Hundreds of Thousands Face Health Law Subsidy

September 30, 2014

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Source: Wall Street Journal

Hundreds of thousands of Americans face a Tuesday deadline to verify their income and are at risk of losing or having to pay back their federal health-insurance subsidies under the Affordable Care Act.

The need for people to pay back the government could become a headache during next year’s tax season, when Americans are expected to pay back any subsidies they weren’t eligible for.

The Obama administration has told more than 300,000 individuals who obtained coverage through the federal HealthCare.gov site that they may lose some or all of the subsidies if they don’t provide additional income information that jibes with Internal Revenue Service data. That information includes tax returns, wages and tax statements, pay stubs and letters from employers.

Hundreds of thousands of people who obtained health coverage through state exchanges also have documentation issues and could potentially be getting subsidies they aren’t eligible for.

Enrollees whose income changed during the year but didn’t update their information could also owe the government if they received larger tax credits than they were entitled to. The owed amounts could total thousands of dollars, health policy experts say.

“Most people don’t know they even got advance tax credits,” said Mark Ciaramitaro, vice president, health-care services at tax preparer H&R Block Inc. “They are going to be surprised and need to know what just happened, and a lot of people will be frustrated.”

Individuals who signed up on HealthCare.gov for insurance and subsidies to lower their coverage costs were asked on their applications to estimate 2014 income and provide citizenship information. That information was checked against their 2012 tax returns. In some cases, the data didn’t match.

In addition to the roughly 300,000 people affected by the income verification, another 115,000 people may lose coverage on Tuesday because they didn’t provide requested documents verifying their citizenship or immigration status by a Sept. 5 federal deadline.

Collectively, more than 400,000 people who enrolled in health plans using HealthCare.gov have data-matching problems regarding their income or citizenship and immigration status.

“There are a lot of people counting on their refund to pay for Christmas charges, and instead they’ll be paying back their tax credit,” said Timothy Jost, a professor of health law at Washington and Lee University.

White House officials pointed to the health law’s requirement that people who are proven to be ineligible for subsidies have to pay them back, but said additional guidance on how to do that will be provided later.

“Generally, individuals who enroll through the marketplace and receive advance premium tax credits will file federal income-tax returns and, at tax time, advance payments of the premium tax credit will be reconciled,” according to a statement from the Treasury Department.

Some experts say the repayment could be deducted from a tax refund, or consumers could have to write a check to the government if they don’t have a refund coming or it isn’t enough to cover what they owe.

Repayments may be limited to an amount between $300 and $2,500 for certain lower earners, according to the Internal Revenue Service. But higher earners may have to pay back the full amount.

Consumers who provide income data as requested by the federal government for Tuesday’s deadline may in some cases still wind up owing at tax time if they were previously getting incorrect subsidy amounts and the total is more than they are entitled to for the year, said policy experts.

The income inconsistencies are a politically thorny issue for the Obama administration. Republicans in Congress said during a June hearing that the system for verifying income and eligibility information through the federal marketplace was incomplete.

A report released in July by the Health and Human Services Department’s office of inspector general found that the federal marketplace sent notices to applicants requesting additional documents to resolve inconsistencies, but lacked the system capability to process them and resolve the mismatches.

Several state marketplaces reported federal data sources appeared at times not to be current or accurate. For example, one state marketplace said infants and young children included on applications were erroneously identified as incarcerated according to federal data, the OIG report said. The report looked at inconsistencies from October through December 2013.

But Aaron Albright, a spokesman for the Centers for Medicare and Medicaid Services, said a Treasury inspector-general report also in July showed the IRS was nearly 100% accurate in providing information on income to health-insurance exchanges.

“We are committed to keeping coverage affordable for the millions of Americans who depend on it, and to doing so in an efficient, transparent way that protects taxpayers,” said Mr. Albright.

The government initially wasn’t able to accurately determine the income of about 1.2 million households out of the 5.4 million individuals who obtained coverage through the site. Federal officials say the majority of cases of inconsistencies have been resolved.

About 85% of the more than eight million people who enrolled in private coverage through the ACA obtained premium subsidies, according to HHS.

Tuesday’s deadlines just apply to applicants who purchased coverage on the federal marketplace. But some states that set up their own exchanges for purchasing insurance are also requesting information.

In California, notices have gone out to consumers reminding them to update income changes online so there are no discrepancies at tax time, said Angelina Valencia, spokeswoman for Covered California, the state exchange. Letters went out to more than 290,000 families where the state may be awaiting income documentation or information about whether the family had a decrease or increase in its size, which could affect what they owe when they do their taxes.

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