Millions of Americans have lost their jobs as a result of COVID-19, and for some, that means a loss of health insurance, as well as a paycheck. But not everyone gets health insurance through work. Some people get their insurance through health care exchanges, and under the Affordable Care Act, many are entitled to subsidies to help defray their premium costs.
If you are entitled to a health insurance subsidy, you may know that it is based on your modified adjusted gross income for your coverage year. But what if you don’t have a job and your income increases? Thanks to the CARES Law, that is the situation in which many people find themselves, and although it is a good thing in theory, it could cause problems from the point of view of subsidies.
Has your income changed for the better with unemployment?
Many workers who are collecting unemployment are actually making more money now than they did when they worked. The reason? The CARES Act, which was passed in late March, allowed a weekly increase of $ 600 in unemployment benefits through the end of July.
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Typically, unemployment benefits are based on your past earnings along with your state’s formula for calculating benefits, and generally replace only a portion of your past earnings. But when we add an additional $ 600 a week, that paints a very different picture. And to be clear, that extra $ 600 is something that all unemployed workers are entitled to, even if it results in a raise.
How does this impact your health insurance subsidy? Those who are entitled to that subsidy can estimate their total income for the year and claim that money in advance based on their projected earnings. If you take that route, your subsidy will be sent to your health insurance provider on your behalf. If your income estimate is accurate, no problem. But if you underestimate your income, you run the risk of having to pay that subsidy when you file your tax return next year.
Let’s say you normally make $ 600 a week, only you’re unemployed. Let’s also imagine that, under normal circumstances, your weekly unemployment benefit would be $ 360, only now you’re charging $ 360 per week plus $ 600 for a total of $ 960.
If you raise $ 960 a week for 16 weeks and then are rehired at your previous rate of $ 600 a week, your annual income will be $ 36,960 (36 weeks x $ 600 a week = $ 21,600 + $ 960 x 16 = $ 15,360, for a total of $ 36,960). But in the meantime, $ 600 per week for 52 weeks is only $ 31,200. If you calculated $ 31,200 as your annual income to determine your subsidy, but your total income for the year ends up being $ 5,760 more, you could end up owing some money. And that is an expense that you should plan for.
Crunch those numbers
The weekly increase in unemployment of $ 600 will expire at the end of July and, despite the ongoing recession, we still don’t know if it will spread. But even if it doesn’t, be careful if your income gets a big boost for any amount of time during the year. The last thing you need is a huge debt on your hands for a grant that you must partially pay but can’t.
