Falling through Obamacare’s floor?
A mess at the bottom of Obamacare: We know what happens when people who claim subsidies on the Obamacare exchanges underestimate their income–the IRS will grab the unwarranted part of the subsidy back at tax time. And we know what happens if they overestimate their income–they’ll be refunded the subsidy to which their lower income entitled them.
But the poorest Americans don’t qualify for subsidies on the exchanges. If they make less than the poverty line –about $20,000 for a family of three–they’re steered to Medicaid. (In states with expanded programs, they’re apparently sent to Medicaid if they make less than 138% of poverty, according to the Kaiser subsidy calculator). So what if someone is near the income boundary between the two programs–and what if this person overestimates their income, and thinks they qualify for a subsidized policy on the exchange, but it turns out they didn’t make what they thought they’d make? Maybe they didn’t get some work they usually got in the past, or their wages got cut, or they got laid off. According to the income they actually earned, they should have been sent to Medicaid. They didn’t just get too much or too little subsidy. They used the wrong program.
What’s the IRS going to do to them? Demand a refund of the subsidy, not because they’re too rich to get it but because they’re too poor? That’s perverse and probably futile–is the government really going to claw back a $9,700 subsidy from someone who makes
less than half that in a year less than $20,000 a year?** And while our hypothetical bad income-guesser got a big subsidy, they didn’t cost the government the Medicaid benefits they maybe could legally have claimed. So should the government then give them a refund? Or just do nothing and let them enjoy a year of subsidized private health insurance to which they weren’t legally entitled (amnesty!)? What if they now estimate that next year they’ll really earn what they thought they’d earn this year? Do you let them again claim a subsidy that the government won’t be able to get back?
I don’t know the answer. But it’s an additional example, if any was needed, of the complications created by Obamacare’s absurdly stratified-by-income structure. The President may decry the lack of economic mobility in America–but he better hope there’s not much mobility up and down around the $15,000-$25,000 level, or else lots of people will be discovering that they’re in the wrong health care program. Obamacare’s designers seem to have assumed we really are a corporatist society, with different classes assigned stable economic levels for life.
There’s also the incentive to cheat. At the middle-income level–around $45,000 for an individual– this incentive is straightforward: If you lowball your income you not only pay less in taxes but can qualify for a big subsidy (which cuts off abruptly above 400% of the poverty line).
But the lower-income incentives are more confusing. If you’re near the lower $10-15,000 boundary, do you want to overstate your income because you think Obamacare’s exchanges (with a big subsidy) are better than what Medicaid offers? (The exchanges have a better choice of doctors, perhaps?) Or do you understate your income because Medicaid is better than a cheapo exchange plan? The answer will presumably be different if you live in a state that doesn’t even offer expanded Medicaid to you** if you’re too poor to qualify for an exchange subsidy.
Another reason to just fold Medicaid and let the poor use the exchanges, with subsidies, Beebe style.
[Thanks to alert reader M for the tip]
Update: Neo-NeoCon has been thinking about this …
**–Thanks to JustOneMinute for pointing out a large error in my original calculation. This one is based on Kaiser’s estimate of a $9718 subsidy for a single parent family of four in Florida making 101% of poverty ($19,725).
***–Perhaps because you are a childless adult, or because your state has a Medicaid eligibility cutoff below 100% of poverty.