What Congress giveth, it can also taketh away. And there’s no clearer example than a provision in the Affordable Care Act that has the potential to make consumers plenty mad. At a time when millions of Americans still know nothing about the subsidies to help them pay for health insurance, the Associated Press now comes along to tell them that there’s a chance the government will give them a bigger subsidy than they are entitled to—and that if that happens, the government will come calling to get that money back.
The AP article offers a reasonable explanation of the infamous clawback provision in the healthcare reform law and how it could affect thousands who will receive subsidies. Here’s how it works: say you’re eligible for a subsidy because your family income is low—less than $94,200 a year for a family of four. (The government won’t actually hand you the money for the insurance, but will send a check to the insurance company to cover its share of the premium.) The government has no idea how much you’ll earn next year, so it relies on your last tax return, which for people applying for subsidies in October of this year would be the return filed for 2012. All this is fine if your income doesn’t change much from year to year. But if it does—you get a raise, or a child moves out of the house—the government may have given you too big a subsidy, and it will want that overpayment returned.
The clawback has the potential to hurt families with low incomes by sticking them with a smaller-than-expected refund or even a surprise tax bill. That was the group Obamacare was supposed to help the most. Two years ago, Washington and Lee law professor Timothy Jost told reporters at a conference of the Association of Health Care Journalists, “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.”
Income is often unstable in families with low incomes. A person may work 40 hours one week, 20 or none at all the next. “Projecting income over a year is very difficult.” Jost explained.
Reporters must have been snoozing through Jost’s talk. Until now, the press has pretty much ignored the clawback provision, and it’s even less well-known than other elements of the reform law. The AP article gets at how people affected by the clawback are in for a surprise:
“That’s scary,” says Joan Baird of Springfield, Va. “I had no idea, and I work in health care.”
Baird, a health care information management worker, is far from alone. Health care providers, advocates and tax experts say the vast majority of Americans know very little about the new health care law, let alone the kind of detailed information many will need to navigate its system of subsidies and penalties.
Unfortunately, this eureka moment about the clawback didn’t extend to putting the issue in context and telling readers how it came to be. Here’s the backstory:
To pay for subsidies for the uninsured, Congress combed through the federal budget to come up with extra money. Lawmakers wanted to find the funds without raising tax rates too much. So they settled on a scheme that would make businesses report to the IRS transactions totaling at least $600 they paid for goods and services. The idea was to capture unreported tax revenue estimated at some $22 billion that would go a long way to paying for health insurance subsidies.
But two years ago the business community screamed bloody murder and ran to Congress, where Democrats and Republicans agreed the reporting requirements were too onerous, citing the usual arguments that the regulations were too burdensome, too much paper work, and so forth. But if that $22 billion disappeared, where could Congress find money it needed for subsidies?
The answer: from those receiving the subsidies in the first place. Thus the business community got what it wanted, and the burdens and complexity were heaped on the uninsured.
It’s too bad the AP didn’t report any of this, since the tale of the clawback may have foretold future government give-backs and alterations to the health reform law. The law also calls for tax on insurance companies intended to raise some $87 billion over 10 years to help finance the subsidies. Businesses, especially small ones, despise the tax believing that it will simply be passed on to them in the form of higher premiums. Their trade association, the National Association of Independent Business, has teamed up with the insurers in a campaign to get Congress to repeal the levy; that campaign has also used the press to pass along its message. Given the insurance industry’s success in wresting more money from the government for Medicare Advantage plans, it’s possible the tax will disappear just like the reporting requirements did.
If that happens, it’s fair to ask: who will pay for the subsidies? With people signing up for coverage in six months, this unfolding story is one to watch.
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