The first word of the ACA is Affordable .
For many people the cost of health insurance has been unaffordable, and the ACA addresses this fact by offering premium support, or lower premiums based upon your income level.
Until recently it was anticipated that the web-based enrollment portal would verify a whole bunch of information in real time. What was intended was that a person would enter their personal details and this would be run through various government databases including – IRS, Dept of Treasury, Dept of Homeland Security, Social Security and also the State databases for Medicaid eligibility. Click on the image below to see a diagram of this process.
All these checks were to take place in a matter of seconds and the computer would then tell you what your level of premium support would be.
That portion of verification has been postponed indefinitely due to the complex nature of trying to get so many different computer systems to interact seamlessly.
So, what does this mean for you??
At this stage, premiums and eligibility will be based upon your stated income, or the honor system. Hey, wait a minute… Weren’t stated income loans one of the pieces of the whole housing and mortgage mess we are still working our way out of? Hmmm, I don’t have a great deal of confidence in stated income systems as it is rife with opportunities for fraud and abuse. Let me give you an example.
If you are a family of three (parents early 50’s with a child still at home) with income of $80,000 your premium (according to waplanfinder.org) would be $1,600+ per month. Now, if you reported your income as only $78,000 your premium would drop by over $1,000 per month.
Yes, that’s right a reduction in income of $2,000 per year could save you over $12,000 in insurance premiums. I can imagine scenario’s where an employee would ask their boss, instead of that raise could I take an extra few days of vacation?
This stated income situation is further complicated by the word “income”. What is counted as your income. The ACA uses something called Modified Adjusted Gross Income or MAGI, which for most folks will be very similar to the regular Adjusted Gross Income (AGI) from their federal tax return.
I guarantee you that if I were to ask most people what their income is, they would be able to give me a pretty accurate figure for their GROSS income, but most folks would have no idea what their ADJUSTED GROSS INCOME is without pulling out a copy of their tax return and looking.
So the stated income could affect people for better or for worst.
If a person entered their gross income they would not get the credits they were eligible for, or if a person underestimated their income they would get more support than they were entitled to.
But wait, the government has stated that while income verification will not take place at enrollment it will be reconciled when you file your tax returns for 2014 in early 2015.
So the person who made an honest mistake and said income was $78,000 as opposed to the actual of $80,000 would get a letter from the IRS saying that upon further review you claimed $12,000 of premium support you were not eligible for and you now owe that amount back to the government. Yikes, that could ruin your day.
Stay tuned folks for next week’s exciting installment of “Obama Care – The Reality”!