A Slippery Slope To Defunding The Health Law

[eridani]

Kaiser Health News
February 15, 2011
A Slippery Slope To Defunding The Health Law
http://www.kaiserhealthnews.org/columns/2011/February/021511jost.aspx

A key provision of the health law that will provide 19 million consumers with tax credits to help afford their health insurance has been raided once. Now, Republicans are planning to raid it again.

Here's the background: In late December Congress was looking for money to help pay for a plan to stop dramatic scheduled cuts in doctors' Medicare reimbursements. As a temporary fix, the lame duck Congress changed a part of the new health law so that some consumers will have to pay back a hefty chunk of their tax credits. That change is expected to save the government $16 billion over 10 years.

Now Congress is again looking for money—this time to offset the funds lost with the repeal an unpopular health law provision that involves 1099 tax reporting requirements. Republicans are proposing another increase in the liability of tax credit recipients to raise the necessary revenue.

To understand why the proposal is worrisome, it is necessary to understand the function of the new tax credits.

Here's how they work. The amount of the tax credit for which people are eligible is based on annual income for the year the credits are received. But, because people will likely need help paying their insurance premiums during that tax year, the law provides for advance payments of the credits.

These payments are made directly to the insurer on a monthly basis. The insurance exchanges, through which individuals will purchase health coverage, will determine eligibility for tax credits based on a taxpayer's prior year tax return.) At the time taxpayers file their annual tax return, the advance payments will be reconciled against the tax credit for which the taxpayers are eligible using their annual income reported on their return. If the advance payments are greater than the final tax credit, the taxpayer will get a bill from the Internal Revenue Service.

Excess advance payments can happen easily and will happen often. The income of hourly-wage lower and middle-income Americans often fluctuates from week to week and is difficult to predict. Dependents may leave or return home. Family members may become eligible for Medicaid or CHIP. Taxpayers may be eligible for a premium tax credit in the early months of the year while unemployed but then get a job with coverage and no longer need premium assistance. Or they may lose a job part way through the year and face dramatically reduced income, even though their full year reported income remains high.

All these changes will affect the subsidy calculation. It will be difficult for the exchanges to keep up with changes in family circumstances and for families to know what changes they should report and to whom. It is inevitable that there will be some inconsistency between advance payments based on estimated income for the year and the final credit determined at tax time.

Originally, when the health overhaul was signed into law, the amount the government could recover was capped at $400 for families with incomes below 400 percent of poverty. The amendment adopted in December increases the amount families will owe on a sliding-scale basis. Under the December amendment families with incomes at 200 percent of poverty will have to pay back as much as $1,000; families with incomes at 400 percent will have to pay back up to up to $2,500. It also, however, puts some limits on overpayments for families up to 500 percent of poverty.

Fear of potential end-of-year liability could be a substantial deterrent to participation in the advance premium tax credit program. It was estimated that the December amendment increased the likely number of uninsured after 2014 by about 200,000 people, who would rather be uninsured than face substantial repayments. Millions more consumers will face unanticipated financial burdens. This is likely to create a powerful backlash, as Americans who thought they were receiving a tax credit to help them purchase insurance find out it was in fact only a loan, and that they owe the IRS a substantial debt.

http://thehill.com/blogs/healthwatch/health-reform-implementation/144847-1099-repeal-gets-trickier-with-house-bill
Today (Feb. 17) the House Ways and Means Committee approved the 1099 repeal bill, including the requirement for "consumers earning more than 400 percent of the poverty line to pay back the subsidy."

Comment by Don McCanne PNHP: In choosing to base reform on private insurance plans, our policy makers introduced an administrative complexity that that would have been totally unnecessary had they selected instead a universal risk pool fundednm equitably through taxes. The private insurance model requires that a specific premium be assigned to each individual or family, even though those premiums are no longer affordable for the majority of us. Thus they had to devise a very complex system of subsidies to lessen the financial burden of premiums (though still unaffordable for many even with the subsidies).

These subsidies, of course, are based on the current year's income, but the advance payments made directly to the insurers are based on the previous year's income. Because income levels change frequently for many individuals and families, many will be receiving incorrect subsidies. The Internal Revenue Service determines the corrected subsidies, based on actual income, when the tax return is filed the following year.

If income increases, it is likely that excessive premium subsidies will have been credited since the payment to the insurers is semi-automatic. Under the Affordable Care Act (ACA) as originally enacted, once the tax return is filed, the individual or couple is billed for overpayments of the subsidies, up to a maximum of $250 for an individual or $400 for a family. Since this is an additional tax bill added to full income taxes already being paid, it was felt that amounts above these limits would be a hardship for most individuals and families.

That has changed. The newly enacted "doc fix" (postponing scheduled sharp reductions in physicians' reimbursements for Medicare) was paid for partly by raising the reimbursement requirement up to $2500. There are very few families that would not have difficulty paying this tax day surprise, added to their full income taxes.

Today the bill eliminating the burdensome 1099 requirement for small businesses cleared its first hurdle by a party-line vote in the House Ways and Means Committee. The lost revenues would be offset by a further increase in the subsidy repayment requirement - up to a full refund for those over 400 percent of the federal poverty level. Thus a family of four with an income of just one dollar over $89,400 (400% FPL for 2011) could be hit with a bill from the IRS for nearly a full year's premium - on top of their full income taxes - if their subsidies had been based on a very low income the prior year. Now that's a tax day surprise that would be devastating for any of us.

Admittedly, this is only a minor technicality, but try to tell that to those who will receive massive tax day bills from the IRS.

This is not only unfair, it is so unnecessary. We can fix this by funding a single national risk pool that covers everyone, using equitable progressive tax policies.

No longer would we have to link individuals and families to premiums in the private insurance market. We don't need the private insurers at all (and we certainly wouldn't need to give them 15 to 20 percent of the premiums for their own intrinsic purposes). The system will have already been paid for through taxes, and people would simply receive the care that they need, when they need it.

Simpler. Cheaper. And better. Taking care of us all. Why don't they get it?

[eridani]

1. Informational kick n/t