What happens if my income changes and my premium subsidy is too big? Will I have to repay it?

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Q: What happens if my income changes and my premium subsidy is too big? Will I have to repay it?

Obamacare subsidy calculator

Use our calculator to estimate how much you could save on your ACA-compliant health insurance premiums.

A: Monthly premium subsidy amounts (ie, the advance premium tax credit – APTC – that’s paid to your insurer each month to offset the cost of your premium) are estimated based on prior-year income and projections for the year ahead, but the actual premium tax credit amount to which you’re entitled depends on your actual income in the year that you’re getting subsidized health insurance coverage.

If recipients end up earning more than anticipated, they could have to pay back some of the subsidy. This can catch people off guard, especially since the tax credits are paid directly to the insurance carriers each month, but if overpaid, they must be returned by the insureds themselves.

The issue of reconciling APTCs was explained in a 2013 IRS publication (see the final column on page 30383, continued on page 30384) which clearly explains that they do expect people to pay back subsidies that are in excess of the actual amount for which the household qualifies.

But the portion of an excess subsidy that must be repaid is capped for families with incomes up to 400 percent of federal poverty level (FPL). Details regarding the maximum amount that must be repaid, depending on income, are in the instructions for Form 8962, on Table 5 (Repayment Limitation). These amounts are adjusted annually, but for the 2020 tax year, the repayment caps range from $325 to $2,700, depending on your income and your tax filing status (single filer versus any other filing status). GOP lawmakers considered various proposals in 2017 that would have eliminated the repayment limitations, essentially requiring anyone who received excess APTC to pay back the full amount, regardless of income. But those proposals were not enacted.

There are some scenarios in which repayment caps do not apply:

  • If a person projected an income below 400 percent of the poverty level (and received premium subsidies during the year based on that projection) but then ends up with an actual income above 400 percent of the poverty level (ie, not eligible for subsidies), the entire subsidy amount that was paid on their behalf has to be repaid to the IRS.
  • If a person projected an income at or above 100 percent of the poverty level (and received premium subsidies) but then ends up with an income below the poverty level (ie, not eligible for subsidies), none of the subsidy has to be repaid. This is confirmed in the instructions for Form 8962, on page 8, in the section about Line 6 (Estimated household income at least 100% of the federal poverty line). But there are new rules as of 2019 that make it less likely for people with income below the poverty level to qualify for premium subsidies based on income projections that are above the poverty level. This is explained in more detail here.

Is there any help for me if I have to repay premium subsidies?

The IRS noted that they would “consider possible avenues of administrative relief” for tax filers who are struggling to pay back excess APTC, including such options as payment plans and the waiver of interest and penalties for people who must return subsidy over-payments. If you find yourself in a situation where you must pay back a significant amount of the premium subsidies you received during the prior year, contact the IRS to see if you can work out a favorable payment plan/interest arrangement.

It’s also worth noting that contributions to a pre-tax retirement account and/or a health savings account will reduce your ACA-specific modified adjusted gross income, which is what the IRS uses to determine your premium tax credit eligibility. If you had HSA-qualified health coverage during the year, you can make HSA contributions up until the tax filing deadline the following spring. And IRA contributions can also be made up until the tax filing deadline. You’ll want to talk with your tax advisor to see what makes the most sense given your specific circumstances, but you may find that some pre-tax savings end up making you eligible for a premium subsidy afterall, or reduce the amount that you’d otherwise have to repay.

The COVID pandemic caused widespread financial uncertainty and employment upheavals throughout much of 2020. Additional federal unemployment benefits were provided to millions of people, but there are concerns that the premium tax credit reconciliation could be particularly challenging during the 2021 tax filing season, with many people having to repay subsidies that were paid on their behalf during a time they were unemployed in 2020.

In December 2020, insurance commissioners from 11 states sent a letter to President-elect Biden, recommending various immediate and long-term actions designed to improve access to health coverage and care. One of the short-term recommendations is to provide relief from subsidy claw-backs for the 2020 tax year. Even in the best of times, it can be challenging to accurately project your income for the coming year, but the uncertainty caused by the COVID pandemic made this much more challenging than usual. So it’s possible that the Biden administration and/or Congress might be able to take action to provide some relief in this area, for at least the 2020 tax year.

What if you get employer-sponsored health insurance mid-year?

Most non-elderly Americans get their health coverage from an employer. Individual health insurance is great for filling in the gaps between jobs, but what happens if you start off the year without access to an affordable employer-sponsored health insurance plan, and then get a job mid-year that provides health coverage?

If a premium subsidy was paid on your behalf during the months you had individual market coverage, you may end up having to repay some or all of the subsidy when you file your tax return. It all depends on your total income for the year, including income from your new job. If your total income still ends up being in line with the estimate you provided when you applied for your subsidy, you won’t have to pay that money back. But if your actual income for the year ends up being substantially higher than you initially projected, you may end up having to repay some or all of that subsidy when you file your taxes.

It doesn’t matter that your income was lower when you were covered under the individual market plan. In the eyes of the IRS, annual income is annual income — it can be evenly distributed throughout the year, or come in the form of a windfall on December 31. (As noted above, insurance commissioners have urged the Biden administration to consider ways of providing relief on this issue for the 2020 tax year, given that it was even more challenging than normal to accurately project an annual income during the COVID panemic).

Once you become eligible for an affordable health insurance plan through your employer that provides minimum value, you’re no longer eligible for premium subsidies as of the month you become eligible for the employer’s plan. But premium tax credit reconciliation is done on a month-by-month basis, so as long as your total income for the year is still in the subsidy-eligible range, you’ll almost certainly still be eligible for at least some amount of subsidy for the months when you had a plan that you purchased through the exchange.

Finally, if you’re offered health insurance through an employer that you feel is too expensive based on the share you have to pay, you can’t just opt out, buy your own health plan, and attempt to snag a subsidy. The fact that an affordable plan (by IRS definitions) is available to you renders you ineligible for money toward your premiums. Unfortunately, the cost of obtaining family coverage is not taken into consideration when determining whether an employer-sponsored plan is affordable, which leaves some families stuck without a viable coverage option.

How many people have to repay premium subsidies?

For 2015 coverage, subsidies were reconciled when taxes were filed in early 2016. The IRS reported in early 2017 that about 3.3 million tax filers who received APTC in 2015 had to repay a portion of the subsidy when they filed their 2015 taxes; the average amount that had to be repaid was about $870, and 60 percent of people who had to pay back excess APTC still received a refund once the excess APTC was subtracted from their initial refund. [IRS data for premium tax credit reporting is available here; as of 2019, data had only been reported for the 2014 and 2015 tax years.]

But on the opposite end of the spectrum, about 2.4 million tax filers who were eligible for a premium tax credit ended up receiving all or some of it when they filed their return. These are people who either paid full price for their exchange plan in 2015 but ended up qualifying for a subsidy based on their 2015 income, or people who got an APTC that was less than the amount for which they ultimately qualified. The average amount of additional premium tax credit paid out on tax returns for 2015 was $670.

[The IRS noted that it was very uncommon for people to pay full price for their coverage and wait to claim their full refund on their return: 98 percent of the people who claimed a premium tax credit on their return had received at least some APTC during the year.]

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

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Will you owe a penalty under Obamacare?

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Key takeaways

No longer a federal penalty, but some states impose a penalty on residents who are uninsured

Although there is no longer an individual mandate penalty – or “Obamacare penalty” – at the federal level, some states have implemented their own individual mandates and associated penalties:

  • Massachusetts implemented an individual mandate in 2006, and it’s remained in effect ever since. The state has not double-penalized people while the federal mandate penalty was in effect, but starting in 2019, the state once again began assessing penalties on people who are uninsured and not exempt. The penalty in Massachusetts is calculated as 50 percent of the cost of the lowest-cost plan that the person could have purchased. There’s no penalty if your income is up to 150 percent of the poverty level. If your income is between 150.1 and 300 percent of the poverty level, your penalty is 50 percent of the premium for the lowest-cost ConnectorCare plan, and if your income is over 300 percent of the poverty level, your penalty is 50 percent of the cost of the lowest-cost bronze plan available through the Massachusetts Health Connector. Revenue generated from the penalty is used to help cover the cost of ConnectorCare coverage for people with income under 300 percent of the poverty level.
  • New Jersey has implemented an individual mandate, effective in 2019, with a penalty modeled on the ACA’s penalty. The maximum penalty is based on the average cost of a bronze plan in New Jersey. Revenue generated from the penalty is used to fund the state’s new reinsurance program.
  • The City Council in the District of Columbia approved an individual mandate, with a penalty modeled on the ACA’s penalty. The measure was signed into law by Mayor Muriel Bowser in September 2018, and took effect in January 2019. The maximum penalty is based on the average cost of a bronze plan in DC. Revenue from the penalty is used for outreach and enrollment assistance, as well as programs that improve the availability and affordability of coverage in the District.
  • California has an individual mandate as of 2020, with a penalty modeled on the ACA’s penalty. Revenue from the state’s individual mandate is used to help cover the cost of the state’s new premium subsidies, which extend to higher income levels than the ACA’s premium subsidies.
  • Rhode Island has an individual mandate as of 2020, with a penalty modeled on the ACA’s penalty. Revenue collected via the penalty is used to fund the state’s new reinsurance program.

Vermont enacted legislation to create an individual mandate as of 2020, but lawmakers failed to agree on a penalty for non-compliance, so although the mandate took effect in 2020, it has thus far been essentially toothless (the same as the federal individual mandate, which remains in effect but has no penalty for non-compliance). Vermont could impose a penalty during a future legislative session, but the most recent legislation the state has enacted (H.524/Act63, in June 2019) calls for the state to use the individual mandate information that tax filers report on their tax returns to identify uninsured residents and “provide targeted outreach” to help them obtain affordable health coverage.

2014-2018: Everything you need to know about the federal individual mandate penalty

Although the ACA included provisions to make it easier to buy health insurance – including Medicaid expansion, premium subsidies, and guaranteed-issue coverage – it also included an individual mandate that requires Americans to purchase health coverage or face a tax penalty, unless they were eligible for an exemption).

But the GOP tax bill that was signed into law in late 2017 repealed the individual mandate penalty, starting in 2019 (See Part VIII, Section 11081 of the text of the Tax Cuts and Jobs Act). Although the law was enacted in 2017, there was a delay of more than a year before the Obamacare penalty repeal took effect, and people who were uninsured in 2018—after the law was enacted—still had to pay the individual mandate penalty when they filed their tax returns in 2019.

The individual mandate penalty helped to keep premiums lower than they would otherwise have been. There was no Obamacare penalty back when insurers were allowed to reject applicants with pre-existing conditions, but with coverage now guaranteed-issue, it was important to have a mechanism to ensure that healthy people would remain in the pool of insureds. The individual mandate was part of that, but the ACA’s premium subsidies are likely playing an even larger role, as they keep coverage affordable for most middle-class enrollees, regardless of whether they’re healthy or not.

The Congressional Budget Office has estimated that premiums in the individual market will generally trend 10 percent higher without the individual mandate penalty than they would have been with the penalty. Unsurprisingly, most of the rate filings for 2019 included a rate increase related to the elimination of the penalty. That is now baked into the standard premiums going forward, so the higher rates apply in future years as well.

The individual mandate has long been the least-popular consumer-facing provision of the ACA, although most Americans already had health insurance before the ACA, and didn’t need to worry about the penalty for being uninsured.

It’s worth noting that the elimination of the individual mandate penalty is the crux of the Texas v. US (California v. Texas) lawsuit, which seeks to overturn the entire ACA. The case was heard by the Supreme Court in November 2020, and a ruling is expected in the spring or early summer of 2021.

Uninsured tax filers were more likely to get an exemption than a penalty

Although there were still 33 million uninsured people in the US in 2014, the IRS reported that just 7.9 million tax filers were subject to the penalty in 2014 (out of more than 138 million returns). According to IRS data, 12 million filers qualified for an exemption.

The number of filers subject to the ACA’s penalty was lower for 2015 (on returns that were filed in 2016), as overall enrollment in health insurance plans had continued to grow. The IRS reported in January 2017 that 6.5 million 2015 tax returns had included individual shared responsibility payments. But far more people—12.7 million tax filers—claimed an exemption for the 2015 tax year. For 2016, the IRS reported that 10.7 tax filers had claimed exemptions by April 27, 2017, and that only 4 million 2016 tax returns had included a penalty at that point.

A full list of exemptions and how to claim them is available here, including a summary of how the Trump administration made it easier for people to claim hardship exemptions (hardship exemptions continue to be important in 2019 and beyond, as they’re necessary for people age 30 and older to be able to purchase catastrophic health insurance plans).

Most Americans weren’t affected by the penalty

As noted above, only 4 million tax returns for 2016 included the ACA’s individual mandate penalty (as of late April, 2017; people who got a tax filing extension hadn’t yet filed by that point, so the total number of filers who owed a penalty likely ended up higher than 4 million). The vast majority of tax filers had health insurance, and even among those who didn’t, penalty exemptions were more common than penalty assessments.

Most Americans already get health insurance either from an employer or from the government (Medicaid, Medicare, VA); they didn’t need to worry about the penalty because employer-sponsored and government-sponsored health insurance count as minimum essential coverage.

Individual market major medical plans available on or off-exchange are considered minimum essential coverage, and so are grandfathered plans and grandmothered plans. And although health care sharing ministries are not considered minimum essential coverage, people with sharing ministry coverage were eligible for one of the exemptions under the ACA.

Plans that aren’t considered major medical coverage are not subject to the ACA’s regulations, and do not count as minimum essential coverage, meaning people were subject to the penalty if they relied on something like a short-term plan and were not otherwise exempt from the Obamacare penalty. Things like accident supplements and prescription discount plans may be beneficial, but they do not fulfill the requirement to maintain health insurance.

How big were the penalties?

The IRS reported that for tax filers subject to the penalty in 2014, the average penalty amount was around $210. That increased substantially for 2015, when the average penalty was around $470. The IRS published preliminary data showing penalty amounts on 2016 tax returns filed by March 2, 2017. At that point, 1.8 million returns had been filed that included a penalty, and the total penalty amount was $1.2 billion — an average of about $667 per filer who owed a penalty.

Although the average penalties are in the hundreds of dollars, the ACA’s individual mandate penalty is a progressive tax: if a family earning $500,000 decided not to join the rest of us in the insurance pool, they would have owed a penalty of more than $16,000 for 2018. But to be clear, the vast majority of very high-income families do have health insurance.

Today, the median net family income in the United States is roughly $56,500 (half of U.S. families earn less; half earn more.) For 2018, the penalty for a middle-income family of four earning $60,000 was $2,085 (the flat-rate penalty would have been used, because it was larger than the percentage of income penalty; see details below, under “how the penalty works”). This is far less than the penalty a more affluent family would have paid based on a percentage of their income.

The penalty could never exceed the national average cost for a bronze plan, though. The penalty caps are readjusted annually to reflect changes in the average cost of a bronze plan:

  • The IRS announced in Revenue Procedure 2015-15 that the maximum 2015 penalty was $2,484 for a single individual and $12,420 for a family of five or more (both slightly higher than the maximum penalty amounts for 2014).
  • For 2016, Revenue Procedure 2016-43 increased the maximum penalty to $2,676 for a single individual, and $13,380 for a family of five or more, if they were uninsured in 2016.
  • For 2017, Revenue Procedure 2017-48 increased the maximum penalty to $3,264 for a single individual, and $16,320 for a family of five or more. The significant rate increases that we saw for 2017 (roughly 25 percent) mean that the average bronze plan was quite a bit more expensive in 2017 than it was in 2016. And that means that the maximum penalty was also quite a bit higher.
  • Rates increased considerably again for 2018, although the bulk of the rate increase was on silver plans (due to the elimination of federal reimbursement for cost-sharing reductions). According to Revenue Procedure 2018-43, the national average cost of a bronze plan increased to $3,396 in 2018 for a single individual and $16,980 for a family of five or more. This is the last year that the IRS had to calculate the national average cost of a bronze plan, since the federal individual mandate penalty no longer applies as of 2019. But as noted above, several states have or are implementing individual mandates with maximum penalties based on the average local cost of a bronze plan.

The maximum penalties rarely applied to very many people, since most wealthy households were already insured.

No longer a question on federal tax return about health coverage (but it’s still on some state returns, and Form 8962 is still applicable if you get a premium subsidy)

From 2014 through 2018, the federal Form 1040 included a line where filers had to indicate whether they had health insurance for the full year (see the upper right corner, under the spaces for Social Security numbers).

But since 2019, Form 1040 has no longer included that question, as there’s no longer a penalty for being without coverage.

But state tax returns for DC, Massachusetts, New Jersey, California, and Rhode Island do include a question about health coverage. Maryland’s tax return also asks about health insurance coverage, in order to try to connect uninsured residents with affordable coverage. Colorado’s tax return will have a similar feature as of early 2022 (but Maryland and Colorado do not penalize residents who don’t have health insurance).

In addition, nothing has changed about premium subsidy reconciliation on the federal tax return. People who receive a premium subsidy (or those who enroll through the exchange in a full-price plan but want to claim the subsidy at tax time) will continue to use Form 8962 to reconcile their subsidy. Exchanges, insurers, and employers will continue to use Forms 1095-A, B, and C to report coverage details to enrollees and the IRS.

health-reform-penalty

How the penalty worked

[Note that in most cases, the states that are implementing their own individual mandates are following this same basic outline in terms of how the penalty works, with the details based on the federal penalty levels that applied in 2018.] Your individual mandate tax is the greater of either 1) a flat-dollar amount based on the number of uninsured people in your household; or 2) a percentage of your income (up to the national average cost of a Bronze plan , as determined by the IRS and adjusted annually to reflect changes in premiums).

This means wealthier households will wind up using the second formula, and may be impacted by the upper cap on the penalty. For example: for 2017, an individual earning less than $37,000 would pay just $695 (flat-dollar calculation) while an individual earning $200,000 would pay a penalty equal to the national average cost of a bronze plan ($3,396 for 2018). This is because 2.5% of his income above the tax filing threshold would work out to about $4,740, which is higher than the national average cost of a bronze plan. The IRS publishes the national average cost of a bronze plan in August each year; that amount is used to calculate penalty amounts when returns are filed the following year.

1) Flat-dollar amount

In 2014, the flat-dollar penalty was $95 per uncovered adult (it climbed to $325 in 2015, and $695 in 2016) plus half that amount for each uninsured child under age 18. Your total household penalty is capped at three times the adult rate, no matter how many children you have.

In 2014, that was $285 ($975 in 2015, and $2085 in 2016). Starting in 2017, the flat-rate penalty is subject to annual adjustment for inflation. But for 2017, the IRS confirmed that there was no inflation adjustment, so the flat-rate penalty continued to be $695 per adult in 2017, with a maximum of $2,085 per family. And for 2018, that was once again the case, as the IRS confirmed that the flat rate penalty would remain unchanged in 2018. After 2018, there is no longer be a penalty imposed by the IRS, although New Jersey, Massachusetts, and DC now impose their own penalties; California and Rhode Island will join them in 2020.

2) Percentage of income

In 2014, the penalty was 1 percent. It rose to 2 percent in 2015, and to 2.5 percent for 2016 and beyond.

The penalty is capped at the average cost of a Bronze plan, which for 2018 was $3,396 for an individual and $16,980 for a family of five or more (those maximum amounts are prorated monthly for tax filers who were uninsured for only part of the year). The percentage of income penalty is calculated based on the household’s income above the tax filing threshold.

For most people, “household income” is simply adjusted gross income from Form 1040. But if you have non-taxable Social Security benefits, tax-exempt interest, or foreign earned income and housing expenses for Americans living abroad, you’ll need to add those amount to your AGI from your 1040. Be sure to include income from any dependents who are required to file a tax return.

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Miss open enrollment? You’ve got options.

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Key takeaways

  • Native Americans and people eligible for Medicaid/CHIP can enroll year-round.
  • If you’ve got a qualifying event, you can enroll in coverage.
  • If none of those apply, a short-term plan is the closest thing to real insurance in most states.
  • Federal regulations allow a short-term plan (with renewals) to last up to 36 months, although about half the states have more restrictive rules.

In the individual/family health insurance market (ie, coverage that people buy for themselves, as opposed to getting from an employer), open enrollment for 2021 coverage ended on December 15 in most states. But there are some states with extended enrollment deadlines, several of which are ongoing as of January 2021. And Maryland has opened a COVID-related special enrollment period for uninsured residents, which continues through March 15, 2021.

Millions of Americans purchased ACA-compliant plans through the exchanges — and outside the exchanges — during open enrollment. But there are still millions of Americans who don’t have coverage as of early 2021 (the uninsured rate has been increasing since 2017, due to the Trump administration’s approach to health care reform).

If you didn’t sign up for health insurance during open enrollment, you may have to wait until November 2021 to sign up for a plan that will take effect in 2022. But you may find that you can still get coverage for 2021, even if open enrollment has ended in your state. Let’s take a look.

Native Americans, those eligible for Medicaid/CHIP can enroll year-round

Native Americans can enroll in exchange plans year-round.

And people who qualify for Medicaid or CHIP can also enroll at any time. Income limits are fairly high for CHIP eligibility, so be sure you check your state’s eligibility limits before assuming that your kids wouldn’t be eligible – benefits very much extend to middle-class households.

And in states where Medicaid has been expanded, a single individual earning up to $17,608 can enroll in Medicaid. (This amount will be higher after the FPL numbers for 2021 become available). Most states have expanded Medicaid, and Oklahoma and Missouri will join them in mid-2021. But there are still 14 states (dropping to 12 once Medicaid expansion takes effect in Oklahoma and Missouri) where there is a Medicaid coverage gap and assistance is not available for most adults with income below the poverty level.

Similarly, if you’re on Medicaid and your income increases to a level that makes you ineligible for Medicaid, you’ll have an opportunity to switch to a private plan at that point, with the loss of your Medicaid plan serving as the qualifying event that triggers a special enrollment period.

A qualifying event at any time of the year will likely to allow you to enroll

Applicants who experience a qualifying event gain access to a special enrollment period (SEP) to shop for plans in the exchange (or off-exchange, in most cases) with premium subsidies available in the exchange for eligible enrollees.

HHS stepped up enforcement of special enrollment period eligibility verification in 2016, and further increased the eligibility verification process in 2017. So if you experience a qualifying event, be prepared to provide proof of it when you enroll.

And in most cases, the current rules limit SEP plan changes to plans at the same metal level the person already has. The state-run exchanges (ie, the ones that don’t use HealthCare.gov) can use their own discretion on this, but in general, if you’re enrolling mid-year, be prepared to provide proof of the qualifying event that triggered your special enrollment period, and know that you might not be able to switch to a more robust or less robust plan (eg, from bronze to gold or vice versa) during your SEP. And understand that in most — but not all — cases, the current SEP rules allow you to change your coverage but not necessarily go from being uninsured to insured. So you may be asked to provide proof of your prior coverage in addition to proof of the qualifying event.

For example, although a permanent move to an area where different health plans are available used to trigger a SEP regardless of whether you had coverage before the move, that’s no longer the case. You must have coverage in force before your move in order to qualify for a SEP in your new location. The same is true of getting married: In most cases, at least one spouse must have already had coverage in order for the marriage to trigger a SEP.

And without a qualifying event, major medical health insurance is not available outside of general open enrollment, on or off-exchange. This is very different from the pre-2014 individual health insurance market, where people could apply for coverage at any time. But of course, approval used to be contingent on health status, which is no longer the case.

If you’re curious about your eligibility for a special enrollment period, call (800) 436-1566 to discuss your situation with a licensed insurance professional.

The closest thing to ‘real’ insurance if you missed open enrollment

For people who didn’t enroll in coverage during open enrollment, aren’t eligible for employer-sponsored coverage or Medicaid/CHIP, and aren’t expecting a qualifying event later in the year, the options for 2021 coverage are limited to policies that are not regulated by the ACA and are thus not considered minimum essential coverage.

And most of these plans are designed to be supplemental coverage, rather than a person’s only health coverage. This includes things like limited-benefit plans, accident supplements, critical/specific-illness policies, dental/vision plans, and medical discount plans.

But there are a few types of coverage that are available year-round (generally only to fairly healthy individuals), and that can serve as stand-alone coverage in a pinch:

Farm Bureau plans in a few states

In Kansas, Tennessee, Indiana, and Iowa, members of Farm Bureau who are healthy enough to get through medical underwriting can enroll in Farm Bureau plans that are technically not considered insurance — and thus don’t have to comply with insurance regulations — but that are available for purchase year-round.

Farm Bureau plans are also available in Nebraska, without medical underwriting, for people who are actively engaged in agriculture, but these plans use the same November 1 – December 15 open enrollment period that applies to ACA-compliant plans in Nebraska.

Health care sharing ministry plans

There are also health care sharing ministry plans available nearly everywhere, and although they are not compliant with insurance laws, they are better than nothing and are available year-round to people who meet their eligibility criteria.

Short-term health plans

Short-term health insurance is available in all but eleven states, and can serve as decent coverage if your other alternative is to remain uninsured. In most states, it’s the closest thing you can get to “real” health insurance if you find yourself needing to purchase a policy outside of open enrollment without a qualifying event.

For most of 2017 and 2018, short-term plans were capped at three months in duration, due to an Obama administration regulation. But HHS finalized new rules that drastically expanded the allowable duration of short-term plans as of October 2018.


The Obama-Administration HHS implemented the regulation to cap short-term plans at three months in an effort aimed at “curbing abuse” of short-term plans. At that point, under HHS Secretary Sylvia Matthews-Burwell, HHS noted that short-term plans are exempt from having to comply with ACA regulations specifically because they’re supposed to only be used to fill gaps in coverage — but instead, people had been using them for up to a year at a time, effectively removing healthy people from the ACA-compliant risk pool and destabilizing it over the long-run.

In 2017, several GOP Senators asked HHS to reverse this regulation and go back to allowing short-term plans to be issued for durations up to 364 days. And the Trump administration confirmed their commitment to rolling back the limitations on short-term plans in an October 2017 executive order. The new rules took effect in October 2018, implementing the following provisions:

  • Short-term plans can now have initial terms of up to 364 days.
  • Renewal of a short-term plan is allowed as long as the total duration of a single plan doesn’t exceed 36 months (people can string together multiple plans, from the same insurer or different insurers, and thus have short-term coverage for longer than 36 months, as long as they’re in a state that permits this).
  • Short-term plan information must include a disclosure to help consumers understand the potential pitfalls of short-term plans and how they differ from individual health insurance.

But states can still impose stricter rules, and over half the states do so. Some are long-standing rules, while others are newly-adopted rules that states have implemented in an effort to prevent the Trump administration rules from destabilizing their individual insurance markets and pushing healthy people into less comprehensive coverage.

Although premium subsidies (a type of tax credit) are not available for short-term plans, the retail prices on these policies are more affordable than the retail price (ie, unsubsidized) on ACA-compliant plans, and they do still serve as a good stop-gap if you just need the policy to cover you for a few months when you’re in between other policies. However, if your income makes you eligible for the Obamacare premium subsidies, it’s essential that you enroll through your state’s exchange during open enrollment (or a special enrollment period triggered by a qualifying event like losing access to your employer-sponsored health insurance); otherwise, you’re missing out on comprehensive health insurance and a tax credit.

Some short-term plans have provider networks, but others allow you to use any provider you choose (keep in mind, however, that you’ll likely be subject to balance billing if your plan doesn’t have a provider network, since the providers will not be bound by any contract with your insurer regarding the pricing for their services).

And short-term policies are not required to be renewable; the new federal rule allows insurers to offer renewable short-term plans, but does not require them to do so. Depending on your state’s regulations and your insurer’s business plan, you may be able to renew your short-term plans, or you may be able to purchase a new short-term policy when your existing one expires. But if you’re buying a new policy, the purchase will require new underwriting, and in most cases, the new policy will not cover pre-existing conditions, including any that began while you were covered under the first short-term policy.

Unlike ACA-compliant plans, short-term policies have benefit maximums. But the limits on some short-term plans tend to be more reasonable than the infamous pre-ACA “mini-med” plans that barely covered a few nights in the hospital. Lifetime maximums of $750,000 to $2 million are common on short-term plans. While this is not as good as regular individual insurance plans that no longer have annual or lifetime benefit caps, it’s roughly similar to a lot of the plans that were available several years ago in the individual market. And the concept of a “lifetime” limit doesn’t really matter when you’re talking about a plan that lasts for at most 36 months (the maximum amount of time a single plan can remain in effect under the new federal rules), since you won’t be able to purchase another short-term plan if you develop a serious health condition.

But you’ll see plenty of short-term policies with much lower benefit limits. As a general rule, you’ll want to focus on plans that offer at least $1 million in benefits — health care is shockingly expensive.

Short-term insurance applications

The application process is very simple for short-term policies. Once you select a plan, the online application is much shorter than it is for standard individual health insurance, and coverage can be effective as early as the next day.

There are no income-related questions (since short-term policies are not eligible for any of the ACA’s premium subsidies), and the medical history section is generally quite short – nowhere near as onerous as the pre-2014 individual health insurance applications were.

Keep in mind that although the medical history section generally only addresses the most serious conditions in order to determine whether or not the applicant is eligible for coverage, short-term plans generally have blanket disclaimers stating that no pre-existing conditions are covered.

And post-claims underwriting is common on short-term plans. So although the insurer may accept your application based simply on what you disclose when you apply, they can — and likely will — go back through your medical history with a fine-toothed comb if and when you have a significant claim. If they find anything indicating that the current claim might be related to a pre-existing condition, they can rescind your coverage or deny the claim. So although a short-term plan might work well to cover a broken leg, it’s going to be less useful if you end up with a health condition that tends to take a while to develop, as the insurer may determine that the condition, or something related to it, began before your coverage was in force. This story is a good example of how this works.

Clearly, short-term plans are not as good as the ACA-regulated policies that you can purchase during open enrollment or during a special enrollment period. Short-term insurance is not regulated by the ACA, so it doesn’t have to follow the ACA’s rules: The plans still have benefit maximums, and they are not required to cover the ten essential benefits. (Most often, short-term plans don’t cover maternity, prescription drugs, preventive care, or mental health/addiction treatment), they do not have to limit out-of-pocket maximums, and they do not cover pre-existing conditions. They also still use medical underwriting, so coverage is not guaranteed issue.

The majority of short-term plans do not cover outpatient prescriptions. Using a pharmacy discount card may lower medication costs without health insurance, and some discount prices may be lower than an insurance copay.

Not a qualifying event: losing short-term coverage

Although loss of existing minimum essential coverage is a qualifying event that triggers a special open enrollment period for ACA-compliant individual market plans, short-term policies are not considered minimum essential coverage, so the loss of short-term coverage is not a qualifying event (loss of a short-term plan is a qualifying event for employer-sponsored coverage, however, so you’d be able to enroll in your employer’s plan when you short-term plan ends).

Let’s say you lose your job and your employer-sponsored health plan. You then have a 60-day window during which you can enroll in an ACA-compliant plan.

You also have the option to buy a short-term plan at that point, and it may be available with a term of up to a year, depending on where you live. But when the short-term plan ends, you would no longer have access to an ACA-compliant plan (you’d have to wait until the next open enrollment, and a plan selected during open enrollment would become effective on January 1) and although you could purchase another short-term plan, your eligibility would depend on your current medical history. [Some short-term plan insurers offer guaranteed renewability under the new federal rules, meaning that people can renew the plan, without going through medical underwriting, and keep it for up to 36 months. But not all insurers offer this option.]

Although short-term plans do not provide the level of coverage or consumer protections that the new ACA-compliant plans offer, obtaining a short-term policy is better than remaining uninsured. But your best bet is to maintain coverage under an ACA-compliant policy; if you’re not enrolled, you’ll want to do so if you experience a qualifying event (most people don’t take advantage of their qualifying events, perhaps unaware that their opportunity to enroll is limited).

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

The post Miss open enrollment? You’ve got options. appeared first on healthinsurance.org.

 

Maddox Insurance Agency

Insurance Agency in Memphis, Tennessee

Main Office

2151 Courtland Place | Memphis, TN 38104

Licensed in Tennessee, Mississippi & Arkansas

Contact

Phone: (901) 335-0154
Fax: (901) 255-9141

Lee.Maddox@maddoxinsured.com

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