While it may seem like Covered California is big brother looking over your shoulder or studying your tax return in a darken closet with the flash light, they aren’t. They are able to let their computer software check discreet pieces of data that relate to your eligibility for health insurance and any premium tax credit. But no one Covered California is making any decisions on eligibility or tax credits for the past, present, or future, based on reviewing your tax return. They just don’t have access to it.
If you own a small business or receive income for a service you provide, and most likely file a schedule C with your tax return, you should consider having your estimated taxable income reviewed by your tax planner. The IRS has noted that as they develop guidance for all of the changes to the tax regulations for 2018 they will be posting them on their website.
The real looming threat is the loss of health plans participating in the IFP market. In 2017 three carriers dominated the market with 72% of the enrollments: Anthem Blue Cross 19%, Blue Shield 25%, Kaiser 28%. With the loss of Blue Cross in the major metropolitan markets such as the Bay Area and Southern California, two carriers, Blue Shield and Kaiser, are likely to command over 60% of the market place in 2018. If one of those two carriers determines that offering IFP plans is just too risky in 2018, it could lead to other carriers such as Health Net, Molina, or Oscar also pulling out of the market.
The real story is that rates, especially for older people, have risen so much in the individual and family market that health insurance under the IRS definition of being unaffordable can happen at a very young age. Below are examples of the least expensive Bronze plan rates in Region 1 and Region 3. Within a thirty minute drive between Auburn (Region 3) and Grass Valley (Region 1) in Northern California the rates can be sharply higher.
31,493 tax returns – programming errors caused the IRS to incorrectly compute the allowable PTC amount. As a result, 16,375 taxpayers potentially received approximately $5.2 million more in the PTC than they were entitled to receive, and 15,118 returns potentially received approximately $6.7 million less in the PTC than they were entitled to receive. IRS management informed us that programing was updated on or before July 31, 2016. We will evaluate the IRS’s corrective action in our annual assessment of the 2017 Filing Season.
Consumers who purchased health insurance through Covered California may be receiving revised 2016 1095-As without requesting one. The revised 1095-As are popping up in consumer’s Covered California accounts and being mailed to them. Consumers should carefully compare the original 1095-A sent out by Covered California to the revised document to make sure it is correct.
Some individuals and families who purchased their health insurance through a government exchange like Healthcare.gov or Covered California may be subject to the Penalty for Underpayment of Estimated Tax. The underpayment penalty is triggered when the federal income tax due is less than 90% of the previous year’s tax liability. If a tax household received thousands of dollars of the monthly Advance Premium Tax Credit (APTC) subsidy to lower their health insurance premiums, but earned too much taxable income to actually qualify for the Premium Tax Credit, the tax payer has to repay the entire subsidy. This repayment amount could easily trigger the underpayment penalty.
While Covered California does a great job of marketing their services as an individual and family health insurance marketplace, the ultimate connection of reporting health insurance coverage to the IRS is not a central part of Covered California consumer education.
The implementation of Obamacare requires it to be administered by a variety of federal, state, and local government bureaucracies. Many consumers have been caught in a swirl of seemingly conflicting and utterly confusing rules, advice, and government forms. This cauldron of Obamacare confusion is particularly acute among individuals over 55 years old who are subject to California’s Medi-Cal Estate Recovery program. The anxiety instilled in this population is compounded by conflicting IRS 1095 forms that seem to open the door to a large tax bill for the repayment of the premium subsidies they received during the year.
Built into the Affordable Care Act is the loss of the health insurance subsidy when the household income exceeds 400% of the federal poverty line. For older adults whose income might be greater than 400% of the federal poverty line they face losing the Advance Premium Tax Credits that makes their health insurance premiums affordable. In some instances the health insurance premiums can shoot up to over 20% of their income.