Friday, August 8, 2014

ObamaCare Subsidy Debacle: Why Your Year-Two Subsidy is Virtually Guaranteed to be Wrong

How many of you would accept this kind of utter incompetence from the private market? Now just about every PPACA enrollee will have a complex tax reconciliation to perform on their Obamacare subsidy amount. 

As cheaper plans come into the marketplace, millions of consumers will see the cost of keeping their plan rise. But they might not know it. isn't able to automatically recalculate the subsidies existing consumers are eligible for. So, while the dollar value of your financial assistance drops, you can only find out that's happening by going back into the system and asking for a redetermination as part of the shopping process. 
Consumers who auto-renew their policies will get the same dollar value of subsidies they got last year—even though changes in the marketplace all but guarantee that will no longer be the right subsidy amount for millions of people.
"That's the totally crazy part," Pearson said. "They're basically going to send them what they know to be the wrong subsidy."  
The IRS will eventually figure out how much financial assistance you should have received, and will reconcile the difference on your taxes. If you should have gotten a bigger subsidy, the government will issue you a tax credit. If your subsidy was too big, which would be the case if you keep your plan and lower-cost options come to the market, you'll owe the IRS money. 
Milliman has this example: Your plan doesn't change its premiums at all, and your income isn't changing. You auto-renew and keep receiving the same subsidy. But because of changes in the benchmark plan, you shouldn't actually be receiving the same subsidy. Although it seems to you like nothing changed—not your premium, not your income—you'll owe the IRS between $300 and $2,500 when you pay your taxes, because your subsidy should have been smaller. Unless and until is able to do this math automatically, it's up to you to figure that out. 
"We get into a very dangerous situation if we just tell everybody they can just auto-enroll," Houchens said.