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Hundreds of Thousands Face Health Law Subsidy Deadline

At Risk of Losing or Having to Pay Back Health Insurance Subsidies from Affordable Care Act
By STEPHANIE ARMOUR

Updated Sept. 29, 2014 9:26 p.m. ET

Americans in the hundreds of thousands may lose or have to pay back health insurance subsidies from Obamacare if they don’t meet a Tuesday deadline. WSJ’s Stephanie Armour reports. Photo: AP

WASHINGTON—Hundreds of thousands of Americans face a Tuesday deadline to verify their income and are at risk of losing or having to pay back their federal health-insurance subsidies under the Affordable Care Act.

The need for people to pay back the government could become a headache during next year’s tax season, when Americans are expected to pay back any subsidies they weren’t eligible for.

The Obama administration has told more than 300,000 individuals who obtained coverage through the federal HealthCare.gov site that they may lose some or all of the subsidies if they don’t provide additional income information that jibes with Internal Revenue Service data. That information includes tax returns, wages and tax statements, pay stubs and letters from employers.

Hundreds of thousands of people who obtained health coverage through state exchanges also have documentation issues and could potentially be getting subsidies they aren’t eligible for.

Enrollees whose income changed during the year but didn’t update their information could also owe the government if they received larger tax credits than they were entitled to. The owed amounts could total thousands of dollars, health policy experts say.

“Most people don’t know they even got advance tax credits,” said Mark Ciaramitaro, vice president, health-care services at tax preparer H&R Block Inc. “They are going to be surprised and need to know what just happened, and a lot of people will be frustrated.”

Individuals who signed up on HealthCare.gov for insurance and subsidies to lower their coverage costs were asked on their applications to estimate 2014 income and provide citizenship information. That information was checked against their 2012 tax returns. In some cases, the data didn’t match.

In addition to the roughly 300,000 people affected by the income verification, another 115,000 people may lose coverage on Tuesday because they didn’t provide requested documents verifying their citizenship or immigration status by a Sept. 5 federal deadline.

Collectively, more than 400,000 people who enrolled in health plans using HealthCare.gov have data-matching problems regarding their income or citizenship and immigration status.

“There are a lot of people counting on their refund to pay for Christmas charges, and instead they’ll be paying back their tax credit,” said Timothy Jost, a professor of health law at Washington and Lee University.

People accessing the Affordable Health Care Act website in December. Associated Press

White House officials pointed to the health law’s requirement that people who are proven to be ineligible for subsidies have to pay them back, but said additional guidance on how to do that will be provided later.

“Generally, individuals who enroll through the marketplace and receive advance premium tax credits will file federal income-tax returns and, at tax time, advance payments of the premium tax credit will be reconciled,” according to a statement from the Treasury Department.

Some experts say the repayment could be deducted from a tax refund, or consumers could have to write a check to the government if they don’t have a refund coming or it isn’t enough to cover what they owe.

Repayments may be limited to an amount between $300 and $2,500 for certain lower earners, according to the Internal Revenue Service. But higher earners may have to pay back the full amount.

Consumers who provide income data as requested by the federal government for Tuesday’s deadline may in some cases still wind up owing at tax time if they were previously getting incorrect subsidy amounts and the total is more than they are entitled to for the year, said policy experts.

The income inconsistencies are a politically thorny issue for the Obama administration. Republicans in Congress said during a June hearing that the system for verifying income and eligibility information through the federal marketplace was incomplete.

A report released in July by the Health and Human Services Department’s office of inspector general found that the federal marketplace sent notices to applicants requesting additional documents to resolve inconsistencies, but lacked the system capability to process them and resolve the mismatches.

Several state marketplaces reported federal data sources appeared at times not to be current or accurate. For example, one state marketplace said infants and young children included on applications were erroneously identified as incarcerated according to federal data, the OIG report said. The report looked at inconsistencies from October through December 2013.

But Aaron Albright, a spokesman for the Centers for Medicare and Medicaid Services, said a Treasury inspector-general report also in July showed the IRS was nearly 100% accurate in providing information on income to health-insurance exchanges.

“We are committed to keeping coverage affordable for the millions of Americans who depend on it, and to doing so in an efficient, transparent way that protects taxpayers,” said Mr. Albright.

The government initially wasn’t able to accurately determine the income of about 1.2 million households out of the 5.4 million individuals who obtained coverage through the site. Federal officials say the majority of cases of inconsistencies have been resolved.

About 85% of the more than eight million people who enrolled in private coverage through the ACA obtained premium subsidies, according to HHS.

Tuesday’s deadlines just apply to applicants who purchased coverage on the federal marketplace. But some states that set up their own exchanges for purchasing insurance are also requesting information.

In California, notices have gone out to consumers reminding them to update income changes online so there are no discrepancies at tax time, said Angelina Valencia, spokeswoman for Covered California, the state exchange. Letters went out to more than 290,000 families where the state may be awaiting income documentation or information about whether the family had a decrease or increase in its size, which could affect what they owe when they do their taxes.

http://online.wsj.com/articles/hundreds-of-thousands-face-health-law-subsidy-deadline-1412006417#printMode

Medicare’s Annual Enrollment Period Approaches

This is some great information in this Wall Street Journal article. Remember you have choices when it comes to Medicare.

Give me a call just to make sure there are no changes in your plan and you have the best plan for your health care needs. Need help just call us at 909-570-1103

Got Medicare? Two recent developments may help you figure out what type of coverage to elect during this fall’s open-enrollment period, and how to navigate the backlogged system for appealing Medicare claim denials.

Oct. 15 marks the start of Medicare’s seven-week annual election period, when current beneficiaries can add, drop or switch prescription-drug plans and make other coverage changes.

In Medicare, individuals must choose one of two paths: original fee-for-service Medicare, or a federally subsidized Medicare Advantage plan, which typically operates like a health-maintenance or preferred-provider organization. Many who opt for traditional Medicare also purchase a private “Medigap” policy, as well as a separate prescription-drug policy, to patch holes in their coverage.

In recent years, Medicare Advantage plans have gained in popularity, in part because, when compared with a Medigap policy, they generally cover a wider array of benefits, often including prescription drugs and dental care. Many also charge lower premiums, but require members to use the plan’s network of providers.

The Affordable Care Act has sparked fears that Medicare Advantage plans, which cover about 30% of Medicare beneficiaries, will raise premiums, reduce benefits and pare their networks of doctors and hospitals. The reason: Under the law, Medicare will reduce payments to Medicare Advantage plans by some $156 billion by 2022, to bring per-person payments in line with those of traditional Medicare.

Citing the ACA, the nation’s largest Medicare Advantage insurer, UnitedHealth Group,UNH -0.10% has in the past year cut an estimated 10% to 15% of the doctors and hospitals from its nationwide network. Consumer advocates say the insurer targeted providers with the sickest and most expensive patients, leaving patients in the middle of treatments in the lurch. The company says the changes enable it to better coordinate care and that it is “extending continuity-of-care exceptions to members in active treatment.”

Because some of the cuts occurred at times of the year when patients are unable to switch plans, Sen. Sherrod Brown (D., Ohio) and Rep. Rosa DeLauro (D., Conn.) recently introduced legislation that would bar insurers from dropping providers outside of Medicare’s annual open-enrollment period.

Because Medicare Advantage can change annually, it’s important to examine your options during open enrollment, from Oct. 15 to Dec. 7, says Stacy Sanders, federal policy director at the nonprofit Medicare Rights Center in Washington, D.C. Ms. Sanders recommends calling your providers to make sure they still participate in your plan—and using the “Plan Finder” tool at medicare.gov to compare premiums, copayments and deductibles for Part D prescription-drug plans in your area.

During open enrollment, you can switch to either a Medicare Advantage plan or to traditional Medicare, which allows you to see any doctor who takes Medicare. From Jan. 1 to Feb. 14, Medicare Advantage participants may switch to traditional Medicare.

Medicare beneficiaries whose claims are denied should also know that, despite rising backlogs in Medicare’s appeals system, two recent lawsuits indicate that those who press their cases have a good chance of success. The procedure differs depending on whether you’re in traditional Medicare, a Medicare Advantage plan or a Part D prescription-drug plan. Typically, each appeal can be heard five times, the last time in a federal court.

Since 2010, success rates in the first two rounds of appeals of denied claims for home health-care coverage have plunged to 5% or less, according to a class-action lawsuit the nonprofit Center for Medicare Advocacy in Willimantic, Conn., filed on June 4 in the U.S. District Court in Connecticut against the Department of Health and Human Services, which oversees the agency that administers Medicare.

The center’s director of litigation, Gill Deford, says consumers who want a “meaningful review of their Medicare claims” should continue to the third round of appeal—before an administrative law judge—where odds of success jump to 40% or more.

The average wait for a decision from an administrative law judge is 398 days, up from 95 days in 2009, according to HHS. In a federal lawsuit filed Aug. 26, also in Connecticut, the Center for Medicare Advocacy seeks to force the government to take steps so that appeals can be decided within the 90 days the Medicare statute requires. A spokesman for the Centers for Medicare and Medicaid Services, which administers Medicare, says it does not comment on active court cases.

When appealing, ask your doctor for a letter explaining why you need the treatment in question. Those who go before an administrative law judge may benefit from retaining a medical or legal advocate, says Judith Stein, director of the Center for Medicare Advocacy. Most State Health Insurance Assistance Programs (Shiptalk.org) provide free counseling.

http://online.wsj.com/articles/medicares-annual-enrollment-period-approaches-1411258510

What the Indictment of ‘The Situation’ Tells Us About the Tax Code

Somehow, the most shocking thing about the indictment of Michael Sorrentino for tax fraud is not that the “Jersey Shore” star may have been less than punctilious about paying the taxman. After all, Mr. Sorrentino, known as “The Situation,” has never projected the levelheaded public image you’d associate with careful income tax compliance. (Here is a video in which he slams his head into a wall. Here is the 911 call from when he was in a brawl at a tanning salon).

The first surprising thing is that over a four-year period from the start of 2010, Mr. Sorrentino and his brother Marc are said, in the United States District Court indictment, to have earned $8.9 million. Not bad for a reality show personality whose main talent seems to be maintaining impressive abdominal muscles.

The second surprising thing is what the case shows about a basic fairness problem in the tax code. Mr. Sorrentino did plenty of things to avoid taxes that were perfectly legal, showing how those with the resources to hire accountants and lawyers can end up with lower tax bills than people with a regular job.

Mr. Sorrentino and his brother funneled their income from nightclub appearances and other sources (“a partnership interest in a vodka company, ownership of an online clothing business, publication of an autobiography and a comic book featuring defendant MICHAEL SORRENTINO as a superhero, and endorsements of products such as vitamins, DVDs, clothing lines, jewelry, tuxedos, and sunglasses”) into two corporate entities they controlled, M.P.S. Entertainment L.L.C. and Situation Nation Inc.

But that’s not what they got in trouble for. Many rich, and even not-so-rich, people funnel their income through a corporate entity. Essentially, from the tax code’s point of view, Mr. Sorrentino was the C.E.O. of an entertainment-and-endorsement company. It brought in money from his various ventures, paid expenses tied to fulfilling those ventures, and paid out the rest to him and his brother as income.

Both were pass-through entities under I.R.S. rules, meaning that they didn’t incur any tax obligations of their own, but rather passed their profits on to their owners, who then owed tax as personal income.

But it’s obvious where that creates opportunity for tax avoidance. If the corporate entities were to pay for things for Mr. Sorrentino that were not legitimate business-related expenditures, but rather just paying for Mr. Sorrentino’s living expenses, it would essentially allow him to avoid taxes on that portion of his income entirely.

And that is what the prosecutors allege happened. They say that he and his brother engaged in a conspiracy to pay for personal items, including luxury vehicles, designer clothing and “personal grooming expenses,” from the corporate entities, and to hide those purchases from their accountants. (The indictment does not specify whether that grooming includes tanning salons, but it seems a reasonable guess the answer is “yes.”)

What makes this a broader story about tax policy is that, while tax law aims to be black-and-white about what constitutes a deductible expense for people like the Sorrentinos who manage their affairs through corporate entities, in practice there are shades of gray.

Suppose you are a well-compensated strategy consultant and you run your income through an entity like the one the Sorrentinos used. You have a big dinner with a bunch of college buddies who all work in the corporate world. Good luck to the I.R.S. trying to prove that that was a personal meal rather than a good-faith effort to build relationships with potential clients.