose them their entire subsidy and check how much the ACA policy is going to REALLY cost them, and make immediate adjustments (like taking the employer sponsored health care if it's cheaper and cancelling the ACA).

https://taxpayeradvocate.irs.gov/estimator/premiumtaxcreditchange/estimator.htm
^income/subsidy calculator

 

[ncbill]

They already have the subsidy in place and just plan to not signup for the employed offered insurance. If they just do nothing and keep the almost free insurance what happens at tax time in Jan 2021. So far everything they have done is aboveboard. The problem will begin when the don't report they have a change in offered HI. Or they want to have their cake and eat it too.

They pay back the subsidy if they are honest and admit affordable employer insurance was available.

To be blunt, though, your buddy can likely get away with remaining on the plan & taking the subsidy if he wants...short of a manual audit he won't be discovered...though won't his new job crank up household income to the point he's not receiving such a generous subsidy anymore?

 

[ivinsfan]

They pay back the subsidy if they are honest and admit affordable employer insurance was available.

To be blunt, though, your buddy can likely get away with remaining on the plan & taking the subsidy if he wants...short of a manual audit he won't be discovered...though won't his new job crank up household income to the point he's not receiving such a generous subsidy anymore?

He's not really my buddy, but this did lead me to wonder what safeguards are in place to prevent this stuff....we have a state run exchange so maybe that might make a difference. Certainly his subsidy would be less but then again the family won't be entitled to any subsidy under the law.

 

[RetiredAt55.5]

My recollection is that if the employer insurance is "affordable" then they can buy an ACA policy if they wish to but they would lose their subsidy. For 2020, if the employer insurance is affordable if it is less than 9.78% of household income.... and most employers design their plans to be affordable.

Employer-sponsored health coverage will satisfy the Affordable Care Act (ACA) affordability requirement in 2020 if the lowest-cost, self-only coverage option available to employees does not exceed 9.78 percent of an employee's household income. This limit is down from 9.86 percent in 2019.

To the OP, note my bolding. This is easy to miss. The cost to cover the entire family could be significantly higher than 9.78 percent, but if it's under 9.78 for employee only coverage, it's still considered affordable based on the household income.

So, it's typically not a high bar to meet.

 

[pb4uski]

Good point. While it is true that the likelihood of getting caught is slim, if they happen to be one of the unlucky few that do get caught then it will be a very costly mistake, especially if the authorities decide to make an example out of them.

I'd probably explain what the are supposed to do and then step away and let them make their own mess if that is what happens.

 

[teejayevans]

If they know they're taking a premium tax credit to which they are not entitled, that certainly is fraud.

That said, it seems pretty unlikely that the IRS or the marketplace would a) be able to figure out that they had an option for 9 months of employer sponsored insurance; and b) go after them for more than the APTC amount, especially if they end up over 400% FPL and pay it all back at tax time so the government isn't actually out any money. Now, if they're getting a huge subsidy because they estimated their income at 150% FPL and they end up with income at 380% FPL, and their payback is capped at much less than they actually owe, that's kind of inviting an audit and they might find themselves in trouble then.

Well, if IRS computers check they took subsidies and also got W2 earnings, or if W2 has a field to indicate insurance was provided, you can expect a letter from the IRS. I would not take that chance.

 

[cathy63]

Well, if IRS computers check they took subsidies and also got W2 earnings, or if W2 has a field to indicate insurance was provided, you can expect a letter from the IRS. I would not take that chance.

The W-2 only shows the amount the employer actually paid for insurance. An employee who doesn't enroll in the employer's plan doesn't have an insurance code on his W-2. Also, a W-2 doesn't have the employee start date or any info about whether the employee is full- or part-time, so you really can't tell by looking at it whether or not they were eligible for employer provided insurance. Therefore, I don't think having both a W-2 and a marketplace subsidy would lead to an inquiry. Now if there were another error that caused a human to look at the return, then that might result in a letter; or if as I said before, there were a situation where the taxpayer got a huge subsidy but ended up in that range just below 400% FPL where they only have to pay back $2600, that could also raise a concern.

 

[target2019]

He's not really my buddy, but this did lead me to wonder what safeguards are in place to prevent this stuff....we have a state run exchange so maybe that might make a difference. Certainly his subsidy would be less but then again the family won't be entitled to any subsidy under the law.

It's not easy to help a friend who is not in understanding of any law. I'd be concerned about giving someone advice, and then getting the blame downstream when things don't go perfect.

When he signs up for health insurance at the company, he'll get a 1095-C next year that confirms he was offered health insurance in 2020. As you can tell from the other answers, it's more complicated than that, and it is up to them to follow the rules and regulations. The HR department is probably where he should go for information. But I'll admit, they may not be the best source of information. Still, they are in charge at his decision point, and should have a grasp of the details.