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.  

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  1. Sooo…..single payer it is then.

    1. I mean, that would cut all this complexity the Republicans forced on us when they wouldn’t help Obama.

      1. You know you’re not joking, right?

  2. If you’re dumb enough to give the government an interest free loan and have a refund each year, you (almost) deserve what you get. Why anyone would ever let them owe you money (which they can do things like this with) is beyond me.

    1. My reaction exactly.

      What the hell is a tax refund? The unexpected Obamacare hit had better make you owe the government — i.e., be bigger than any anticipated refund — or you screwed up.

      1. Incidentally, this will make it all the more fun as taxpayers are suddenly shocked to write a check to the Treasury and the IRS is suddenly required to figure out penalties for overestimating health care subsidies.

        Obamacare is the gift that keeps on giving.

        1. “We don’t want innocent men…”

          1. Guilty

    2. To be fair, it can sometimes be difficult to estimate taxes when there are life changes (marriage, kid, job change). It took a couple of years of refunds of several thousand dollars after my daughter was born before I even got close (and I’m still giving an interest free loan, but of a couple of hundred dollars)

      But most people don’t care about estimating and treat the tax refund as some kind of gift. So, yeah.

      1. To be fair, it can sometimes be difficult to estimate taxes when there are life changes

        Try to do it when you work for yourself and have to predict how many people will want shooting lessons next year.

        1. If I were you, I would budget for a large increase in demand for those lessons next April when these bills come due.

      2. Yeah, I had the same problem when I got married too. It doesn’t help either when your wife’s job situation is constantly fluctuating. I’ve probably changed my W-4 about 4 times in the last year trying to get it right.

        I agree though that the last thing you want to do is have money withheld from you interest free beyond what you’re required to to avoid being swat-raided by IRS agents.

    3. Damn it. You beat me to my comment. I am ashamed at Peter for not pointing this fact out in his commentary. If anyone receives more than a $600 refund, you are doing your taxes entirely wrong.

    4. TaxAct Online warned me that the IRS is going to start penalizing people for withholding too little such that they send money (instead of receive a refund) in April.

  3. Has there ever been a pleasant Obamacare surprise?

      1. There will be first Tuesday in November

          1. I’d bet on it

            1. i’m not surprised

        1. Optimist.

          1. I’m no particular fan of the GOP, but the Democrats deserve to be chastised for this abomination and I trust they will be. Signs point to a deserved wave election loss for the Democrat Party

            1. “Deserve’s got nothing to do with it.”

            2. Not so sure: Sabato pointed out last week that there isn’t a whole lot of polling right now so no one is cure what is going on.

              On Obamacare, by accident or design, the Dems have timed this pretty well: the crap that HAS happened was – politically speaking – a long time ago. The crap that WILL happen will happen next year.

              1. Maybe enough of the shitball will start rolling downhill by October.

            3. Then I shouldn’t believe all those polls that show practically every race except Texas to be within the margin of fraud?

              1. You should believe where Nate Silver and Scott Trende’s data points, which is that Team Red will probably have between 59 and 61 seats in the Senate.

                1. Wow! Seriously? That’s a huge swing.

                  1. SURPRISE!

            4. it’s obvious your first sentence is a lie

              1. joshrendell: Not one person on this board would EVER call Bo a republican supporter.

  4. The “Burn it All Down and Start Over” in me just readies another bag of popcorn when I read things like this, but reality sets in. I have kids and other family and friends and I have a feeling that the world is heading for a dark place due to the lessons of the collective financial insanity of the last century not sinking in, and I worry.

    1. I used to feel that way too. But even if there is a huge economic decline, it won’t last forever. Plenty of countries have had devaluations in the last several decades, and life goes on. Things will probably keep improving on the whole as technological advances keep their steadily increasing pace. Things like genetic engineering, 3D printing, and robotics should make the future a pretty great place. Unless there is an actual I, Robot sort of thing.

  5. Laying down a marker- Jon Chait will never acknowledge any of these problems.

    1. HAHAHA. Don’t know about Jon Chait, but Sam Baker at the National Journal has reluctantly reported on the danger of automatic renewal. And some ObamaCare watcher/booster named Charles Gaba is saying that HHS ought to be preparing 8 million letters right now to advise complacent enrollees — all of whom loooove their plans, of course — to wade back into the exchanges. Yes. And this time, we promise, the glitch is gone. And all the bad info about networks and doctors has been fixed — well, either that or you can sue, or raise a ruckus and force your state insurance commissioner to make it good. And we’ll soon issue new regulations to iron out that thing about estimating your income; ask your tax preparer if you’re not sure. Just set aside a weekend to explore your new options. We’ll have to live with a few headaches until Americans wake up and demand single-payer.

      1. you mean when republican voters demand single payer

        1. You mean like cash?

  6. Arbidged version: If you lied about your income in an effort to steal from me, it may have consequences.

    1. I should add that I fully recognize many people may not have lied outright, but rather are variable income or managed to get a better job.

      1. Or are just flat out ignorant. We are the exception here, that pay attention to these little details.

      2. When my wife and I signed up they asked for the previous years income in order to determine our eligibility for the subsidy.

        Of course, the previous year my wife had insurance through her employer so her pre-tax income was considerably lower than it will be this year. I’m so looking forward to tax season.

  7. It’s unpleasant surprises all the way down.

  8. an exceedingly complex law that wasn’t explained very well


  9. With earned-income being directly reported to and taxed by the IRS, how could any increase in wages not automatically trigger premium increases and changes to withholding? I mean, this shit’s supposed to be all tied together through a totally awesome multi-billion-dollar computer system, right?

  10. Headline I’d like to see: “More unpleasant surprises ahead for Peter Suderman”

    People used to say that Paul Krugman had predicted nine of the last seven recessions. Peter has predicted ninety of the last seven Obamacare imbroglios (worse than a kerfuffle but not as bad as a meltdown). It tells you a lot that Manhattan Insitute double-dome health care expert Avik Roy’s “replacement” for Obamacare is … Obamacare.

    1. You come around juuuust enough to remind us all how flamingly stupid you are.

    2. Tell us, Alan, what OCare fuckups has Peter reported that turned out not to be fuckups at all?

      This is not to be confused with a prediction that the public would rise up in righteous anger as a result of a fuckup. I don’t recall Peter ever predicting that, but if he did, throw that in the pile.

      Its one thing to say “There will be a recession/public revolt” that doesn’t happen. Its another to say “This program is fucked up in this way”.

    3. Via Alan Vanneman: Sherlock Holmes and the Giant Imbroglios of Sumatra.

    4. Stop spelling my name wrong!!

  11. At this point, I don’t think anything involving O-care can be categorized as a surprise.

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