STUMP » Articles » Obamacare Tax Watch: Other Commenters » 18 February 2015, 16:16

I just got today’s Best of the Web, and I see that James Taranto comments on the subsidy clawback:

CNN reports that “between 4.5 million and 7.5 million taxpayers received subsidies,” and an earlier CNN report cites an H&R Block estimate that 3.4 million of them will end up owing the IRS money on the deal. Of course taxpayers who overestimated their income and thus underestimated their subsidies will be due a refund—but one suspects those with an unanticipated income squeeze were likelier to drop their insurance during the year, which means that in some cases they’ll owe the mandate tax.

Putting aside any economic or moral objections to ObamaCare, the decision to administer the subsidies in this manner is psychologically idiotic. It works just like income-tax withholding, with balances reconciled as part of the filing process early the following year. But as we’ve written, withholding eases the pain of taxation by making a loss feel like a forgone gain, and a refund makes a small loss feel like a windfall. By contrast, administering ObamaCare subsidies in this way makes a benefit feel like a burden.

I think you mean “benefit”, Taranto.

Some of these people may be getting a benefit, in that they’re way underpaying for medical coverage is they’re heavily subsidized… but it could be that many of these people could have afforded unsubsidized insurance in the old-fashioned system, which didn’t mandate all sorts of “free” coverages, and which allowed for actual underwriting for risks.

I don’t see that Taranto offers up any other any different way for the subsidies to be applied — the only way that would work is if there were no clawback at all (which would really encourage fraud), or if people had to wait til tax time to get the subsidy benefit (you can wait for those thousands of dollars, right?). Maybe he would expect they would do quarterly tax filing. Hell if I know.

I agree with him that the way the subsidy clawbacks and mandate/penalty/shared responsibility fee (or whatever) is applied is just toxic politically. After all, that’s why I predicted lots of pissed off taxpayers, just due to Obamacare. Lots of people knew this was going to be nasty.

But then, lots of other people would not know a train is coming, even if said train were blasting its horn and only yards away, until it’s run over them. I guess people know about the pain now.

Peter Suderman comments:

Meanwhile, tax season looks like it will be frustrating, or at least uncertain, even for those who are already uninsured[sic?] under Obamacare. Slightly more than half—about 53 percent—of people receiving subsidies under the law will be on the hook to repay some or all of what they were given, according to CNN, based on early returns data from Jackson Hewitt. For others whose subsidies were too small, the return will be larger than expected.

That’s a pleasant surprise, but the point is that it’s a surprise. Because Obamacare determines subsidies up front based on estimated income for the coming year, and then formally calculates them later on at tax time, it’s not certain which side of the ledger you’ll fall on until it’s too late to change. With Obamacare, you never quite know what’s coming next.

That’s not quite true. Theoretically, when one knows about an income change, one could go and adjust that on the exchange.

Given the pain of trying to interact with the exchange, and I’m not sure many were set up to deal with multiple income changes through the year…. yeah, that’s one problem.

But part of the problem is that some of us have very uncertain incomes. What if a bonus pushes you over the 400% cliff? What if you lose a job partway through the year and you qualify only for Medicaid, but if you kept the subsidies, you could afford the exchange policy?

I can think of loads of possibilities. My own income has fluctuated by double-digit percentages due to job changes, additional jobs, etc. I can think of someone who goes above and below limits throughout the year. How are they supposed to deal with this?

Not everybody is a governmental employee, where they’re pretty sure of exactly how much they’ll get every year. For many of us, it changes a lot.

Here’s Megan McArdle on the tax fiasco situation:-

Apparently, there is a movement afoot to get the Barack Obama administration to line up the Affordable Care Act’s open-enrollment period with tax season. The reason: Many people are going to find out in March or April that they owe a penalty for not having the minimum essential insurance coverage. Those unlucky people, who may decide they’d like to buy health insurance after all to avoid next year’s penalties, will be too late to go through that year’s open enrollment.

At first blush, it seems like a no-brainer to just move open enrollment so that people who get hit with the penalty can have an ouchie, then log on to the exchange to sign up. However, it’s actually a lot more complicated than that.

She gets into the details — it has to do with a 3-month grace period, where one could go without coverage without getting hit by the mandate/penalty/tax/fee, and how people could game the system if there’s a permanent enrollment period to avoid the penalty.

It’s unfortunate that some people are going to get hit with penalties this year and be unable to buy insurance in time. But that’s presumably a fairly temporary transitional problem. As people learn about the system, they will understand that there are penalties for failing to buy insurance on time, and we won’t have this problem anymore.

Some states are already planning some sort of special enrollment period. And as I say, this is not much of a problem if it’s a one-year transitional fix. But the administration needs to resist the urge to make permanent policy out of temporary problems. Such fixes might boost the law’s popularity in the short term, but in the long term, they’d be undermining its stability.

Democrats may want you to hush, because that would encourage Republicans to follow this plan. Make it blow up…where do I sign?

I think there is going to be a long-term stability problem with Obamacare anyway, but that’s for another time (there definitely has been a short-term problem). What would one more be?

It should be interesting to see just how long these special enrollment periods will last. I guess that’s going to be part of this watch now. So far, I’ve only seen periods extended for those who couldn’t complete their applications before time was up, but who had started to apply.

Should be interesting if they try to push it to April 15.