The Federally Facilitated Marketplace, aka healthcare.gov, is gearing up for a new challenge that could have widespread impact on everyone who has enrolled with subsidized health insurance through the federal exchanges. This new challenge is the issuance of tax forms, and it is gearing up for a fight in the second enrollment period. After the troubled federal exchange launch last year, all eyes are glued to the performance of the exchange in this year’s enrollment period. Alongside the enrollment, tax forms are an addendum that the administration cannot ignore.
The tax forms in question are known as 1095-As, and they contain crucial information about each household, including the household member who has health insurance and the amount paid by the government in subsidies for health insurance premiums. Essentially, they can be understood as W-2 forms for people who have availed subsidized health insurance through federal exchange. The Affordable Care Act has established complex connections with the income tax workings, and that is why the HHS will have to send these tax forms to roughly 5 million people who have chosen to use the subsidies. The sheer magnitude of this number, along with the inherent complexities of the process, is going to be a tough nut to crack for exchange authorities.
If these tax forms were to be delayed beyond their January 31 deadline, the affected people would be stuck in a limbo, unable to file their tax returns and collect their tax refunds. A good number of families will be relying on these tax refunds, and the Obama administration cannot negatively impact this process. Other than the families, several tax preparation firms are also keeping their fingers crossed in wake of this uncertainty that could hamper the filing processes.
Had the second open enrollment period not clashed with the tax form issuance, the process would have been fairly simple. However with millions more expected to enroll in this period, the combined pressure on the federal authorities might be too much, especially when you take in account the fiasco of October 2013 exchange rollout. Other than just issuing these forms, the administration is also worried about educating people on how to handle the 1095-As, and how to use them while filing. Officials fear that not everyone will be able to understand the use of these tax forms, and some might discard the notice without understanding its gravity. Education on form usage is going to be one of the biggest challenges. On the other hand, the tax refunds available through these forms will be of the order of $2,690 on average, and many consumers are relying on these for filling the gaps in their tax filing.
A connected challenge is the payback of subsidies by people who incorrectly calculated their yearly income and took larger subsidies than they were eligible for. The IRS will match accounts with people who received subsidies and for people who earned more than estimated, subsidies will have to be paid back to the government. This is definitely going to change the calculations on the tax forms and will further delay the process. A bigger challenge is educating the people about this payback issue, as several people might not know that they owe money to the government. The inclusion of subsidies and IRS in this picture is increasing the complexity of the system, which might reel under the added pressure of tax forms.
With open enrollment, tax forms, lack of education and lack of technical processes, the Obama administration knows that it is facing a great, sensitive challenge that could impact millions of Americans. In order to sail through this problem, the administration will need support from individual states. Fortunately, some states already have plans in place for tackling this problem. California, for instance, has planned email campaigns, public events and educational conferences for helping residents understand these tax forms. The state will also include a cover letter with the tax forms to educate people.
Although the administration is moving in the right direction, the January 31 deadline for these tax forms is too close for comfort. Even if the administration is able to collate its records, educate people on the use of these tax forms, and ultimately send out the forms, the complexity is too high for some people to grab the whole process. The going is getting tougher, can the administration match pace?