Thousands Who Didn’t File Tax Returns May Lose Health Care Subsidies

By Robert Pear
The New York Times, October 25, 2015

Tens of thousands of people with modest incomes are at risk of losing health insurance subsidies in January because they did not file income tax returns, federal officials and consumer advocates say.

Under federal rules, anyone who receives an insurance subsidy must file a tax return to verify that the person was eligible and received the proper amount of financial assistance based on household income.

When the federal insurance marketplace opens for the third enrollment season next Sunday, users will see a new question: “Did your household file a 2014 tax return and reconcile any premium tax credit you used?”

If the answer to that question is no, consumers risk losing the subsidies they receive to help pay premiums. Without such assistance, many would find insurance unaffordable.

Many of the people potentially affected have incomes so low that they would not otherwise have to file tax returns. But if they received insurance subsidies in 2014, they were required to file this year.

(Christine Speidel, a tax lawyer at Vermont Legal Aid) identified three groups of people at risk: those who did not file a tax return; those who filed a return without the correct form to reconcile advance payments of the premium tax credit; and those who filed and reconciled this fall, too late for the information to be made available to health insurance exchanges before the open enrollment period.

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.

If those people do not return to the marketplace this fall, they may be automatically re-enrolled in the same or similar health plans at full price. And when they receive an invoice from the insurance company next year, they may be shocked to see that their subsidies have been cut to zero.

The I.R.S. also said 760,000 taxpayers had received subsidies and filed returns but had not attached the required form comparing the subsidies paid with the amount they were entitled to receive. Taxpayers describe that document, I.R.S. Form 8962, as daunting.

“The premium tax credit form, the dreaded 8962, is really hard,” said Eileen P. Duggan, a piano teacher and freelance writer in Maplewood, Mo., outside St. Louis, who filed the form with her tax return. “It’s enough to make you cry, that form. It was almost impossible to figure out.”…

IRS Form 8062 – Premium Tax Credit

IRS Instructions for Form 8962 (15 pages)

This is just one more small but somewhat shocking example of the unnecessary administrative complexity created by the Affordable Care Act (ACA).

Based on income alone, many people are not required to file tax returns if their income falls below a certain threshold (amount varies based on taxpayer status). However, many of these low-income individuals purchase plans through the ACA insurance exchanges and qualify for premium tax credits. All individuals who receive these credits under ACA must submit Form 8962 for the premium tax credit. It must be attached to an income tax return (Form 1040, 1040A, or 1040NR), so these people are required to submit tax returns no matter how low their incomes.

The penalty for not submitting Form 8962 attached to an income tax return is the requirement to refund any premium tax credits received and a disqualification from receiving tax credits in the following year. That’s quite a penalty for people with low incomes when you consider that ACA was supposed to make health care affordable. After all, “Affordable” is in its name.

But look at Form 8962 (click on link above). Then glance through the 15 pages of instructions for filling out Form 8962 (link also above). Sophisticated taxpayers are likely to find this daunting, but think of what it would be like for many of the low-income individuals who would have difficulties with just the simplified Form 1040A tax return, not to mention this monstrosity. It makes you think that ACA means “Administrative Complexity for All.”

Since there are no premiums in a well-designed single payer system, there would be no need for premium tax credits. The entire health care system would be funded by simplified taxes based on ability to pay. The health care system would always be there for you whenever you needed it, regardless of your tax situation. Even if delinquent, the IRS could not penalize or take away your health benefits.