The majority (52 percent) of Obamacare enrollees receiving an advance premium tax credit to purchase Obamacare insurance is facing the prospect of paying back $530 of that tax credit to the IRS, according to a new study from H&R Block. This clawback is reducing the refunds for these taxpayers by 17 percent this filing season.
Under Obamacare, taxpayers earning between 133 and 400 percent of the federal poverty level are eligible to receive a tax credit to help purchase insurance on Obamacare exchanges. This tax credit is calculated using old tax data of the recipients. The credit is advanced ahead of time to the taxpayer’s insurance company. The taxpayer must reconcile at tax time the advance credit received with the actual credit she is eligible for.
The Obama administration revealed Friday that it sent about 800,000 HealthCare.gov customers a tax form containing the wrong information, and asked them to hold off on filing their 2014 taxes.
The self-inflicted bungle follows weeks of administration officials touting a successful enrollment season — one that saw far fewer technical glitches than the rocky launch in late 2013.
About 11.4 million people signed up this season. But the errors in tax information mean that nearly 1 million people may have to wait longer to get their tax refunds this year.
DANVILLE (KPIX 5) – Tens of thousands of people who buy their health insurance through Covered California will get an unpleasant surprise when they file taxes this year.
Stacy Scoggins gets plenty of mail from Covered California, but the one tax form the agency was required to send her by February 2nd still hasn’t arrived.
“After being on hold for 59 minutes, they told me that the 1095-A was never generated,” Scoggins told KPIX 5 ConsumerWatch.
She’s talking about the 1095-A form, a document required for enrollees to file their tax returns. It’s a problem, for the recent widow who desperately needs to file now.
If you’re among the roughly 20 million people affected by the Affordable Care Act — either because you bought insurance through health exchanges or will be subject to penalties or exemptions for failing to get coverage — filing a tax return just got a lot harder. Indeed, potentially millions of people who never before had to file tax returns will now need to file as the result of the health law.
The ACA, better known as Obamacare, has put health insurance in reach for millions of Americans by setting up subsidies for those who otherwise couldn’t afford to buy coverage. However, the subsidies that may appear to simply lower the cost of insurance premiums are actually “advance premium tax credits” that are paid directly to health insurers.
Janice Riddle got a nasty surprise when she filled out her tax return this year.
The Los Angeles resident had applied for Obamacare in late 2013, when she was unemployed. She qualified for a hefty subsidy of $470 a month, leaving her with a monthly premium of $1 for the cheapest plan available.
Riddle landed a job in early 2014 at a life insurance agency, but since her new employer didn’t offer health benefits, she kept her Obamacare plan. However, she didn’t update her income with the California exchange, which she acknowledges was her mistake.
Approaching ObamaCare With Humility
Washington can’t get out of Its own way on health care. Give states a chance.
President Obama spoke frequently of humility during last week’s prayer breakfast. Congressional Republicans could use a healthy measure of that virtue should the Supreme Court rule that ObamaCare subsidies are not available in the 37 states with federally-facilitated exchanges.
ObamaCare is the product of a yawning humility deficit. Its core conceit is that a group of very smart and ideologically like-minded people could reorganize the financing of a $3 trillion industry that touches the lives of 320 million Americans.
Its architects boast that more people have “selected a plan” this time around than during the program’s disastrous initial open season. They are quick to overlook the law’s wreckage – canceled policies, loss of employer-sponsored coverage, erroneous subsidies that will require people of modest means to repay the government with interest, and assorted other disruptions and deformations.
A law that is minutely prescriptive too often got its prescriptions horribly wrong. Its flaws will reach the point of absurdity should the Supreme Court rule that its attempt to subsidize health insurance made most health insurance subsidies illegal.
The case of King v. Burwell would be a simple one, but for its social and political implications. The Court is examining a defect in the law, one of many in what is perhaps the most poorly drafted statute in U.S. history. The provision in question provides that subsidized health insurance coverage is available only through an exchange “established by the state.”
The IRS effectively rewrote the law to allow subsidies to be paid as well through the 37 exchanges that were not “established by the state,” but by the federal government. In defending the agency, the Justice Department in essence argues that the IRS can change laws so that they conform to what Congress must surely have meant to write, rather than what they actually wrote.
The Court should instead base its ruling on the bedrock principle that only Congress has constitutional warrant to correct its own legislative blunders. If it does, health insurance subsidies will no longer be available to millions of people who live in states with federal exchanges, presenting 37 Governors with a stark choice between two unpalatable options: submit to ObamaCare’s flawed framework by establishing state exchanges or let their constituents forfeit subsidized coverage.
Democrats will pressure Governors to establish such exchanges while also pushing Congressional legislation to authorize the provision of subsidies through federal exchanges. Republicans are floating alternative proposals that would subsidize coverage for low-income people and those with pre-existing conditions, while stripping ObamaCare of mandates and relaxing some of its other requirements.
These proposals will meet with criticism, some of it justified. Getting the right subsidy in the right amount to the right person (or the right insurance company) on a monthly basis is tricky business. The Administration had 3-1/2 years from the law’s enactment to the launch of the exchanges to get it right. They didn’t. Erecting an alternative federally administered system in a matter of months would risk a similar fate.
Perhaps what is needed is not an alternative national system at all. ObamaCare’s serial pratfalls have led millions to question the federal government’s capacity to administer the law. A judicial smackdown five years after the law’s enactment will reinforce the view that Washington can’t get out of its own way on health care.
Republicans should embrace this sentiment and argue that health care is too important to be entrusted to the people who brought us ObamaCare. They should advocate that Governors be empowered to advance alternative ways of expanding coverage, springing them from ObamaCare’s take-it-or-leave-it trap.
Congressional Republicans could accomplish this by advancing a bill to provide capitated allotments to states that would be based on the amount of refundable tax credits that its residents received during 2014. To qualify for an allotment, a state would be required to develop a plan for providing affordable coverage to low-income residents and those with pre-existing conditions. Each state would decide how best to achieve these objectives, with the results subject to rigorous evaluation.
States that already have set up exchanges could keep them and those that have not could still establish them. But they also could instead choose to be freed from ObamaCare’s one-size-fits-all rigidities by opting to receive allotments. These allotments would provide the resources to launch innovative and effective alternatives to ObamaCare tailored to their state’s unique characteristics. If some states institute defective regimes, the damage would at least be quarantined and not induce national contagion.
Resisting the temptation to develop comprehensive national legislation will prove no easier for Republicans than it has been for Democrats. But if ObamaCare has taught us anything, it is that the good intentions behind sweeping legislation are often overcome by unintended consequences. The humility that might engender perhaps will make them think twice about devising a national regime of health insurance subsidies and instead give each state the opportunity to fashion programs best suited to their circumstances.
Millions of Americans who received subsidized health insurance under ObamaCare will find a new wave of frustration this tax season.
After losing their health insurance because it was not ObamaCare compliant…after slogging through the healthcare.gov website to get enrolled in a new policy…after losing their doctors…after learning that they must pay thousands of dollars in deductibles before they can get medical care…now they must face the IRS.
By the end of the month, they should receive a form 1095-A that shows they had health insurance through federal or state exchanges. They will use the form to fill out an astonishingly complex Form 8962 to reconcile the subsidies they received with the income they earned in 2014.
If they received too much, they will have to pay back some or all of the subsidy. That could mean they receive a smaller – or no – tax refund. And for the privilege of this new interaction with the IRS, many will have to pay hundreds of dollars to hire a tax preparer to help them wade through these new ObamaCare tax forms.
Yes, ObamaCare is getting worse.
H&R Block HRB 0% estimates that up to half of Americans who received subsidies for health insurance under the ACA last year will owe the IRS money.
An estimated 87% of those who signed up for health insurance on the new exchanges got subsidies to reduce their health insurance premiums and sometimes their cost-sharing expenses. An assistant professor of health policy at Vanderbilt University, John Graves, calculates the average subsidy was $208 too high.
But these taxpayers face yet another cost. Many of them are accustomed to filing the simple 1040EZ tax form. No more. Most will have to retain tax preparers to help them fill out the new Form 8962. That could cost them several hundred dollars.
The form is used for taxpayers to prove that they and everyone in their family (including children) had health insurance every month of last year, what their incomes were, how much of a subsidy they received, whether they are married, single, legally separated, etc. The examples in the instructions are a window into the complexity of family arrangements in America and, still, people surely will come up with hundreds more permutations.
The instructions are mindboggling in their complexity. They take up 15 pages of fine print and will challenge the most seasoned tax preparer. A one-sentence example: “Column B. Enter on lines 12 through 23, column B, the amount of the monthly premium for the applicable SLCSP [second lowest cost silver plan] reported on Form 1095-A, lines 21 through 32, column B.”
It continues, “If during 2014, your coverage family changes and you did not notify the Marketplace, or no APTC [Advance payments of the premium tax credit] was paid, the premium for the applicable SLCSP reported on your form(s) 1095-A may not be accurate…” It then provides a handy link to another IRS document to explain what you should do if that happens. The instructions go on and on like that for 15 pages.
If taxpayers have to pay back some or all of the subsidy, the instructions explain a new layer of complexity: People who make less than 200% of poverty, or about $23,000 for an individual, will owe only $300, even if they received thousands of dollars more in subsidies. If you make up to the 400% of poverty, or $46,000, you could owe $1,250. If you earned $46,500, which is just over the limit to qualify for subsidies, you will have to pay it all back – likely several thousand dollars.
And if you didn’t have health insurance last year, you will have to pay a fine of $95 or 1% of your modified adjusted gross income. A couple making $65,000 would have to pay a fine of about $450, for example. The “tax penalties” increase this year and next.
Can it get any worse? Yes.
Nina Olson, an IRS watchdog, estimates that 47% of those calling the IRS for help in filling out their tax returns won’t get their calls answered during tax filing season. Those who do get through will wait an average of 34 minutes to talk to someone, she estimates.
Tax preparers calling the “priority service line” will have to wait an estimated 52 minutes to talk to an IRS expert. IRS Commissioner John Koskinen admitted, “We do as well as we can. And ‘as well as we can’ is still going to be miserable.”
The vast majority of Americans who did not receive ObamaCare subsidies for health insurance will simply have to check a box on their regular tax form attesting that they had health insurance. Employers and health insurance companies will be sending them a form 1095-B or 1095-C, which they will attach to their taxes as proof of coverage.
The individual mandate is one of the most detested provisions in the health law, and the first tax season when people must comply will create a new level of outrage about the law, its intrusiveness, and the hidden costs in fines and hidden taxes that millions of Americans will face.
By Tom Miller & Grace-Marie Turner
Tax subsidies are one of the mechanisms through which the Affordable Care Act expands access to health insurance. These subsidies are available only to those who purchase highly regulated policies through government-run exchanges, and are allocated on a monthly basis to insurance companies to offset the costs of premiums and sometimes out-of-pocket costs.
The law’s formula for determining the amount of these premium subsidies specifies that people are eligible for them if they are enrolled in qualified plans offered in “an Exchange established by the State under [section] 1311 of the Patient Protection and Affordable Care Act.” Only 13 states are operating such exchanges this year. The rest are relying on exchanges created by the federal government. But in 2012, the IRS wrote a rule that allows the subsidies to flow through the federal exchanges as well. About 6 million people were enrolled on the federally run exchanges after open enrollment closed for the 2014 plan year, about 85 percent of whom received the subsidies.
The Supreme Court has agreed to hear a case, King v. Burwell, challenging the IRS rule. Plaintiffs argue that the law clearly restricts the subsidies to state exchanges, that this gives states an incentive to create their own exchanges, and that administrative agencies like the IRS cannot alter legislation or spend taxpayer dollars without statutory authorization by Congress. Defendants say that “established by the State” is at worst a drafting error, not a reflection of legislators’ intent, and that Congress wanted subsidies to be available in all of the states.
Will Congress Act?
The Supreme Court justices will hear oral arguments in the case on March 4. If the justices decide that the IRS acted illegally, residents of as many as 37 states soon will become ineligible for the subsidies. As a result, most will begin to face the full cost of the unsubsidized premiums on their policies and will be more likely to drop their coverage.
Many court watchers believe the decision could hinge on whether Congress has a viable plan to provide for alternative, if not continued, coverage for these millions of people. As a result, efforts are underway to develop legislation to transition those on the federal exchanges — especially lower-income individuals — to other types of subsidized coverage. The legislation should not only take care of people who are at risk of losing their current coverage, but also take the opportunity to move our system toward a more competitive market, centered around individual choice.
The congressional proposals exist primarily in draft form so far. Most aim to hold people in federal exchanges harmless going forward, providing an extension of their current coverage through the end of the current plan year. Most also would give people a much greater range of health-insurance options, while removing federal regulations and mandates for individuals to purchase or for employers to offer policies.
There is general agreement that Congress will need to act to provide assistance to the roughly 5 million people who would lose their subsidies as a result of the court decision. There are two schools of thought about how to do this: either through new, less restrictive federal tax credits to individuals; or through allocations to the states to distribute through other mechanisms, such as those used for the Children’s Health Insurance Program.
The public-relations wars over the pending Supreme Court decision already have begun: Families USA is leading the effort on the left and will try to show how many people will be harmed if the subsidies are struck down. Supporters of free markets and limited government are mounting their own serious media-outreach effort to show the harm that this law is doing, emphasizing the soaring cost of health insurance, the threat of mandate penalties, the labor-market disincentives, the disruptions in previous coverage, and patients’ reduced access to their preferred medical providers. Critics of the IRS rule need to explain very clearly that Congress is ready and willing to act to take care of the people who will lose their coverage if the Supreme Court decides not to allow subsidies on the federal exchanges.
The Consequences of Doing Nothing
If the Supreme Court rules that the IRS acted illegally, the government’s authority to distribute tax subsidies through federal exchanges will end within a month, assuming no new action by Congress. These exchanges can continue to operate, but the expensive insurance sold there will be much less attractive to customers without tax subsidies. States that created their own exchanges will be able to continue to operate and distribute subsidies, and other states may consider qualifying as a state exchange after a King ruling.
In states that have not established their own exchanges, the federal government will effectively be unable to impose any employer-mandate penalties. That is because the penalties are triggered when someone without access to employer-based coverage receives subsidized coverage on an exchange.
The individual mandate will take a blow as well. The mandate does not apply if the lowest-priced coverage available costs more than 8 percent of one’s household income, and the lack of subsidies will drive up the net cost of coverage. So, individuals in states that don’t establish exchanges will face higher income thresholds before the mandate can apply to them.
There will be numerous indirect effects as well. With both the employer and individual mandates weakened, the ACA’s other insurance rules will be weakened too. In states that don’t run exchanges, employers won’t be penalized for offering non-qualified coverage, and fewer individuals will have to, or will want to, buy ACA-prescribed coverage.
Insurers on the federal exchanges, meanwhile, will have fewer enrollees, likely skewed toward higher-risk patients who lack other coverage options. Many insurers could drop out, and losses for those that remain will add to the claims against ACA’s “risk corridor” funds. This would accelerate pressure to resolve the issue of whether these payments are meant to be budget-neutral — that is, payments for losses can be no greater than payments collected from more profitable exchange insurers going forward..
Countermoves by state and federal officials wanting to keep ACA coverage afloat are likely to include changes to Medicaid coverage, with more states agreeing to the law’s Medicaid expansion and possibly seeking federal waivers to cover people above the current income ceiling (138 percent of the federal poverty level). Officials also may get clever with the definition of a state-established exchange, for example by renting the federal exchange website mechanisms, contracting out to piggyback on other state exchanges, revising federal regulations for what constitutes a section 1311 exchange, etc.
Members of Congress and state officials must not simply restore the current law’s many costs and regulatory burdens. Instead, they need to prepare now to take advantage of the opportunities that will be available to them to improve our health sector and the choices of coverage available to consumers if the Supreme Court rules against subsidies on federal exchanges.
Tom Miller is a resident fellow at the American Enterprise Institute. Grace-Marie Turner is president of the Galen Institute.
WASHINGTON — Obama administration officials and other supporters of the Affordable Care Act say they worry that the tax-filing season will generate new anger as uninsured consumers learn that they must pay tax penalties and as many people struggle with complex forms needed to justify tax credits they received in 2014 to pay for health insurance.
The White House has already granted some exemptions and is considering more to avoid a political firestorm.
Some 3 million to 6 million Americans will have to pay an Obamacare tax penalty for not having health insurance last year, Treasury officials said Wednesday. It’s the first time they have given estimates for how many people will be subject to a fine.
The penalty is $95, or 1% of income above a certain threshold (roughly $20,000 for a couple). So you could end up owing the IRS a lot of money.