New legislative proposals released this week could potentially expose Marketplace enrollees to higher costs if their income at the end of the year differs from what they originally estimated. Most Marketplace enrollees (92% in 2025) receive a tax credit to help pay their premiums, and the vast majority of those receive the credit in advance to lower their monthly payments, rather than when they file their taxes.

To receive the Advance Premium Tax Credit (APTC), Marketplace enrollees must estimate their income for the upcoming year. If, by the time they file their taxes over a year later, their income is different, they must reconcile the tax credit they received with what they were eligible for. This could result in receiving additional assistance or having to repay some or all of the credit back to the federal government. The ACA currently caps how much low and middle-income enrollees must repay. Currently, individuals with incomes between 100% and 400% of the federal poverty level (FPL) have a capped repayment amount, regardless of how much their income changes. Repayment limits range from $375 to $1,625 for an individual, on a sliding scale based on income. Premium tax credits are only available for people whose income is above the poverty level.

At least three current policy issues could affect Marketplace enrollees with volatile incomes:

1. A recent Trump Administration proposed rule suggests there could be a widescale practice of people with incomes below poverty inflating their expected incomes to exceed the poverty level to gain eligibility for premium tax credits. In response, the proposed rule would require some applicants to submit additional documentation to support their expectation that their income will exceed poverty in the coming year. Additionally, individuals who do not file their taxes and reconcile their premium tax credits would become ineligible for these tax credits in future years. These potential changes could reduce federal spending on tax credits and address concerns about fraud, but could also pose challenges and reduce coverage for enrollees with less predictable income.
2. Additionally, the House Reconciliation bill would codify the proposed rule described above. It would similarly require certain Marketplace applicants to present documentation verifying expected changes in their income before they can enroll in subsidized coverage. In addition it would eliminate repayment caps on the premium tax credit, meaning enrollees would have to repay the full amount of their excess premium tax credit.
3. Later this year, enhanced premium tax credits are set to expire unless Congress extends them, meaning that tax credits will be lower for all subsidized enrollees and people with incomes over four times poverty will no longer be eligible for premium tax credits. Because the original ACA did not include any repayment caps for people with incomes over four times poverty, even a small increase in a household’s income putting them over that threshold would mean they have to pay back the entire premium tax credit.

To explore the challenges families may face in predicting their annual income, this analysis uses data from the 2023 Survey of Income and Program Participation (SIPP). It compares each family’s estimated annual income — based on the first three months of reported monthly income — to their actual income at the end of the year.

Key Findings

• Many Americans experience high income volatility, in particular potential ACA Marketplace shoppers. One in five people aged 19-64 were in families that saw more than a 20% difference in their income, split approximately equally between people who ended up with higher income and those who ended up with lower income.
• People with less stable work are more likely to have high income volatility. For example, among people aged 19-64, families in which someone lost a job were more likely to have a 20% swing in their family income.
• For those near poverty, predicting annual income may be especially difficult. Many people with incomes just above poverty at the beginning of the year end up below poverty by the end of the year, and conversely many who start out with incomes below poverty end up with incomes above poverty. More than half (61%) of people with starting incomes below poverty end the year with an income more than 20% different than their income during the first three months of the year.

Income Volatility Among ACA Marketplace Shoppers:

Overall, one in five people (21%) aged 19-64 were in families that had high levels of income volatility, defined here as a difference of at least 20% between the estimated annual income based on the first three months of the year and the families’ actual income. People potentially shopping on the Marketplaces—those that had at least 6 months of non-group coverage or uninsurance—experience higher levels of income volatility than others. In 2023, more than one in four (26%) adults aged 19–64 with non-group coverage or who were uninsured for at least six months had high income volatility—higher than 18% among those with employer-based coverage.

Having an uninsured adult family member is associated with high income volatility: 29% people aged 19 to 64 in a family with at least one person who was uninsured for at least one month had high income volatility, compared to 19% for people in a family without an uninsured member during the year. In 2023, 9.5% of the population under age 65 were uninsured, the majority (73.7%) in families with at least one full-time worker in the family. Unaffordable coverage is the most cited reason for being uninsured.

Repayment caps currently in effect protect Marketplace enrollees with high levels of income volatility from large tax bills for excess premium tax credits. For example, consider a 56-year-old individual in Boulder County, CO, who estimated their annual income would be $40,000 (266% of the federal poverty level for 2025), but ultimately earned $55,000 (365% FPL). They would have received $7,123 in advance premium tax credits but were only ultimately eligible for $4,774—an excess of $2,349. Under current rules, their repayment would be capped at $1,625, limiting the amount they owe to about 3% of their income. If the repayment caps were eliminated, however, they would be responsible for repaying $2,349.

Source: https://www.kff.org/affordable-care-act/issue-brief/marketplace-enrollees-with-unpredictable-incomes-could-face-bigger-penalties-under-house-reconciliation-bill-provision/