Navigating Subsidies for the Self-Employed Caught in the 'Coverage Gap'

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Question: I am a self-employer farmer and would qualify for Medicaid under the Obamacare expansion, except I live in North Carolina, which has chosen not to expand Medicaid. If I have a really good year, I could get above the poverty line and qualify for a lot of subsidies. What if I overestimate my 2014 income, get the subsidies, and end up making less and fall back into the poverty/Medicaid bracket. Would I have to pay the subsidies back? Whom would I owe if I did, the government or the insurance company?

Answer: Unfortunately, you find yourself in a situation that health-reform experts are calling the “coverage gap.” You make too little to be eligible for Obamacare and too much to be eligible for Medicaid, as defined by your state. You’re not alone: In your state of North Carolina, more than 300,000 people fall into this gap, according to data compiled by the Kaiser Family Foundation.

The nonprofit health research foundation explains it this way: “In states that expand Medicaid, all legal residents with incomes up to four times the poverty level are eligible for financial assistance if other coverage is not available. In states that do not expand, some uninsured people (particularly children) are already eligible for Medicaid or CHIP, though many adults below poverty will fall into a ‘coverage gap’ with no assistance.”

Currently, 22 states—all with governors or state legislatures opposed to Obamacare—have chosen not to expand Medicaid coverage, even though the federal government will pick up most of the cost of that expansion in the near future. Opting out was made permissible under the U.S. Supreme Court’s ruling last year that the Affordable Care Act is constitutional. A report released earlier this month by the Commonwealth Fund (an organization that supports the health care reform law) found that states that do not expand Medicaid will forgo billions in federal dollars.

If you have signed up for insurance coverage through, the federal Obamacare marketplace, and qualified for subsidies in 2014, you might indeed find yourself in the odd situation of having to refund them sometime in 2015—not because you made too much but because you made too little. As with many detailed questions about health-care reform, rules governing this situation have not yet been written, says Keith R. McMurdy, an attorney with Fox Rothschild in New York. “I don’t think anyone knows the answer yet. The working theory, I believe, is that the subsidies would be refunded in the form of some type of adjustment in 2015.”

What we do know—and this may provide you with some peace of mind—is that subsidy repayments will be capped, based on income. The subsidy caps apply to people who wind up making less than 400 percent of the federal poverty line, which would be at $45,960 (based on 2013 guidelines) for a one-person household or up to $94,200 for a four-person household. Depending on what income you report and how many people are in your family, repayments will be capped at between $300 and $2,500.

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