It’s tax season and many individuals and families are doing their tax returns and realizing they made more or less money than they reported to Covered California. Some folks are generally alarmed that Covered California will review their tax return and ask for a bunch of money or cancel their health insurance. Covered California can’t see your tax return. Covered California does not have access to your tax return. The only way Covered California can see your federal or state tax return is if you send it to them.
It does seem a little spooky that Covered California seems to know lots about us and our family members. When you go through the application to apply for health insurance and the premium tax credit subsidy, the system knows if you have put in a wrong social security number or if some family members are already on Medi-Cal. Then the online CalHEERS program may request verification for immigration status or income. How could Covered California know all this stuff if they did not have access to our tax returns?
Covered California Checks Federal Hub, Not Tax Returns
When you enroll in health insurance through Covered California you give them permission to check and verify data through the Federal Data Services Hub. The federal Hub is comprised of links to discreet pieces of personal information for people with social security or tax payer identification numbers. The Covered California CalHEERS program reaches out to the federal Hub to confirm citizenship, immigration status, Medicare and Medicaid enrollment, incarceration, Native American status, veteran status, and income information from the latest IRS tax return.
The Covered California application compares the estimated income of the applicant to the Adjusted Gross Income figure for the last filed federal tax return. If the amount is different by more than +/- 20%, an income verification letter is generated. The enrollment is then deemed conditional upon receipt and verification of the primary applicant’s household income. Remember, you are estimating your FUTURE income and Covered California is comparing it your PAST income. This is all done automatically and electronically. No one sees the actual number in the federal Hub when the application is submitted at 10 o’clock at night.
There many issues with comparing someone’s estimated Modified Adjusted Gross Income (MAGI) to their last Adjusted Gross Income on a tax return that could be 18 months old. The obvious issues are people changing jobs, working more or less hours, part-time jobs, home business, being self-employed and many other life events. Plus, the AGI does not consider a household member’s Social Security retirement benefits in most income situations. Consequently, the MAGI, which includes Social Security retirement benefits, will always be higher than the AGI amount from the 1040 in many situations.
The MAGI amount is listed on IRS form 8962 and is only filed if someone participated in a marketplace exchange and received monthly premium tax credit subsidy. I don’t know if the Covered California system checks the MAGI or if that data is even captured for review. If a person has never received a subsidy through Covered California or some other marketplace like Healthcare.gov, then they would not have a reported IRS MAGI. However, if you have ever filed a federal tax return, you will have an AGI to be compared.
Covered California Won’t Cancel Insurance Based On Your Tax Return
The high anxiety moment occurs for consumers who finish up their taxes and realize that they underestimated or overestimated their income on their Covered California application. Do not worry. First, once the tax year is closed, the receipt of any monthly advance premium tax credits from Covered California is between the IRS and the Tax Payer. They are reconciled on the federal tax form 8962. If you estimated your income too low, you may have to repay some or all of the premium tax credits. If you estimated your income too high, you will get an additional premium tax credit as long as your MAGI is over 100% of the federal poverty level.
Covered California does not get a copy of any consumer’s tax return. They can only see your tax return if you send it to them as a document to verify your income. During the next open enrollment period, if a tax payer has failed to file a tax return for the previous benefit year in which they received the premium tax credits, Covered California won’t allow the tax credits for the next year. Again, this is all checked electronically. No one at Covered California looks at anyone’s tax return, federal or state to make this determination.
If your income was substantially different for the tax year than your initial Covered California, AND, you feel the income will remain different, you need to report a change to your income to Covered California. If your income was oddly high or low because of an unanticipated event (windfall profit, unexpected expense or business loss) you don’t need to change your income if the current estimate in Covered California accurately represents your most honest and knowledgeable forecast of your MAGI. I make this statement as a Certified Covered California Insurance Agent. I put may license on the the line when I enroll someone into Covered California. I won’t enter an income estimated for a client unless they tell me they can verify the amount. Otherwise, it might be considered fraud and I don’t want any part of that.
If your income was too low and you should have been on Medi-Cal, neither Covered California nor the health insurance companies will ask you to repay the premiums or tax credits. If your income was too high and you were receiving an Enhanced Silver plan during the year, no one is going to ask you to repay the Enhanced Silver benefits of reduce office visit copays, deductibles or coinsurance.
Strict Privacy Rules Govern Release Or Review Of Tax Returns
Finally, it is virtually impossible for anyone to view your tax returns at either the federal or state level without your explicit written permission. This permission is not granted when you enroll through Covered California. You only are giving permission for Covered California to check the federal Hub. There are numerous privacy laws and rules that even government agencies are subject too. There are strict codes of conduct at the IRS, California’s Franchise Tax Board and Board of Equalization. Unauthorized review by an employee of an individual’s tax return is grounds for dismissal. These agencies have whole units dedicated to adhering to all privacy law and preventing unauthorized access.
While it may seem like Covered California is big brother looking over your shoulder or studying your tax return in a darken closet with the flash light, they aren’t. They are able to let their computer software check discreet pieces of data that relate to your eligibility for health insurance and any premium tax credit. But no one Covered California is making any decisions on eligibility or tax credits for the past, present, or future, based on reviewing your tax return. They just don’t have access to it.