ObamaCare Pays Tax Credits to Health Insurers, But Will Claw Them Back From Individuals
Anyone who has bought health insurance on an ObamaCare exchange may be eligible for a refundable tax credit. However, the federal government is already paying out the tax credit based on a guess you made about your household income a year before you’ll file your tax return. If you guessed wrong, you may owe the IRS money. However, you are not receiving the tax credit: Your health insurer is. How will you get the money back from your health insurer when the IRS comes knocking? Don’t ask.
A hypothetical example might help illustrate: a health exchange customer selects an ObamaCare exchange plan. The government estimates that this taxpayer will earn $30,000 this year, which makes her eligible for a $2000 tax credit. This $2000 is paid to the taxpayer’s insurance company to help with premiums.
The next spring, our customer/taxpayer is filling out her tax return. Unfortunately, the government estimated the taxpayer earned too little and paid too large a credit. She actually earned $40,000, and so only had a $1500 credit coming to her.
Depending on the taxpayer’s income level and availability of verified affordable workplace insurance, she will have to pay back much or all of the $500 overage to the IRS. This means skinnier refunds and maybe even liabilities, and it won’t be the taxpayer’s fault — it will be the government’s fault.
Last year we predicted that virtually 100% of the subsidies would be wrong to a small degree — simply because the data used to calculate them was too imprecise. It is apparently worse than we thought. Estimates vary, but one-quarter are inaccurate to a significant degree.
“This means skinnier refunds and maybe even liabilities, and it won’t be the taxpayer’s fault — it will be the government’s fault.”
The taxpayer gets to pay for the government’s mistakes. Sounds like business as usual.
It is the same if the taxpayer is given less of a subsidy than what they are eligible for. I highly doubt you will see any sort of reimbursement for giving an undervalued subsidy.
Somehow, I think that if you “misunderestimate” your subsidy, the IRS will inform you very slowly.
I think if you “misunderestimate” your subsidy, the IRS will never tell you. They’ll just keep your money and expect you to thank them for it.
The way the tax credits are calculated based on assumptions that can change through the course of the year.
Honestly folks, do u really think all these govt agencies and private insurance companies and affordable care organizations are real gonna be able to manage this? I do not want to be working for the Obamacare customer service dept when this Sh!t hits the fan. Oy vey what a mess.
Big truck joe brings up an interesting point.
Reconciling these accounts, even yearly, will be a huge task, and very expensive.
With Health Matching Insurance, we have to reconcile each employee’s and dependents accounts every month.
Those having no claims is easy – their balance increases with their contributions and Health Matching benefits.
It is when claims are filed that the reconciliation begins.
And, National Prosperity Life and Health covers claims with a zero deductible!
Don Levit
Treasurer of NPLH
I am not at all surprised to hear this. Can you imagine all the man-hours required to reconcile all the incomes and corresponding subsidies? If subsidies are going to be given, they ought to be given directly to the people…for their Health Savings Accounts. HSAs allow people greater control over their own healthcare, and restore market incentives.
In this hypothetical example given here, there is actually a disincentive for the person to earn more (reported) income than the government estimated. yet another market distortion of Obamacare.
These will never be reconciled.
In any case, it is perfectly right to claw the inappropriate subsidy from the individual even though the credit was paid to the insurer. The unwarranted benefit accrued to the insured via a lower premium.
Something new is the government’s fault when it comes to health care? Shocking.
This is what happens when you completely bypass the individual. Which is exactly what happened with Obamacare