As ACA observers know, federal regulations implementing the health reform law continue to trickle out. Recent rulemaking has tended to refine current rules, rather than break new ground (with some notable exceptions, like the final rule on the ACA’s Section 1557 non-discrimination provisions). One of those refinements is a reminder of the complicated rules that govern eligibility for marketplace subsidies.

Under federal rules, individuals who obtain a premium tax credit to buy a marketplace plan are protected from owing back those credits if, at the end of the year, they are found to have had income that falls below the poverty line (only those between 100 percent and 400 percent of the federal poverty line are eligible for marketplace subsidies). In fact, individuals in this so-called “safe harbor” might get money back. Since the expected premium contribution for those with the lowest income is capped at about 2 percent of income, a lower-than-expected income would mean the individual would have qualified for a bigger tax credit. Not a bad way to close out the year – coverage with subsidies you shouldn’t have qualified for, based on year-end income, and possibly money back!

Along comes a proposed tweak from the Treasury Department. In a proposed rule (open for comment until September 6^th), an individual “who, with intentional or reckless disregard for the facts, provides incorrect information to an Exchange for the year of coverage” — information which the individual knows to be inaccurate – would not be entitled to the safe harbor. Those premium tax credits would have to be paid back.

Seems reasonable, right? Well, yes, but is there a great need for such clarification? People in states that have not expanded Medicaid would have a strong incentive to report enough income to qualify for marketplace subsidies because the alternative might be to go without any coverage at all. But there just hasn’t been any proof that people are gaming the system in that way. In fact, the only example of fraud we’ve seen reported was carried out by a North Carolina broker taking advantage of homeless people in order to boost his commissions. And those people were arguably worse off, since their marketplace plan made them ineligible for free medical services available only to uninsured individuals, a tradeoff we heard about in our look at safety net providers.

Setting aside the example of the broker with creative ideas for potential sources of income, the need for the safe harbor points to the difficulty of estimating income. The rules for counting income are complicated, but so too are people’s lives. Individuals in this income range often have fluctuating and unpredictable sources of income, so predicting annual income with any certainty can be tough. It’s only reasonable to provide a safe harbor for individuals who, in good faith and with Marketplaces approval, get tax credits they ultimately weren’t eligible to receive.

And what about that elusive individual who may knowingly provide inaccurate income information in order to qualify for marketplace subsidies? Under federal rules, there’s a cap on how much the individual would have to pay back: $300 for those with the lowest income. For individuals making less than 100 percent of poverty – about $12,000 a year – paying back $300 is probably the equivalent of trying to get blood from a stone. So there you have it: if federal regulators find fraud, and they can prove it, they might get $300 from that individual. And that makes the proposed rule reasonable, but perhaps not all that necessary or cost-effective.