More Unpleasant Surprises Ahead for Obamacare

Obamacare is going to be an unexpected headache
for some people when tax time rolls around next year.

As the Associated Press
reported this week, income changes over the course of the year
could end up chewing into tax refunds without much warning for
people receiving subsidized coverage under the law:

If your income for 2014 is going to be higher than you estimated
when you applied for health insurance, then complex connections
between the health law and taxes can reduce or even eliminate your
tax refund next year….The danger is that as your income grows, you
don’t qualify for as much of a tax credit. Any difference will come
out of your tax refund, unless you have promptly reported the
changes.

Nearly 7 million households have gotten health insurance tax
credits, and major tax preparation companies say most of those
consumers appear to be unaware of the risk. 

Insurance subsidies under the law are a form of tax credit, and
the amount someone qualifies for is based on his or her expected
income. But when that income doesn’t meet expectations, then people
have essentially two choices: Report the difference as it happens
and immediately pay a higher premium as a result, or wait until tax
time and sort it out via the refund.

This year’s open enrollment period is going to bring other
complications as well, thanks to the administration’s automatic
renewal policy. The problem, again, is with the treatment of income
expectations and subsidy amounts. As an AP report from July

explained:

Insurance exchange customers who opt for convenience by
automatically renewing their coverage for 2015 are likely to
receive dated and inaccurate financial aid amounts from the
government, say industry officials, advocates and other
experts.

If those amounts are too low, consumers could get sticker shock
over their new premiums. Too high, and they’ll owe the tax man
later.

Automatic renewal was supposed to make the next open-enrollment
under President Barack Obama’s health care overhaul smooth for
consumers.

But unless the administration changes its 2015 approach,
“they’re setting people up for large and avoidable premium
increases,” said researcher Caroline Pearson, who follows the
health law for the market analysis firm Avalere Health.

For a lot of people, then, automatic renewal will result in a
sort of stealth premium hike. That’s what larger insurers are
hoping for, anyway. As The Wall Street Journal
noted last month, some of the bigger players in Obamacare’s
exchanges underpriced their plans in the first year in order to
gain more customers—with the expectation of raising rates in later
years. Auto-renewal makes that process easier, and at the same time
makes it harder for smaller players to attract new customers.

The bigger picture here is that the frustrations people have
with the law now aren’t likely to end. You have an exceedingly
complex law that wasn’t explained very well and that a lot of
people don’t really understand, and that’s going to result in some
unpleasant surprises for a while.