Affordable Care Act Update

According to NAHU (National Association of Health Underwriters) the federal government may be paying incorrect subsidy amounts to Americans throughout the US. The reason is simple; the federal government cannot reconcile the subsidy amounts to actual income.
To this writer, what took them so long to figure this out? Let’s look at the situation in depth to really understand what is happening to the ACA.
The rules for subsidies are simple. What is your projected income for 2016 going to be? Tell us that number and we’ll see if you qualify. The federal government is using future dollars earned as a basis for granting subsidies. So the American citizen can make up any number they want.
The reconcilement comes when they go to pay their 2016 income tax. So let’s look at that scenario and see what happens. I declare for subsidy purposes that my family income for 4 people is $45,000 (That is actually your modified adjusted gross income or line 38 on the 1040 tax return). When I go to file my 2016 income taxes the real number is $65,000. I was expecting a $4,000 tax refund not remembering that I declared my income to be $20,000 less for the subsidy. (The IRS has no authority under the ACA to collect money overpaid on subsidies.)
The IRS then calculates you owe them $5,000. They don’t give you your refund of $4,000 but apply that to what you owe them. There is still a matter of $1,000 overpayment on the subsidy. The IRS will accrue interest only (No penalty) on that $1,000 until you get another refund or decide to pay them to avoid further interest accruals.
Fraud is permeating all over the US because Americans cannot calculate or estimate their income or believe the government owes them coverage so the use made up income estimates. Either way this is an accident waiting to happen.
There is a solution that is being used today in Medicare. Medicare recipients are required to pay a surcharge if their income exceeds certain limits. The actual limits are not part of this discussion. The key is that the income is based on their tax returns from 2 years prior. All the ACA had to do was use that formula to eliminate an honest income estimation or out and out fraud. Both exist today in America as it applies to the ACA and subsidies. Income changes annually so if the income increases the subsidy decreases and visa versa. Then the IRS would be using actual dollars reported and not estimates. This would solve the problem and perhaps eliminate the adding of 16,000 additional IRS agents to the federal government payroll.
Maybe we should have listened to Nancy Pelosi when she said we need to pass this to know what’s in it. Has someone cared enough to read it before the bill was passed this situation could have been avoided?

Len Barend
702-250-2200
len@insurance4unevada.com

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