In the ongoing debate over the Affordable Care Act, it is important to keep certain elemental truths front and center: namely, that it is a terrible law, it was designed poorly and without much thought, its execution has been a disaster, and it will probably continue to haunt the country for as long as it is extant. Most prominent among the law’s negative and disastrous effects is the slipshod and pernicious way it handles subsidies—and in particular, the way in which it takes the subsidies back.
Exhibit A are the Campbells, a couple in Sacramento who signed up for health insurance through California’s exchange when Roberta Campbell was unemployed and her husband, Curtis, was working part-time. They qualified for a subsidy of $1,000 per month.
Halfway through the year, both Roberta and Curtis found full-time employment with insurance, so cancelled their Obamacare plan and the tax credit along with it (subsidies are not available for employer-provided insurance). However, their year-end salary for 2014 totaled too much to qualify for subsidies for that year—so the Campbells had to pay back the $6,000 in insurance subsidies they had received, even though they had qualified for the subsidies when they received them and had cancelled them when they became ineligible.
Exhibit B is Christa Avampato, a woman in New York who purchased an insurance plan through New York’s exchange. Avampato’s income level meant she qualified for a $177 monthly subsidy to help pay for her insurance. However, “a big check from a client at the end of last year” meant her income for 2014 was higher than she’d estimated in the exchange, so she had to pay back $750 of the subsidies she’d received—again, even though she had been perfectly eligible for the subsidies at the time she received them.
Perversity Is a Feature, Not a Bug
If this strikes you as a shockingly perverse way to structure the law, you’re not wrong. Obamacare is perversity defined, and this is one of its most grotesque features: subsidy eligibility is defined retroactively. If you’re flat broke at the beginning of the year and accept tax credits from Obamacare for several months, then find a high-paying job with health insurance halfway through the year and make enough money to put yourself over the subsidy threshold, you’ll owe back every penny of those subsidies you received come tax season, even though you had no money when you received them.
As Avampato’s case shows, you don’t even have to be making a regular salary to retroactively disqualify yourself for subsidies: you can make some extra money in December that pushes you into a slightly higher bracket, and you’ll owe back a percentage of the subsidies you received throughout the year, even though you received those tax credits long before you made that extra money.
Were this any other welfare program, the quaint absurdity would be self-evident. Imagine a poor person who was drawing the average $130 in food stamps per month, but who found a good job in September and so cancelled his government Electronic Benefit Transfer card. If this job paid enough through the rest of the year to disqualify the earner for food stamps, then by Obamacare’s logic this poor soul should owe the government $1,040.
It Keeps Getting Worse
This is how the Affordable Care Act works, and its deleterious effects are worse and more frightening than previously imagined. Before, it was assumed—and rightly so—that Obamacare’s twisted incentives meant people would forego making more money to retain subsidies: people might stick in a lower-paying job in order to keep the $500 or $1,000 or $1,200 they’re getting from the government each month.
But, as Obamacare’s chickens come home to roost, there is another, more powerful incentive for avoiding a higher income: you might not end up losing your subsidies, but paying them back, too, simply because you earned more money at a later date. If you’ve been getting a large subsidy from the government, that’s a lot of money to pay back, as the Campbells’ situation shows.
One of the quiet yet indispensible parts of the U.S. Constitution forbids “ex post facto” laws—laws that retroactively criminalize behavior that was legal prior to the law’s passing. No civilized society tolerates ex post facto laws; they are the stuff of dictatorships and basket-case banana republics. Yet Obamacare itself contains an ex post facto provision that, under certain circumstances, criminalizes the subsidies it freely distributes.
The effect will likely be that people stay voluntarily poorer for fear of being hit with a big repayment bill, or else they’ll simply be poorer when the bill comes due. “The ironic thing,” Curtis Campbell said, “is that we tried to pull ourselves up by our bootstraps. Now they are going to penalize us.” Welcome to health insurance under the Affordable Care Act.