Published Date: September 09, 2013

Subsidies for health insurance premiums under the Affordable Care Act are refundable tax credits. They can be taken when taxes are filed or in advance, as reductions in monthly premiums that must be reconciled at tax filing. Recipients who take subsidies in advance will receive tax refunds if their subsidies were too small but will have to make repayments if their subsidies were too high.

The authors of this study analyzed predicted repayments and refunds for people receiving subsidies, using California as a case study. They found that many families could owe large repayments to the Internal Revenue Service at their next tax filing. If income changes were reported and credits adjusted in a timely manner throughout the tax year, the number of filers owing repayments would be reduced by 7–41 percent and the median size of repayments reduced by as much as 61 percent (depending on the level of changes reported and the method used to adjust the subsidy amounts).   The authors recommend that the health insurance exchanges mandated by the Affordable Care Act educate consumers about how the subsidies work and the need to promptly report income changes. They also recommend that they provide tools and assistance to determine the amount of subsidies that enrollees should take in advance.  

Publication Authors:
  • Ken Jacobs
  • Dave Graham-Squire
  • Elise Gould
  • Dylan H. Roby, PhD