Nearly 60,000 Connecticut residents get discounted health insurance as part of Obamacare. And officials are worried that some of them could get hit with an unexpected tax bill next year.
The reason: The subsidies that help low- and moderate-income people buy health insurance are actually tax credits, paid in advance to insurance companies, based on each person’s income. If their income increases, the tax credit they’re entitled to gets smaller. But the federal government won’t lower its payments to insurers until people report the change in income.
That means people who didn’t report changes in income could be getting bigger discounts than they qualify for — and they’ll be required to pay some or all of the money back when they file their taxes next year.
Access Health CT, Connecticut’s health insurance exchange, asks that people whose income changes notify the agency promptly so their subsidies can be adjusted.
But exchange officials and others worry that not all customers have done that.
“If you’re a part-time worker and you suddenly pick up an extra five or six hours a week, that can really impact your income,” said Deb Polun, director of government affairs and media relations at the Connecticut Association of Community Health Centers and a member of the exchange’s consumer experience and outreach advisory committee. “And later on in April, you could get dinged for something that was completely unintentional on your part.”
Polun thinks many people who went through the sign-up process found getting new coverage overwhelming enough. “The idea that they might have to call back and make a change at all is probably not one of the things that’s being prioritized,” she said.
Access Health has been receiving information on changes in income and other information from customers, spokeswoman Kathleen Tallarita said.
Still, the prospect that some haven’t kept their income information current and will end up getting big tax bills makes Access Health’s acting CEO, Jim Wadleigh, nervous. He said it’s a worry for his colleagues in other states too.
“The average person has $300 in their savings account, and if someone all of a sudden has a tax bill that’s in the thousands of dollars, even myself, I would freak out,” Wadleigh said.
“That is bad. It’s bad for our business. It’s bad for the Affordable Care Act for something like that to occur,” he added.
How it works
The subsidies people receive to discount their premiums are based on estimates of their income, made at the time they applied for coverage. The actual amount they’re entitled to is based on what they earn in 2014. Any discrepancies will be reconciled when they file their taxes.
People whose actual income is higher than anticipated when the subsidies were calculated will have to pay back some or all of the difference. For people whose income falls below 400 percent of the poverty level — the threshold for qualifying for the tax credit — the repayment amounts are capped, based on income. At most, a family earning just below the subsidy limit could have to repay $2,500.
But people who end up earning too much to qualify for any premium discount will have to repay the full amount of the subsidy the federal government paid on their behalf, which could be thousands of dollars.
People whose actual income entitles them to a larger tax credit than they received could get money back when they file their taxes.
Potential confusion
Wadleigh said exchange officials have been thinking about ways to prevent people from ending up with unexpected tax bills once their subsidies and income are reconciled.
Renewal packets sent last week to people who bought private insurance through the exchange included a section on the importance of keeping the information Access Health has on them current, noting that inaccurate information could lead people to have to pay back money they received as tax credits.
“We are reminding people, pleading with them, to come back in and make sure that their account is up to date so that at least we’ve saved them out of the fourth quarter,” he said.
Access Health’s television and print advertising campaigns will also mention the need to keep information up to date, Wadleigh said.
Exchange customers will get letters in January explaining what tax credits were paid on their behalf.
Chief Operating Officer Peter Van Loon said during a meeting last month that officials were anticipating confusion from people who get the letters. Some might get upset to be told they received a tax credit because they never saw the money, since the federal government paid it directly to their insurer. Some people don’t realize the discounted insurance is the result of a tax credit, not a grant, he said, or don’t remember that they received a subsidy.
State Healthcare Advocate Victoria Veltri said she doubts most people have thought about the tax consequences of receiving subsidies.
“I think there has to be much more messaging about that and what is coming and what people can do about it,” said Veltri, the vice chairwoman of the Access Health board. “I think that’s an issue that’s going to hit.
Veltri said it would also make sense to educate people about the tax credits when they first sign up for coverage, letting them know that they are receiving a tax credit from the federal government, paid in advance. (Access Health’s current online enrollment system describes the discount as a “premium tax credit,” but doesn’t include a more basic description of how it works.)
“It just feels to me like, without giving tax advice, because we can’t do that, you have to somehow be able to artfully tell people what it is and give them more information about it before they enroll, and probably midyear,” Veltri said.