Thousands of #ACA enrollees concerned they may lose their subsidies, but don't panic; there's a simple fix!

via Amy Lotven of Inside Health Policy:

CMS tells Inside Health Policy that Affordable Care Act enrollees who have reconciled their 2019 advanced premium tax credits (APTCs) as required can keep their 2021 subsidies, even if they were notified that they’re at risk of losing them, by checking a box on their exchange application. But Sen. Mark Warner (D-VA) tells IHP he wants the government to do more to help enrollees.

...The ACA requires exchange enrollees to estimate their next year’s income to determine their eligibility for tax credits and then reconcile that prediction with actual income during tax filing season. Regulations also require CMS to cut off future year tax credits if IRS data show that an applicant filed a return yet failed to reconcile their APTCs.

I've written about this a couple of times in the past. In order to qualify for ACA tax credits, your household income has to be between 100 - 400% of the Federal Poverty Level and the cost of the 2nd lowest-priced Silver plan available to you (the "benchmark plan") has to cost more than a certain percentage of that household income (on a sliding scale). However, if you enroll for 2021 during Open Enrollment in 2020, your tax credit eligibility is based on your estimated income for the 2021, not what it was for 2020, which means you have to account for that when you file your taxes a year later.

For instance, let's say you're single and you expect to earn $30,000 next year. That's 235% of the Federal Poverty Level (FPL), so you should be eligible for fairly generous tax credits. Under the sliding scale, if the benchmark plan costs more than 7.75% of your income, the difference between that and the actual cost is how much you get in subsidies. 7.75% of $30K is $2,325/year, or $194/month.

So let's say the list price of the benchmark plan is $500/month. You'd be eligible for $306/mo in APTC, or $3,672 for the year.

HOWEVER...things happen. What if it turns out you earn more than $30,000 next year? What if you actually earn $35,000 (274% FPL). You'd still be eligible for some subsidies, but not all of it...you'd have to pay some of the APTC assistance back to the federal government.

That's what IRS Forms 1095-A and 8962 are about...the first is what you entered as your income/APTC eligibility when you enrolled; the second is the form you fill out to reconcile how much you actually earned and how much you have to pay back (or how much more assistance you're eligible for if you earned less than expected).

Unfortunately...

According to IRS National Taxpayer Advocate Erin Collins, IRS sent 1.8 million letters seeking more information from taxpayers who either failed to reconcile their tax credits or had discrepancies on their forms this year. But staff cuts and other problems stemming from the pandemic have stymied IRS’ work, and the agency still has about 1 million returns waiting to be processed, 3 million pieces of unopened mail and about 6.8 million individual returns still in process. As a result, even if taxpayers provided all requested information, the data that IRS shared with the marketplace might be inaccurate or incomplete, Collins says in a Nov. 25 blog published by the IRS’ Taxpayer Advocacy Service.

The reason this is a potential issue for ACA enrollees is that if you haven't reconciled your APTC assistance for last year, you're not supposed to be eligible for APTC assistance next year...and for some people, the IRS hasn't gotten around to actually processing their 2019 tax return yet, including Form 8962.

Collins says that the number of cases brought to TAS is a good barometer of how much of an impact the issue is having on taxpayers. From Oct.1 through Nov. 14, TAS received more than 3,000 cases, or 20 times the number received in the same period last year, she says. Many cases involve consumers who have tried to respond to an IRS letter seeking more information to complete their APTC reconciliation.

Just last week I received an email from someone concerned about this exact scenario; here's how they describe it:

Another issue arose for me as I was preparing to start my 2021 ACA application and insurance signup. I received a mailed notice dated 10/30/2020 from the Marketplace that I needed to "ACT NOW: YOU'RE AT RISK OF LOSING FINANCIAL ASSISTANCE STARTING JANUARY 1, 2021" (their Caps, not mine). The letter states that IRS records show that I hadn't filed a 2019 tax return with a Form 8962 to reconcile advance payments of the PTC and if I'm interested in receiving financial assistance to help pay for Marketplace coverage in 2021, I must file and reconcile ASAP.

The letter is legit. Per the IRS website, the pandemic has caused the IRS to "experience delays in processing paper tax returns due to limited staffing". Since I filed my 2019 taxes early in the calendar year and by mail, and neither owed anything nor expected a refund, apparently the IRS has yet to process my return. The IRS indicates that "if you already filed a paper return, we will process it in the order we received it. Do not file a second tax return or contact the IRS about the status of your return."

Sure enough, per an IRS transcript request that I initiated online, as of 11/13/2020, the IRS is showing that they have no record of my having filed a return for 2019. So even though I can proceed with my 2021 ACA application by indicating that I have indeed reconciled my 2019 APTC (which I did do in my thus-far-nonprocessed paper filing), now I get to worry that if my 2019 tax return doesn't get processed relatively soon, my 2021 APTC request might become compromised. Just wonderful.

Have you heard from anybody else in this predicament? I expect to receive about $1K per month in 2021 APTC subsidies, so this would be a non-insignificant pocketbook issue for sure.

The good news is that it sounds like this individual did exactly what they were supposed to do:

...IRS Commissioner Charles Rettig is also aware of the problem. At a Nov. 20 hearing, Rettig told Rep. Linda Sanchez (D-CA) that IRS is willing to work with Congress on the issue, and also stressed that individuals can self-attest for now and CMS will come back in March to reconcile. “And so there's no involvement or lack of involvement of the Internal Revenue Service that would preclude anyone in this country from receiving that insurance,” he said.

...CMS this week told IHP it has received and is reviewing Warner’s letter. The agency also said that ACA enrollees who did reconcile their APTCs for the 2019 plan year can keep their 2021 tax credits by returning to their exchange application and checking the box that says, “Yes, I reconciled premium tax credits for past year."

Democratic Senator Mark Warner of Virginia doesn't think the "just check the box saying you reconciled for 2019 even if the IRS says you haven't" solution isn't adequate, and wants more done to resolve the issue, including bumping out the Open Enrollment Period deadline to give people more time to straighten it out. In fact, it sounds like the person who emailed me is a perfect example of the following:

One email viewed by IHP warns consumers that they’re at risk of losing APTCs if they don’t act quickly. But the mail does not at any point recommend that consumers return to their application and attest that they’ve already reconciled their taxes.

In contrast, Collins’ TAS blog repeatedly urges taxpayers to return to the marketplace and attest to having reconciled their APTCs to avoid losing tax credits.

...CMS usually checks IRS data in mid-December, just after open enrollment, to see whether enrollees are subject to APTC cut-offs and does another check in the spring. Advocates have been urging CMS to hold off on the December check and rely solely on the one from the spring.

I don't know about extending the Open Enrollment Period deadline over this issue, but at the very least the IRS should let people know how to resolve it. I know they don't want to encourage people to lie on their tax forms, but doing so is already a federal offense and we're in the middle of a global pandemic and the problem is at the IRS's end, not the enrollees and millions of people's income situation for 2020 and the first portion of 2021 is pretty messed up right now due to so many people losing unemployment as well as the expanded/extended unemployment insurance, the $1,200 emergency check from last spring and so forth.

Needless to say, everyone's nerves are pretty shot right now, and the last thing they need is to be freaking out over the prospect of having to pay thousands of dollars more for their health insurance next year than they thought they were going to have to.