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.