Tax Error in health act has impact on 800,000

Posted on March 3, 2015

NY TIMES
By ROBERT PEAR, FEB. 20, 2015

WASHINGTON — About 800,000 taxpayers who enrolled in insurance policies through HealthCare.gov received erroneous tax information from the government and were urged on Friday to hold off on filing tax returns until the error could be corrected.

The Obama administration, under heavy pressure from congressional Democrats, also announced that it would give several million people more time to buy health insurance so they could comply with federal law and avoid tax penalties.

The tax mistake, affecting taxpayers in 37 states, is the first major problem to surface in an otherwise smooth second enrollment period for the Affordable Care Act. The online insurance marketplaces have exceeded enrollment targets, and insurance premiums have generally come in lower than expected. Nonetheless, the mistake could cause some hardship for thousands of lower-income Americans who qualified for subsidized insurance, had hoped for tax refunds and now must wait for weeks to file their taxes.

“Some consumers will be very frustrated,� said Christine Speidel, a tax lawyer at Vermont Legal Aid, “because they count on those refunds to buy home heating oil, to pay for car repairs and to pay off credit card bills.�

Senator Mitch McConnell of Kentucky, the majority leader and a vociferous critic of the health care law, accused the administration of arranging a Friday “news dump� to hide the bad news.

The insurance information is used in computing taxes. Consumers can expect to receive corrected data in early March. With the new data, officials said, some taxpayers will owe more and some will owe less. Andrew M. Slavitt, the No. 2 official at the federal Centers for Medicare and Medicaid Services, said officials did not know why the mistake had occurred.

And Josh Earnest, the White House press secretary, played down the error. He said that it affected “a very small fraction� of taxpayers, and that they would have “ample time� to file before the April 15 tax deadline.

Democratic lawmakers pressed hard for the Obama administration to open a “special enrollment period� around tax-filing season for Americans who realize only then that they face penalties for having failed to obtain health insurance last year. Mr. Slavitt said the period would run from March 15 to April 30.

Just before the regular open enrollment period ended Sunday, the Obama administration sent an email to consumers that said: “If you don't sign up for health insurance today, you won't be covered this year. So if you haven't submitted your application and enrolled yet, this is your last chance.� In fact, many people will get another chance. Mr. Slavitt described the special enrollment period as a one-time opportunity and said it would not be repeated in future years.

Treasury officials said that up to six million people might be subject to tax penalties because they were uninsured in 2014. But health officials said they would help consumers obtain exemptions. Federal officials have authorized more than 30 types of exemptions from the penalty for not having insurance.

Senator Orrin G. Hatch, Republican of Utah and chairman of the Finance Committee, said the announcement on Friday validated his concerns. “Whether it's providing taxpayers with incorrect subsidy information or having to create special enrollment periods so that taxpayers can avoid costly penalties, Obamacare continues to frustrate and confuse Americans,� Mr. Hatch said.

Millions of consumers received subsidies, in the form of tax credits, to help them pay premiums for coverage purchased through federal and state insurance exchanges last year. The credits were based, in part, on the consumers' projected income for 2014 and the cost of a “benchmark plan.� Mr. Slavitt said the government had discovered that the benchmark premiums were incorrectly reported on forms sent to 800,000 taxpayers, about one-fifth of all the forms mailed out by the federal government.

Delaila Hernandez, center, a JPS Health Network patient navigator, helped Fred Cardenas with documents during an Affordable Care Act enrollment event last week in Fort Worth. Credit LM Otero/Associated Press.

About 50,000 people who have already filed tax returns may need to amend them, officials said. Treasury officials emphasized that the error was made by the Department of Health and Human Services, not the Internal Revenue Service.

The error by the federal insurance marketplace is similar to what would happen if an employer reported inaccurate information on wages paid to an employee, or a corporation reported incorrect information about dividends paid to a shareholder.

Disclosure of the error came after a three-month open enrollment period.

On Tuesday, President Obama said that 11.4 million people had selected private health insurance plans or renewed their coverage under the Affordable Care Act — proof, he said, that the law was working “better than we anticipated.� The special enrollment period will be available to people in 37 states that use the federal insurance marketplace. Other states may follow the federal policy if they wish, administration officials said. In a report issued on Thursday, the Urban Institute said that “more than four in 10 uninsured adults who may be subject to the penalty have heard little or nothing about it.�

State-run exchanges in Minnesota and Washington had already announced this week that they were creating special enrollment opportunities for people who face tax penalties for 2014. California followed suit on Friday.

The health care law requires Americans to have insurance, obtain an exemption or pay a tax penalty. Mr. Slavitt said the new special enrollment period was intended for people who had been unaware of the penalty, which the government calls a “shared responsibility payment.�

To qualify for the special enrollment period, consumers must certify that they filed their tax returns and paid the penalty for not having coverage in 2014. They must also certify that they “first became aware of, or understood the implications of, the shared responsibility payment after the end of open enrollment — Feb. 15, 2015 — in connection with preparing their 2014 taxes.� It is not clear how the government could verify taxpayers' claims about when they first realized the implications of the tax penalty. The penalties, approaching 1 percent of income for some households, are supposed to be paid with income taxes due April 15.
The special enrollment period serves three purposes for the administration. It will increase the number of people with health insurance. It will reduce the number of people who must pay tax penalties. And it will increase the number of people who receive health insurance subsidies and thus have a personal stake in a Supreme Court case challenging payment of the subsidies in more than 30 states.

The problems were not limited to the federal exchange. James F. Scullary, a spokesman for the California exchange, said it was sending corrections to 100,000 households. Bruce N. Breslau, 61, of Los Angeles County said he had received a postcard from the exchange acknowledging a problem and promising to send correct information that he could use in preparing his tax return. “How is one to trust any document which emanates from the exchanges?� Mr. Breslau asked.