Tuesday, May 9, 2017

Obamacare in South Carolina - Something's Fishy

This post is based on my experience with tax clients who have had Affordable Care Act (ACA) policies and their statements about how they were sold the policy, what they were told, and what knowledge they had.  I have no personal knowledge of how these policies were sold, and my opinions and conjecture as to the methods and/or their legality/ethics is based upon a logical assumption as to what might have happened.  I'm not accusing anybody of wrongdoing, just guessing as to what MIGHT be going on.  I am also intentionally fudging specifics to protect client confidentiality.

Three tax seasons under Obamacare, over 1500 tax returns during that time, and dozens of clients with ACA policies have given me a unique perspective.  Out of that collection, I've come to 2 major conclusions: Many clients weren't told they were getting an ACA policy and/or a subsidy, and most clients were either encouraged not to account for increases in income, or were told they were not allowed to specify a higher income in order to lower their subsidy.

Imagine you are an insurance salesman hired by one of the SC insurance company to sell ACA policies.  Imagine how quickly you would figure out that Obamacare has a bad rap in the state.  Also, imagine how much easier it is to sell a policy with lower out of pocket premiums due to a subsidy.  It's not hard to figure out that this incentivizes a salesman to maximize the subsidy and not mention that the low premium is due to a subsidy from Obamacare that you might have to pay back.  Based on my experience I feel confident in assuming that a LOT of salesmen succumb to this pressure (even though in the long term it would probably be better being honest).  I expect insurance companies are perfectly happy getting the premiums, no matter if they come from the government or the insured.  Keep in mind that if the taxpayer has to pay back a subsidy, the insurance company gets to keep the money they received.  Often, the payback is limited by income, so it's the rest of the taxpayers who are on the hook for the excess premiums paid.

So why do I think this?  Well....

1. I have clients with incomes that are not even close to the income level that would get a subsidy who still got a subsidy.  All of them either didn't know they were subsidized and some didn't know they had an ACA policy.  These were some very smart people.

2. Almost every client who had to pay back a subsidy had a story about being restricted or lied to with regard to reporting an accurate estimate of income for the upcoming year.  The most common answer was that they had no choice but to use the income from the previous tax returns.

3. EVERY client is specifically asked if they have an ACA policy and if they are getting a 1095A (reporting ACA premiums and subsidies) and the answer is entered into the computer.  Despite that, so many people ended up getting letters requesting the 1095A before their return was processed that my company ended up preparing specific instructions for responding, including how to do it, a fillable letter for faxing a response, and specific fees for it.  I used those instructions A LOT.  (I personally can state that for the last 2 years I have been VERY specific in asking about this, and still have clients who need to respond to letters.)

Now obviously it's possible that some of this was honest confusion, and/or not fully accurate information from clients.  That said, the sheer numbers involved, and the way it spans so many levels of client income and sophistication convinces me that there's something funny going on.

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