Why Income Updates on Covered CA Are Important

The Covered California exchange provides health coverage solutions for many throughout the state, offering premium subsidies to help make the policies more affordable, too. Those subsidies are based on your income, household size, age and zip code. As a result, your health insurance broker will tell you that you need to update your income regularly for your Covered CA policy. Understanding what those updates are for and what can happen if you forget will help you to see the value in this process.

Why Does Your Income Matter for Covered CA?

You may think that your income is not important for your health insurance coverage but, if you have a policy purchased through Covered CA, your annual income matters. The healthcare exchange discounts your premiums based on subsidies you qualify for after assessing your Adjusted Gross Income as well as other factors. That premium subsidy you’re awarded is based on your estimated AGI for the year. If something materially changes, that can affect your eligibility.

When Should You Report Changes in Income?

One thing that your health insurance broker will tell you is that, when you sign up for coverage on Covered CA, one of the things that you agree to as part of the subsidy program is to notify them of changes within 30 days. That means that, according to the policy terms and conditions, you are required to notify Covered CA of material changes to your annual income within 30 days of that change.

At the very least, you should review your plan once a year to make sure that your income estimates are still in line with what you anticipate earning for the year. If you file your taxes and find that there’s been a material change, make sure you update your income on Covered CA right away to reduce the effect on next year’s tax filing.

What Happens if You Earn Less Than You Estimated?

At the end of the year, when you look at your AGI in comparison to your estimate on Covered CA, you may find that you actually earned less than you originally estimated. If so, you will typically be eligible for increased premium subsidies. The difference between what you received and what you were eligible for will be credited to your tax return, either by reducing the taxes you owe or increasing your refund amount.

What Happens if You Earn More Than You Estimated?

If your AGI at the end of the year is higher than what you estimated, that means you likely received more in premium subsidies than you were actually eligible for. The government requires you to repay that overpayment. Luckily, for those in certain income brackets, there may be a cap placed on how much of that overpayment the government can require you to repay. However, it is important to note that you will be held responsible for the repayment of at least a portion of that subsidy overpayment.

What if Your Income Is Inconsistent?

Talk with your health insurance broker if you have inconsistent income. If you work as a freelancer or in a gig economy, you need to calculate your salary as closely as possible, even if it means averaging out your earnings for a monthly figure. Then, you have the opportunity to choose how you wish to receive your subsidy, which you should consider carefully if you have a fluctuating income. Your options are:

• A monthly advance of your subsidy in premium credits
• Receive your full subsidy at the end of the year as part of your tax return
• A combination of the two with a portion of your subsidy every month and the remainder at the end of the year

With an unpredictable income, it may be easier for you financially to elect for your full subsidy as a tax credit at the end of the year. That way, you don’t risk receiving funds that you must pay back if there’s a change in your earnings or a miscalculation. By opting to receive your subsidy as a tax credit instead, you’ll only receive what you actually qualify for based on your AGI. It does mean that you will have to pay the full cost of the policy premiums through the course of the year.

What Else Can Your Health Insurance Broker Do?

Not only can your broker help you navigate the Covered CA platform, policy options and subsidy elections, but they can also help you determine what other types of coverage you might need. Whether you’re looking for long term care insurance or any other type of health supplement insurance, your broker can help you explore your options.

If you have questions or would like more information about the policy options and coverage solutions available to you, contact us at Sackett & Associates Insurance Services for more information. We can help you find the health insurance coverage that you need.