Premium Tax Credit Interaction With Medicaid
We have had several questions related to PTC and its interaction with Medicaid (Medi-Cal in California). In virtually all of the cases, a spouse, child or dependent applied for and received free Medicaid coverage. In order to do that they would have had to indicate they were not in another family or did not have another family member with household income that they neglected to include in the application. As a result, they received free Medicaid coverage that they were not entitled to. What are the repercussions, if any?
Penalty for Not Being Insured
Section 5000A imposes a “shared responsibility payment” for anyone who is not “covered under minimum essential coverage” (Section 5000A(a) & (f)). Medicaid is a “qualified health plan” so if all the family members are covered by Medicaid and other qualified health insurance, there is no uninsured penalty. For years after 2018, the TCJA set the penalty at $0, so it is no longer an issue anyway.
Medicaid and Premium Tax Credit (PTC)
To qualify for the PTC, the health insurance must be insurance obtained through a government Marketplace. Thus, Medicaid does not qualify for PTC.
However, assume another member of the tax family obtained coverage through the Marketplace. Then that family member would qualify for the PTC. The amount of the PTC is dependent on family size and household income. The fact that some members of the tax family were on Medicaid makes no difference. If only one member of the tax family qualifies for the PTC it will be the same as if all members of the family qualified. There is no adjustment needed or allowed.
Example - Mother and daughter manage to get coverage through Medicaid. Mother files jointly with father and they claim daughter as a dependent. Father, using his correct household income (too high for Medicaid), obtains his insurance through the Marketplace. Since the family size is three, the family’s federal poverty level percentage is lower, and thus the PTC is higher, even though the mother and daughter had insurance through Medicaid. FREE insurance and higher PTC…but that's the way it works out!
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Household Income Stated Above Medicaid Threshold
To avoid repayments of advance credit payments for taxpayers who experience an unforeseen decline in income, the existing regulations provide that if an Exchange (Marketplace) determines at enrollment that the taxpayer’s household income will be at least 100% but will not exceed 400% of the applicable federal poverty level (FPL), the taxpayer will not lose his or her status as an applicable taxpayer (i.e., one who is eligible for the PTC) solely because household income for the year turns out to be below 100% of the applicable FPL. (Reg. Sec. 1.36B–2(b)(6))
The regulations provide that a taxpayer whose household income is below 100% of the FPL for the taxpayer’s family size is not treated as an applicable taxpayer if the taxpayer provided incorrect information to an Exchange for the year of coverage with intentional or reckless disregard for the facts. A reckless disregard of the facts occurs if the taxpayer makes little or no effort to determine whether the information provided to the Exchange is accurate under circumstances that demonstrate a substantial deviation from the standard of conduct a reasonable person would observe. A disregard of the facts is intentional if the taxpayer knows the information provided to the Exchange is inaccurate. (Reg 1.36B-2(b)(6)(ii))
Exchange Determines Taxpayer Ineligibility for Medicaid or CHIP
Similar to the rule for taxpayers who received the benefit of advance credit payments but ended the taxable year with household income below 100% of the applicable FPL, the existing regulations do not require a repayment of advance credit payments for taxpayers with household income within the range for eligibility for certain government-sponsored programs if an Exchange determined or considered the taxpayer or a member of the taxpayer’s family to be ineligible for those programs.
To reduce the likelihood those individuals who recklessly or intentionally provide inaccurate information to an Exchange will benefit from an Exchange determination, the regulations provide that:
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A taxpayer whose household income is below 100% of the FPL for the taxpayer’s family size is NOT treated as an applicable taxpayer if, the taxpayer intentionally or recklessly disregarded the facts, and provided incorrect information to an Exchange for the year of coverage, and
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An individual who was determined or considered by an Exchange to be ineligible for Medicaid, CHIP, or a similar program (such as a Basic Health Program) may be treated as eligible for those coverages and therefore ineligible for PTC if the individual (or a person claiming the individual as a dependent) provided incorrect information to the Exchange with intentional or reckless disregard for the facts (defined the same as above). (Reg 1.36B-2(c)(2)(v))