The health reform law, aka the Affordable Care Act, took a hit last week. Many journos, though, were apparently snoozing. In a talk at the annual meeting of the Association of Health Care Journalists, Washington and Lee University law professor Timothy Jost revealed that the president had just signed a bill giving the business community a present it had been wanting in the worst way. The much-despised 1099 form reporting requirements to the IRS were finally gone. What does that have to do with health reform, you might ask? It means, said Jost, “Many Americans are going to be shocked to discover when they figure up their taxes at the end of the year that what they thought was a grant was in fact a loan.”
It seems that when the reform law was moving through Congress, lawmakers needed to raise revenue to pay for the subsidies that millions of the uninsured will receive to buy health policies come 2014. They had to do that without overtly raising taxes so they settled on a plan that would require firms to report transactions totaling at least $600 a year paid for goods and services. The idea was to capture unreported tax revenue—estimated at some $22 billion—that could be used to pay for the subsidies.
Businesses howled and ran to Congress where Dems and Republicans alike agreed the reporting requirements were too onerous—too much paperwork, and one of the “tweaks” began winding its way through the legislative process. To get rid of the reporting rules, legislators had to find additional money to make up for the revenue they had counted on from the 1099 reporting requirement. Where did they find it? You guessed it —from those who would receive the subsidies in the first place. As part of the same bill, Congress required those receiving subsidies to pay back any extra subsidies resulting from changes in income. What Congress gives, it can also take away.
Jost explained to reporters that the government will pay subsidies to insurers in advance each month, based on past and estimated future income. But the day of reckoning comes at the end of the year when the government will want to know if it overpaid on someone’s behalf. And that can easily happen. Said Jost:
Income is often unstable in low income families. A person may work 40 hours one week, 20 or none at all the next. Projecting income over a year is very difficult. A person may lose or secure a reasonably well paid job half way through the year, making household income look very different on April 15 than when the benefits were received.
A family with an income around $67,000—about 300 percent of the federal poverty level—who has a child move out of the house halfway through the year, could end up owing up to $2500 on tax day.
Jost offered other observations for reporters writing about health reform—and for the public, too. The reform law ends the insurance practice of checking up on your health when you apply for a policy and refusing to issue a policy to people who have expensive health conditions. Insurance will thus cost more for the healthy and less for the unhealthy. What people pay will also be related to their age. Most of the time older people will pay more than younger ones. But in general, Jost said: “Premiums are likely to be quite costly for those who do not receive premium assistance,” he said. In fact, he added, “premiums will go up significantly” for those who don’t qualify for subsidies. A bad omen!
So these rising costs and the clawbacks are tied together. This bundle has been one of the most underreported stories in the whole health care discussion.