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.
The Galen Institute today released an updated version of its list of significant changes made to the Affordable Care Act by the Obama administration, the Congress, and the U.S. Supreme Court since the law was passed in March of 2010. Today’s list includes four additional changes made by the Obama administration, most of them contrary to statutory language. By our count, more than 46 significant changes have been made to the law: at least 28 that the administration has made unilaterally, 16 that Congress has passed and the president has signed, and 2 by the Supreme Court. Here are the latest additions:
•Bay State Bailout: More than 300,000 people in Massachusetts gained temporary Medicaid coverage in 2014 without any verification of their eligibility, with the Obama and Patrick administrations using a taxpayer-funded bailout to mask the failure of the commonwealth’s disastrously malfunctioning website. (January 2014)
•Failure to enforce abortion restrictions: A GAO report found that many exchange insurance plans don’t separate charges for abortion services as required by the ACA, showing that the administration is not enforcing the law. In 2014, abortions were being financed with taxpayer funds in more than 1,000 exchange plans. (Sept. 16, 2014)
•Risk Corridor coverage: The Obama administration plans to illegally distribute risk corridor payments to insurers, despite studies by both the Congressional Research Service and the GAO saying a congressional appropriation is required before federal agencies can make the payments. (Sept. 30, 2014)
•Transparency of coverage: CMS delays statutory requirements on insurance companies to disclose data on the number of people enrolled, disenrollment, number of claims denied, costs to consumers of certain services, etc. (Oct. 20, 2014)
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.
Key Points
•Avik Roy’s Transcending Obamacare reform proposal retains a number of core features of the Affordable Care Act, even while promising to modify them at the margins.
•Despite the plan’s initial aversion to political risk, Roy places several longshot bets on proposed policy reform results.
•The plan strives too narrowly to ensure that high-deductible health insurance will be the dominant (or, perhaps, exclusive) form of exchange-based coverage and neglects or avoids a number of other reform opportunities. It is also prone to overly optimistic fiscal projections, insufficient details, and ad hoc revisions that fail to hold together.
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.
“I’m sorry sir,” the polite Healthcare.gov customer-service agent said. “There’s nothing I can do. You’re either going to have to enroll in Medicaid or you’re going to have to pay the full health-insurance rate.”
“The rate you quoted earlier?” I asked. “That’s nearly 30 percent higher than my current insurance bill, I just can’t afford it.”
“You’ll have to pay the full rate, yes,” the agent replied.
“I don’t understand,” I explained. “I have plenty of money to pay you a reasonable rate, but I can’t afford to pay the same rate a millionaire would be asked to pay. Why can’t I just receive a partial subsidy? I’m willing to pay more than what Medicaid offers.”
“Sir, that’s just not how the system works.”
Right. That’s not how ObamaCare works; it doesn’t work at all.
After the lofty promises that led to passage of the Patient Protection and Affordable Care Act, young people are waking up to how much the law targets them with higher costs. Yes, those lucky enough to be covered on their parents’ health plans can postpone the consequences until they are 26. But for the rest, the situation is grim: Young people face disproportionately high costs to pay for coverage and a crushing burden of taxes that could impede their future prosperity.
Mere days into a Republican Congress, Democrats are making charges of ideological bias when it comes to the majority’s handling of the Congressional Budget Office. A group of leading Senate Democrats wrote a letter to House Speaker John Boehner specifically noting that “a CBO director should not be required to revise the score of the Affordable Care Act in order to please partisan interests.” It’s an ironic charge, given that it’s far from partisan to question why the CBO failed to perform analyses that could have predicted the collapse of an $86 billion Obamacare program — exactly what happened under its current director, Doug Elmendorf.
The following is a script of “Obamacare” which aired on Jan. 11, 2015. Lesley Stahl is the correspondent. Rich Bonin, producer.
This month marks one year since health insurance coverage under the Affordable Care Act began, and from the president’s point of view: so far, so good. More than 10 million Americans who didn’t have health insurance before have signed up. But congressional Republicans are gunning for Obamacare. Even if they can’t outright repeal it, they want an overhaul.
By Kimberly Leonard
Grace Brewer says she never thought she would be without health insurance at this stage of her life. “I’m a casualty of Obamacare,” says Brewer, 60, a self-employed chiropractor in the Kansas City, Kansas, area.
She wanted to keep the catastrophic health insurance plan she once had, which she says fit her needs. But under the Affordable Care Act, the government’s health care reform law, the plan was discontinued because it did not comply with the law’s requirements, and her bills doubled to more than $400 a month. “I wanted a minimal plan and I’m not allowed to have it,” she says. “That seems like an encroachment on my freedom.”