Implementing Health Reform: Premium Tax Credits
http://healthaffairs.org/blog/2011/08/13/implementing-health-reform-premium-tax-credits/Department of the Treasury - Proposed regulations for the Health Insurance
Premium Tax Credit:
http://www.ofr.gov/OFRUpload/OFRData/2011-20728_PI.pdfOn August 12, the Departments of Health and Human Services and Treasury (Internal Revenue Service) issued three notices of proposed rulemaking (NPRM) as part of their continuing effort to implement the Affordable Care Act (ACA).
This post will describe the Treasury NPRM, the shortest of the NPRMs but also the one that deals with the most complex and unsettled issues.
The Basic Rules Regarding The Tax Credit
The consequences of underpayments and overpayments.
Although the tax credit is paid on a monthly basis, the actual amount of the credit will in fact be finally determined based on the household?s income as determined on the annual income tax return. At that point "reconciliation" must occur. If over the course of the year household income turns out to have been greater or less than projected, or if household composition or compliance with other eligibility requirements has changed, the final tax credit may turn out to be greater or less than the amount already paid. If the taxpayer turns out to have been eligible for more than had been paid, the taxpayer gets a refund.
If, however, the government has paid more than the taxpayer in fact turns out to be entitled to, the taxpayer must pay the money back. There are limits to this liability for taxpayers with household incomes up to 400 percent of the FPL (which have been amended twice since the ACA was adopted to increase liability), but the amount owed back can be substantial (up to $2500 for families at the upper ranges), and
if final income exceeds 400 percent of poverty, even by one dollar, the entire premium tax credit must be paid back.No help for those who owe money back because of overpayments.
A taxpayer must file a return to claim a tax credit, even though the taxpayer otherwise has no obligation to file a return. As noted above, at the time the return is filed, the tax credit will be reconciled with actual reported household income and the taxpayer will have to pay the IRS if there was an overpayment in tax credits.
Overpayments in fact will be common, not only because income and household composition will change over the course of a year, but also because a person who loses or gains a well-paying job over the course of the year may end up with a high end-of-the year income even though, at the time the taxpayer applied, the credit was accurate for the taxpayer's then-current income level. A taxpayer with income under 400 percent of poverty level could receive a credit through out the year based on anticipated income, but then receive an end-of-year bonus putting the taxpayer over the 400 percent limit and have to pay back the entire credit for the entire year.
Consumer advocates hoped that Treasury would use its statutory rule-making authority to meliorate these consequences, but Treasury does not believe it has the authority to do so and offers no mercy.
Comment by Don McCanne of PNHP: Throughout the reform process Professor Timothy Jost has been very helpful in clarifying the impact of the Affordable Care Act, especially on health care consumers. As one example, here he shows how an individual who appropriately receives monthly premium tax credits for purchase of a plan through an insurance exchange could be required to pay back the entire credit for the entire year merely because of a year-end bonus that lifted income over the 400 percent poverty level. For most individuals, this could create a severe financial hardship.
As another example, if the employee's premium contribution for an employer sponsored plan is over 9.5 percent of income, then the employee is free to accept the tax credit and purchase a qualified plan through the insurance exchange. However, the employee's contribution to the premium for the family does not count.
Thus the employee, with an individual contribution under 9.5%, could have to pay much more than 9.5 percent of income to insure the entire family, and yet not be eligible for the option of accepting a tax subsidy for an exchange plan. Again, family coverage could create a significant financial hardship for the employee.
There is a profusion of complexities in the Affordable Care Act that adversely impact patient-consumers, many of which Professor Jost has described in this and other articles. Although, as an academic, he has limited his advocacy to supporting rules that benefit patients, we don't have to limit our own advocacy so narrowly.
The Affordable Care Act is an abomination of inequitable and unjust administrative complexities and waste that can never achieve an equitable health system that serves everyone. Let's continue to do our best to make sure that everyone understands this and understands that health care justice for all is achievable by the adoption of a single payer national health program.
In the meantime, the IRS does not believe that it has the authority to alter the provisions of the Affordable Care Act and thus offers no mercy. Mercy is left in the hands of us would-be reformers.
My comment: Dr. McCanne and Dr. Jost are mostly talking about complications in a situation in which a family's employment is stable. What if one of the principal wage earners loses a job, so that the family has to apply for Medicaid instead? Medicaid applications take a hell of a long time. Then that wage earner might get another job in a very different pay bracket, most likely lower. Does the family even get on Medicaid for any length of time? What happens to the subsidy at the new income level? How about we just say that you get the same health care plan regardless of how your employment changes during the cours of a year, or a lifetime?
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