This article is about how the Cost-Sharing Reduction (CSR) benefits change on a Silver plan based on income. CSR benefits are available ONLY on Silver plans if your income is below 251% of the Federal Poverty Level. There are 3 ranges of CSR corresponding to FPL of 100% – 150%, 151% – 200% and 201% to 250%. The lower the range, the higher the CSR.
In California, for example, a childless married couple stating income of $30,000 would face a $1,000 deductible, $15 per primary care visit and a maximum out-of-pocket cost (after premiums) of $4,500.
But for a couple attesting to $32,000 in income, the deductible would be $3,000, primary care visit $40 and out-of-pocket maximum a hefty $10,400.
Though they are separated by just $2,000 in income, the government might provide the lower-earning family as much as $5,900 more in cost-sharing subsidies to defray deductibles and copays.
So what are the odds and ramifications of income fudging?
If the IRS subsequently finds out that households understated income, any excess premium subsidies can be taken out of federal income tax refunds. On the other hand, any excess subsidies paid out to reduce cost-sharing (deductibles and copays) would be water under the bridge. Households that overstate income would likely be in the clear for both premium and cost-sharing subsidies.
So in the example above, if an individual mistated their income by $2000, they would have to refund the extra premium subsidy, which would be a small amount. HOWEVER, if they access their benefits, any advantages they received under CSR is NOT an issue. There’s going to be a lot of “income fudging” going on.
The flip side of “income fudging”, as noted in the IBD article, is to increase your income to above 100% of the FPL (or 133% in states that have enhanced Medicaid) to become eligible for the premium subsidy and to stay off of Medicaid.
Chaos! The temptation for income fudging is going to be very high. Especially for families that have medical conditions and know they will be accessing benefits. We’re creating yet another new tag today, “income fudging”.