How Obamacare insurance exchange subsidies work; how $700 can cost you $5,000

2013

Is a raise in your income always a good thing? You would think so, but Obamacare, like so many other income based government programs, turns the incentive to raise ones income into a negative. The government tax credits (subsidies) in the new health insurance exchanges are based on household income, age and family status.

Look at the two examples below using the Kaiser Family Foundation premium subsidy estimator.

In the first example the family receives $5,410 in tax credits toward the cost of health insurance. In the second example there are no tax credits. The examples are identical, except in example two the family income is $700 a year higher. In example two, the family will pay about 15% of their income in premiums. I will leave it to you to decide if that is “affordable” health insurance.

But there is more to worry about. Let’s say you start the year earning $93,000, but in June get a nice raise or bonus that puts you over the tax credit limit or reduces your tax credit entitlement at lower income levels. Now you have to report that income change and return the credits you were not entitled to. Fun and games, fun and games.

The income limit for premium subsidies is 400% of the poverty level. Very low income families also receive subsidies for out of pocket expenses like deductibles and co-insurance.

This may come under the heading of be careful what you wish for.