Confusion Over IRS’ Obamacare Requirements Could Cause More Than 500,000 to Lose Health Insurance Subsidies

Posted: Oct 31, 2015 12:01 AM

Open enrollment in the Obamacare-created federal Health Insurance Exchange is scheduled to begin on November 1, and many consumers returning to the exchange or signing up for the first time are in for a rude awakening. Millions of Americans’ health insurance premiums are expected to rise and hundreds of thousands more could find themselves without any health insurance subsidies at all in 2016.

According to a report by The Wall Street Journal, federal officials said on October 26 the average price of “silver plan” health insurance offerings, a middle-tier insurance option in the exchange that’s used as a “key metric for premiums around the country,” is expected to increase by 7.5 percent across the 36 states that rely on the federal exchange.

The Journal also reports that the majority of enrollees in the exchange will have to endure higher prices: “And 60% of enrollees – across 30 of the largest markets in the U.S. – will see the average rate for that benchmark plan rise by 6.3%, according to a Health and Human Services report on premium data that hasn’t yet been made fully public.”

In addition to higher health insurance costs, hundreds of thousands of Americans could lose their health insurance subsidies in 2016, which will likely lead to gigantic – possibly even insurmountable – added costs.

Under federal law, any individual who fails to file a tax return for the previous tax year will risk losing 100 percent of federal subsidies received to help offset health insurance costs. According to The New York Times, “In July, the Internal Revenue Service said 710,000 people who had received subsidies under the Affordable Care Act had not filed tax returns and had not requested more time to do so.” More than 700,000 other Americans failed to properly fill out all of the necessary IRS paperwork for filers who receive subsidies.

If those who have not filed returns do not return to the health insurance exchange, they will likely be automatically signed up for the plan they currently have, except this time without any subsidies. This means more than a half a million people could be in for quite a shock when they receive their first health insurance bill in 2016.

While it’s certainly reasonable to expect those who receive government assistance to file a tax return to ensure they are actually eligible for the government benefits they are receiving, many of the people who have failed to follow the federal guidelines do so because they are confused, not because they are trying to game the system at taxpayers’ expense. IRS forms required for those who receive Obamacare subsidies, such as Form 8962, have been called “daunting” and are difficult for many to navigate.

According to the Times, “Two-thirds of people using the federal exchange have incomes less than twice the poverty level (less than $23,540 a year for an individual),” which means “[m]any of the people potentially affected have incomes so low that they would not otherwise have to file tax returns.”

Some of these people may not have filed a tax return in many years, and without a clear directive from the federal government, it’s easy to imagine why they wouldn’t think twice about choosing not to file again in 2014.

Tens of thousands of other Americans who did fill out all of their 2014 IRS paperwork correctly and on-time may actually receive an unexpected bill in 2016 if they made more money than they thought they would when they first applied for subsidies in 2014. This is because Obamacare exchanges expect individuals to inform officials when significant changes to income occur so that subsidies can be reduced, a mandate many people are unaware of. Failure to report changes in income means these families will be expected to essentially repay the government for the excess subsidies they received in 2016.

Now that roughly eight in 10 customers in the exchanges rely on taxpayer subsidies to help offset rising premiums, the number of people now and in the future who will find themselves, for one reason or another, losing their subsidies or receiving a big bill on Tax Day will likely rise – proof that the “affordable and easy to use” Obamacare exchange isn’t so affordable or easy to use after all.

With so much confusion, the IRS has a duty to simplify its absurd tax forms, and it needs to do a better job of explaining the complicated rules and stipulations attached to Obamacare subsidies. Failing to reform these flawed practices will only lead to more confusion in the future, a scenario that will put hundreds of thousands of families in precarious and unnecessary financial trouble.