Big surprise on 4/15/15
by digby
I've been writing about this for a while. I think it's going to be a big story because people simply weren't adequately warned about it:
Uncle Sam could take a bigger bite at tax time for consumers who received too much government help last year with their Obamacare premiums.
That may be just one of several surprises for millions of Americans in advance of the first tax deadline involving the Affordable Care Act.
The majority of Americans who get their health insurance at work should see few changes when filing their taxes. Most will just need to check a box on their tax return indicating they had coverage in 2014.
It stands to be more complicated for those individuals who purchased a private health plan in government-run exchanges or went without insurance at some point last year.
Obamacare launched a year ago, but it's only now that people will incur tax penalties for being uninsured. Others will realize their federal premium subsidy was incorrect.
Experts project that 40% to 50% of families that qualified for financial assistance might have to repay some portion because their actual household income for 2014 was higher than what they estimated during enrollment.
Those repayments could range from a relatively small amount to thousands of dollars in some cases. In California, some of the first clues may emerge later this month when the state issues tax notices to 1 million consumers.
About 85% of the roughly 7 million Americans who signed up last year through government-run exchanges paid discounted premiums thanks to subsidies.
"This could flip people from having a refund to not," said John Graves, an assistant professor of health policy at Vanderbilt University in Nashville. "Nobody can project their income down to the last dollar. It could be a huge deal."
[...]
About two-thirds of consumers didn't know that their 2014 tax return would be used to reconcile their subsidy amount, according to a survey by the H&R Block Tax Institute.
The lowest income people in the exchanges have their potential payback capped. But it could add up to some real money for middle class folks who made more than they expected. And it will feel as if they're being punished for doing better. It's unusual to have your bills increase just because you get a raise.
I suspect that in the long run people will begin to overestimate their incomes and look more closely at the actual cost of premiums not just what you pay after the subsidies. (Here in California they are huge --- twice what I paid for a similar plan two years ago.) They'll end up buying cheaper plans knowing that they might have to pony up a big payment if they make a mistake or unexpectedly come into some money. People will adjust. But this is another one of those surprises that most people didn't see coming that will cause a whole lot of bad press.
Someone should have mentioned this earlier:
"We are still in the first steps of a historic change, and the challenge we all have is educating Californians and all Americans on how this works," said Peter Lee, executive director of the Covered California exchange. "The individual mandate is really kicking in and some people will find out, 'Oh I actually received more of a tax credit than I should have.'"
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