Will Obamacare Work Better in Year Two?

Posted on November 13, 2014

Josh Schultz works in New York City helping elderly and disabled people access health insurance and afford health care. He welcomes comments about this article or suggestions for future topics. This post consists of only his own views. Previous columns can be found here – “Taking Triple Aim on Health Care.”

More than 13 months have passed since the Affordable Care Act debuted to millions of Americans in October 2013. Obamacare quickly became synonymous with a barely functional federal insurance marketplace best known by its domain name, HealthCare.gov. The same day marketplace health plan enrollment began across the United States, individual market health plans began mailing out non-renewal notices to consumers enrolled in pre-ACA plans that were terminating as soon as the end of that year.

Consumers couldn’t log-in online and purchase new plans to replace their terminating coverage. Instead of a shopping experience the president had said could be as simple as using a popular e-commerce website to buy airplane tickets, consumers visiting HealthCare.gov shoppers faced long delays and confusing error messages. Six and a half months later, in mid-April 2014, the first Obamacare open enrollment period for 2014 coverage came to an end. By April, HealthCare.gov had undergone an unprecedented and heroic repair effort and the site was working very well — so well, in fact, that it processed record numbers of applications for health coverage in the final days of 2014 open enrollment.

Today many people, including some of my colleagues in the health care advocacy field, still don’t know that HealthCare.gov works — let alone that it works quite well. The public’s lasting impression of the federal website has left the the Affordable Care Act tarnished. More uncertainty looms now that the Supreme Court has agreed to hear a challenge to the validity of premium tax credits that make Obamacare coverage affordable for millions of Americans. While some Democrats have played down the impact that HealthCare.gov initial flop had on the outcome of the 2014 midterms, other news reports at least partially link the HealthCare.gov debacle to Democrats’ massive electoral losses last week.

The Affordable Care Act’s first year is almost over. Coverage purchased for 2014 ends at 11:59 pm on December 31. Many issues face current Obamacare enrollees, health care advocates and consumer assisters, as well as the millions of other Americans subject to the new law’s various requirements in 2015. Some of these issues are similar to what we dealt with in year one. But some issues are different, and are as or more complex compared to what we dealt with during the first enrollment period.

The Next 9 Months for the Affordable Care Act

November 15, 2014 – Open Enrollment #2 Begins

Expect a revamped, easier to use website design on HealthCare.gov for consumers who are signing up for coverage for the first time. People who enrolled in coverage last year through the federal marketplace will have to use the old, longer application. But that longer application will auto-populate most sections with data already in the computer system, and should make the critically important process of renewing eligibility for premium tax credits and re-enrolling into the right private health plan a little easier than it was for people signing up a year ago. Consumers must update their income information and re-enroll in an Obamacare private health plan by December 15, 2014, if they want to avoid any problems or unexpected costs in January.

Jan. 2015 – Consequences of Re-Enrollment

Each year, people receiving Affordable Care Act premium tax credit subsidies that make their private health coverage affordable may see increases or decreases in the dollar value of their tax credits and other savings. Changes in premium tax credits can be both relative (the same premium tax credit amount doesn’t go as far toward the purchase of a plan that has a higher premium) or actual (the premium tax credit is reduced but the plan’s premium may be the same). Or the changes to the tax credits could be to both its relative and they can affect the tax credits’ actual dollar value.

Premium tax credits are awarded to help qualified individuals afford marketplace coverage based on two main factors: a person’s estimated annual household income, and the monthly premium of the second-cheapest mid-level health plan available on the insurance marketplace in that person’s state. This is called the “benchmark” plan. Each year in each state, the benchmark plan and that plan’s premium – upon which all tax credits in the state are based – may change. A different plan may end up being the second cheapest mid-level plan, and that different plan’s premium may now be the benchmark for all premium tax credits. When the benchmark plan changes, so may everyone’s premium tax credit subsidy – regardless of whether a person remains enrolled in the same plan they had in 2014, or if they are enrolled in a new plan for 2015 coverage.

If current Affordable Care Act enrollees don’t update their income and evaluate their options for 2015 marketplace coverage before December 15, 2014, they could experience large premium bills in January for Obamacare coverage they had found affordable in 2014. Current marketplace plan enrollees who do nothing – who don’t log into HealthCare.gov or their state’s marketplace to update their estimated income information and evaluate their 2015 plan options – will be re-enrolled in their current plan or in a plan similar to it that is offered by the same insurance company. They may also receive an incorrect premium tax credit amount if their income has changed.

This means an Obamacare enrollee with a 2014 plan that costs $30 per month after tax credits could find himself enrolled in the same or a similar 2015 plan that costs $200 per month after tax credits, due to individual plan premium changes and confluences of several factors that determine subsidies and premium costs after tax credits are applied. Indeed, the same plan that has the same premium for an enrollee who has the same income in 2015 as he had in 2014, could end up having a different monthly premium. This is partly because in 2015, the state’s benchmark plan to which premium tax credits are pegged may have changed.

Pro- Affordable Care Act consumer group Families USA asked the government to adopt a “look-back period” for Obamacare enrollees to make retroactive changes to their coverage in early 2015. If the look-back proposal had been adopted, enrollees who do nothing before the deadline on December 15, 2014 and find they can’t afford their coverage in January, could call the marketpace and make changes to their income information and health plan enrollment that would have been retroactive to January 1. Even though the government didn’t adopt a look-back provision in its final regulation, Obamacare enrollees who find themselves owing more per month in January can prospectively switch to a more affordable plan until February 15.

Since a little before June 2012, when the Supreme Court upheld much of the Affordable Care Act as a constitutional exercise of Congress’ power to tax, two attorneys have pushed a bizarre interpretation of the plan text of the law. If read literally and in isolation, a single phrase listed in a few places within one section of the bill, could bar premium tax credits from reaching some of the Americans who need them most. Some of these people could die without the health plan coverage the tax credits allow them to have. The Supreme Court has agreed to review King v. Burwell, a case similar to Halbig, and which challenges an IRS rule allowing Obamacare premium tax credits to flow through HealthCare.gov. Challengers contend that tax credits should only be available to Obamacare enrollees who live in the states that establish their own insurance marketplaces, but not to people enrolling through the federal website. Expect oral arguments around March, and a decision in June 2015.

(Realistically, affected states would be unlikely to include Oregon, Nevada, Ohio, Idaho, New Mexico, and several other states that currently use HealthCare.gov, because those states have arguably “established” their own insurance marketplaces through state legislation, regulatory or executive action, or by entering into what are known as “Exchange Establishment” cooperative agreements or grants between the state and the federal government.)

April 15, 2015 – IRS Premium Tax Credit “Reconciliation”

While there are exceptions, a person generally may only receive income based premium tax credits to reduce the cost of an Obamacare private health plan if all of the following are true:

The person is between ages 19 and 64

Does not have access to employer-sponsored insurance that covers at least 60% of average health care costs and which the IRS considers to be affordable to the employee

Does not qualify for Medicaid or Medicare

Has an estimated annual household income between 100 and 400 percent of the federal poverty level

Because their purpose is to help enrollees with limited to moderate incomes afford health insurance, premium tax credits are often paid in advance, directly to a person’s health plan. This is a contrast to other kinds of credits, which must be claimed on April 15 of the following year. While premium tax credits are awarded and usually paid in advance to a health plan based on estimated annual household income, the final eligibility for those tax credits is based on actual income once the year is over. By tax filing time the following April, an Obamacare enrollee’s actual income will be compared with the estimated annual the individual listed on his or her marketplace plan application for the premium tax credits.

When the estimated annual income conflicts with the actual annual household income, a person’s actual income prevails and any tax credits paid in advance will be reviewed for an overpayment. Depending on the enrollee’s actual 2014 income, he or she may have to pay back some, or all, of the premium tax credits received in 2014. As long as a person’s actual income remains below the tax credit eligibility cut-off and the person was truthful on his marketplace plan application, he or she will be somewhat protected. The person may have to pay back some, but not all, of the tax credits received. (Cost sharing subsidies never have to be repaid.)

If a person’s actual income is lower than he or she estimated on the marketplace application for premium tax credits, that person should receive additional tax credits which will either reduce his or her federal tax liability, or it will generate an additional tax refund. However, if a person receives an end-of-year bonus that pushes his household income over the eligibility limit for any tax credits, he could have to pay back thousands of dollars of tax credits to the IRS. Premium tax credit overpayments will be deducted from any potential federal refund, to the extent a person would have received one. If the government overpays premium tax credits and can’t collect the overpaid amount by reducing a person’s tax refund, there will be an additional balance due on the person’s income tax bill. Any uncollected or unpaid tax credit overpayments could be deducted from future federal tax refunds.

April 15, 2015 – Tax Filing and the Individual Mandate Penalty

If a person doesn’t carry health insurance after May 1, 2014 and is not exempt from the requirement to carry it, he or she may owe a shared responsibility payment with their income taxes. This payment is known colloquially as the “individual mandate,” and is paid with the person’s income taxes. The penalty may be prorated based on the number of month the person went without coverage. Unpaid individual mandate penalties will be deducted from a person’s income tax refund, if he or she would have had one. If necessary, a future year’s refund will be used to repay the tax debt to the IRS.

Many people qualify for an exemption to the penalty but don’t know how to request one, or that the even can. Depending on the reason a person wants to be exempt from the requirement to carry insurance, the exemption may be able to be requested on the federal tax return. Other categories of exemptions must be processed and approved by federal contractors, and could take weeks or longer to be approved or denied. For the 2014 tax year, HealthCare.gov related contractors process individual mandate exemption requests for people in every state except Connecticut, regardless of whether the person’s state established its own insurance marketplace.

June 2015: Supreme Court Decision on King v. Burwell (and Halbig)

The premium tax credit reconciliation issues, individual mandate tax penalties, and hardship exemptions from the mandate have nothing to do with pending litigation and would come from additional lawsuits being filed over Obamacare. June 2015 will bring a second Supreme Court ruling on whether another key underpinning of the Affordable Care Act gets invalidated. Assuming that the Supreme Court rules against Obamacare, and finds that people in up to 37 states that didn’t establish their own insurance exchanges cannot receive premium tax credits to help them afford health insurance, there may still be questions.

Potentially unanswered questions could include:

If the Court invalidates tax credits in states that didn’t establish their own exchanges, will the Court then define what it means for an insurance marketplace to be “established by the state?”

If the Court chooses not to define what it means for a marketplace to be “established by the state,” but rules that premium tax credits cannot flow to people in states where the federal government has run an exchange without the support of local officials, how can governors and legislators choose to adopt HealthCare.gov as “an exchange established by their state?”

Charles Gaba and others have written extensively about a “domain-and-a-splash page” proposal they argue could solve the tax credit issue for all states currently using HealthCare.gov, as long as the states are willing to participate.

The 2015 open enrollment period and subsequent months will be exciting and nerve wracking for health care advocates and policy wonks interested in the Affordable Care Act’s expansion of coverage. Lawsuits, taxes, and tax credits will be key factors in the success, failure, and survival of Obamacare during its second year.