The Affordable Care Act, better known as Obamacare, is no stranger to controversy. Since it was signed into law in March 2010, and officially implemented on Jan. 1, 2014, Obamacare has drawn the ire of a good number of consumers.
America has issues with Obamacare
Why criticize Obamacare? For some consumers it's the dislike of the individual mandate, which is the actionable component of Obamacare that requires consumers to purchase health insurance or face a penalty come tax time. Being forced to buy a product just isn't sitting well with some consumers, especially young adults, some of whom believe they're invincible.
Another major complaint is that the new minimum benefit requirements of Obamacare plans made a lot of existing plans non-compliant, forcing millions of Americans to seek out new health plans. Furthermore, select primary care physicians aren't accepting Obamacare plans because they're worried of not being adequately reimbursed by insurers or Medicaid to cover their expenses. This, too, has caused millions of Americans to seek out either a new plan, new doctor, or both.
Lastly, consumers have pounced on Obamacare's bountiful errors since inception. The first two months following the beginning of open enrollment in October 2013 were an absolute disaster for Obamacare as informational technology glitches and server errors overwhelmed state and government exchanges. With the Congressional Budget Office projecting 1.4 million enrollees by December 2013, Obamacare had enrolled just 365,000 people in its first two months.
If you thought Obamacare's problems are firmly in the past...
We'd like to think that most of the problems associated with Obamacare have been fixed -- and the relative smoothness of the most recent open enrollment period would suggest progress has been made. However, a report issued by the Treasury Inspector General for Tax Administration, or TIGTA, in May would imply that work still needs to be done.
The nature of TIGTA's report was to analyze how accurately the Advanced Premium Tax Credits, or APTC, had been accounted for by the Internal Revenue Service. The APTC is the subsidy that eligible Obamacare plan consumers receive if their income is low enough to qualify for assistance in paying their health insurance premiums. In order to qualify for the APTC, consumers need to make less than 400% of the federal poverty level, but more than 100% of FPL.
Consumers that qualified for assistance in 2014 had two choices: either receive a partial payment that would be applied on a monthly basis to their premium (the APTC), or a lump-sum payment. A vast majority of consumers chose the APTC.
According to the IRS, $11 billion in subsidies were prepaid to insurers in fiscal 2014. Additionally, of the 1.4 million tax returns the IRS processed by March 26, 2015, some $4.4 billion in credits was accounted for. In total, consumers received $15.4 billion in Obamacare subsidies.
Now, here's where it gets strange: Based on TIGTA's report, consumers claimed a little more than $240 million in additional premium tax credits, but consumers also claimed $572 million in excess advance payments. The IRS also noted that it couldn't verify the identities of nearly 40% of the Americans that received some of the $15.4 billion in subsidies.
The likely problem with the APTC that resulted in this error is consumers' need to estimate their annual income sometimes a year (or more) in advance. If a consumer's income changes, they're supposed to report it to their states' health services office so their subsidy can be adjusted, but many failed to do so. Additionally, while estimating annual income might be easy for someone earning a salary, it can be next to impossible for consumers on an hourly rate to know how many hours they'll work in the upcoming year. Thus, in many instances, consumers misstated their estimated income and wound up being paid far more in subsidies than they were due.
Making matters worse, approximately 800,000 Americans enrolled in Obamacare received an incorrect Form 1095-A. This is the form that lists an individual's premium payment and tax credits for tax purposes, and if it's wrong it can throw off a consumer's refund or amount owed. Though the Department of Health and Human Services reissued Form 1095-A to these aforementioned 800,000 people following its programming error, it's possible that some of the $572 million in excess advance payments may have stemmed from mailing consumers an incorrect form.
How you can minimize your chance of an Obamacare tax surprise
Based on TIGTA's findings, there are still quite a few kinks with Obamacare that need to be worked out. But waiting for the government to fix the problem probably isn't the smartest thing for you to do. Here are two simple steps you can take to minimize your chances of becoming an Obamacare error statistic.
First, consumers that are eligible for a subsidy really need to take a few minutes of their time to sit down and estimate how much they expect to earn in the upcoming year. Making an off-the-cuff guess, based on these above statistics, could lead you to netting a smaller-than-expected refund, or perhaps even owing money to the IRS. Use your past tax returns to help establish a middle ground for what you expect to earn, and when in doubt keep your emergency savings handy just in case you slightly underestimate your income for the year.
Secondly, before filing your taxes, double-check your Form 1095-A with the payments you actually made. If you don't keep a checkbook or debit ledger, you should be able to look up how much was paid monthly online with your bank or credit union. If the numbers don't add up, then you may have a problem.
Long story short, Obamacare continues to evolve as a law, but it's probably going to have kinks that need to be worked out along the way. Taking the initiative with these two steps won't guarantee you'll be exempt from an Obamacare surprise, but it'll likely reduce your chance of an unpleasant surprise.