UNDER THE ACA, IT PAYS TO UNDERSTATE INCOME

Posted on November 27, 2013 by

Author: Manhattan Institute

Publication: Economic Policies for the 21st Century

URL: http://www.economics21.org/commentary/under-aca-it-pays-understate-income

The administration announced last summer that in 2014 it will not require income verification for applicants who apply for healthcare subsidies on state-run exchanges. Because of this, it is not difficult for applicants to understate their income.

Many who are self-employed or are working a variety of short-term jobs can easily underreport their incomes. In this way they will be eligible for cheaper insurancepremiums. This could result in thousands of dollars in personal savings—but comes at a cost to the taxpayer. 

According to data from the Kaiser Family Foundation, annual premium costs for a 24-year-old male living in New York City who makes $46,000 a year (401 percent of the federal poverty line) will be $3,685 for a bronze plan on the Affordable CareAct’s exchanges.

However, if he were to understate his income, as government-sponsored navigatorssuggest, his annual premium could be lowered significantly. Enrollees are already taking advantage of this lack of enforcement in order to offset cost increases they are experiencing under the Affordable Care Act. 

  • Understating income to $35,000, 300 percent of the poverty line, would lead to annual savings of $1,350. 
  • Understating income to $23,000, 200 percent of the poverty line, would lead to annual savings of $3,200.
  • Understating income to $17,500, 150 percent of the poverty line, would lead to annual savings of $3,685. This plan would be fully subsidized.