Up to 250K current enrollees could lose tax credits due to not filing return

This is a classic "glass half full/half empty" situation.

Remember in October when I noted that up to 1.5 million current ACA exchange enrollees could have been at risk of losing their federal tax credits this year?

The short version is that about 710,000 enrollees forgot to file a tax return at all (or didn't even know they were required to do so). Another 760,000 did file their taxes, but forgot to include the extra Form 8962 which was required to reconcile their 2014 tax credits (one of those happened to be, ahem...me).

The good news is that there was, at the time, still plenty of time to contact the IRS and square away the paperwork with either a late or amended return. The bad news is that there was no way of knowing just how many of those 1.5 million even knew about the problem, or would take the action necessary to resolve it. The IRS was supposedly contacting everyone, but obviously some still don't get the message, throw out the notice or otherwise fall through the cracks.

Here's the first solid evidence I have about just how large/small a problem this is actually turning out to be:

An estimated 2,200 customers who purchase their insurance through Access Health CT will be losing their subsidy because they failed to file their 2014 federal taxes.

Access Health CEO James Wadleigh said last week that he received information from the Internal Revenue Service alerting him that 2,200 Connecticut customers have not filed their 2014 tax returns. It’s the first time state exchanges received this type of information.

That means those customers may have some sticker shock when the bill arrives. Wadleigh said those 2,200 receive about $1.1 million in advanced premium tax credits. Wadleigh said he believes all 2,200 are still currently enrolled in coverage through the exchange. However, telling them they lost their subsidy because they failed to file their taxes is nearly impossible.

Under the Affordable Care Act, ”states are not allowed to store any tax information or communicate anything related to taxes,” Wadleigh said in a conference call. “We’re really limited in our ability to say ‘you didn’t file your taxes’.”

He said they’ve asked Connecticut’s Congressional delegation to get involved.

The exchange is currently working on language for a postcard to ask customers to check their federal tax status as they race toward a Dec. 15 deadline for customers who want their coverage to continue or start on Jan. 1, 2016.

It's a little surprising that this hasn't made bigger news. If the Connecticut exchange received such a notice, it's safe to assume the other state-based exchanges did as well...and I would imagine the state insurance commissioners of the other 38 states covered by HC.gov as well?

Anyway, without knowing the numbers for other states, here's the best I can do:

  • As of June 30, Connecticut had 92,213 people enrolled in exchange policies, of which 71,937 were receiving APTC assistance.
  • 2,200 out of 71,937 = 3% of all APTC-receiving enrollees.
  • Nationally, there were around 9.95 million effectuated exchange enrollees nationally, of which 84% were receiving APTC assistance.
  • Assuming the total number has since dropped to around 9.4 million, and that the proportion has remained at 84%, that suggests around 7.9 million currently enrolled APTC recipients.
  • Therefore, assuming 3% of those lose APTC due to not filing returns, that's around 236,000 people nationally.

Obviously the percentage could vary widely from state to state, but this is the best estimate I have at the moment. The Connecticut article doesn't address the other half of the issue (those who filed taxes but forgot the extra form). I'm assuming that this is a nominal number, but I'll tack on an extra 10,000 or so nationally just to be sure; let's call it a quarter million total?

As I said above, while this certainly wouldn't be a good thing, it's also not nearly as bad as it could have been. And, of course, all of those 250K or so can still scramble to resolve the issue if they contact the IRS quickly.