Warning Regarding Subsidized Health Care Premiums

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My intent is to ensure that everyone considering taking an Advanced Premium Tax Credit [APTC] understands exactly how it works and the ramifications of false reporting. [APTC aka Health Insurance Premium Subsidy, Government assistance that helps pay your health insurance premiums]

1] The APTC is only available thru the Public State Exchange. In California it is Covered California.

2] When you go to the State Exchange website to determine whether or not you qualify for APTC or tax credits, you are asked a series of questions and your answers determine how much, if any, APTC you qualify for.

3] If you qualify for the APTC, you can take the credit immediately, wherein the government will pay the insurance carrier the premiums to reduce your monthly cost. You can choose to wait until the end of the tax year and get the credit on your taxes.

***WARNING***:

If your employer is providing a group health insurance plan you DO NOT QUALIFY for APTC as long as the insurance meets the following requirements:

A} The plan must provide Minimum Essential Coverage [MEC]

B} It must meet Minimum Value [MV] requirements

C} The amount that you are required to pay is less than 9.56% of your income [employee only, NOT family income]

* $124 per month is less than 9.56% of a $10 per hour employee working 30 hours per week.

$165 per month is less than 9.56% of a $10 per hour employee working 40 hours per week.

Formula to determine 9.56%:  [Hourly wage] x [Number of hours per week] x 4.33 x .0956 = ___________

If your employer has offer you a medical insurance plan and the amount you have to pay each month is less than this, it is likely it meets the MEC and MV requirements and, therefore, you do no qualify for APTC.

If you have declined the offer of insurance from your employer and are seeking it via the State Exchange website, it’s entirely possible that you will misunderstand and/or answer the questions incorrectly on the application, leading to an offer of APTC. If you accept that APTC, the IRS will determine the error after your taxes have been filed and charge the amount back to you. This IS NOT the insurance company, rather the IRS that will be monitoring, charging fines, penalties and garnishing wages or claiming property to recoup the money that is owed to them.

Here’s a HYPOTHETICAL story of what may happen.

Brett is 59 years old and earns $45k per year. He is married to Hannah who is 39 years old and they have two kids [24 & 25] living at home. Brett is a shoe salesman whose boss offers a health insurance plan that meets IRS MEC and MV requirements and the cost is $600 per month [for his coverage only]. His employer pays half of the premium leaving Brett a monthly cost of $300. Since 9.5% of his income is $356.25, the cost he is has to pay for insurance meets the IRS’s “affordable” guidelines. However, the cost for the entire family is $1,250 per month. Hanna is upset that it’s going to cost 1/3 of their entire income so she goes online to the State Exchange website to explore her options. She answers the questions regarding total household income and ages of everyone. She is then directed to her “options” and discovers a Molina Bronze 60 HMO plan that only costs a total of $927 per month for the entire family. She also notices a box that states “Monthly Premium Assistance [Tax Credit]” $921 followed by a box that states her “Total Monthly Payment” is $51.

Hanna has heard many different stories in the media about people getting “free healthcare” or subsidized premiums from the government that lower cost so she’s excited that she’s found the option. She logs in and goes thru the application process and answers the questions. When she comes to the question that asks if her employer is providing affordable coverage, her natural response is to answer “NO” due to the fact that she’s never heard anything about ‘MININUM ESSENTIAL COVERAGE’ or ‘MINIMUM VALUE’ or 9.56% of her husband’s income. Seriously, how would she have heard or understood this being a stay at home mother?

I’m guessing that 75% of the people reading this will not have a clue as to what I’m talking about and exactly why I’m so concerned about the American people.

Hanna signs up the family coverage and accepts the $921 per month APTC that the government has offered to offset her costs. She only pays her share of $51 per month. At the end of 2014, she files the taxes for the family at which time the IRS notes the APTC given. The IRS then audits the shoe store where Brett works and determines the employer has been offering “qualifying coverage”. As a result, Brett now owes the IRS $11,052.

Brett’s family has been living paycheck to paycheck due to Brett’s obsession with motorcycle racing which has proven detrimental due to his constant crashing and creating high medical bills. They are struggling to make ends meet and were counting on getting $1,500 back at tax time. The reality is that his $1,500 return will only offset the IRS bill and bring it down to $9,552 [not factoring in late fees and penalties]. Now it’s up to the IRS to determine how they’re going to collect this debt which could happen in any of the following ways: 1] Garnish Brett’s wages, 2] Take his car or other property. It is entirely possible that the IRS doesn’t catch this for 1 or two years. During this lag time the situation, left unnoticed, could result in a $30-$40k debt owed to the IRS. Now it’s even possible that Brett’s family could lose their home. All of this because the Affordable Care Act is so hard for people to understand. In this case, there was no mal intent, just a misunderstanding and/or interpretation of it.

End of story.

The above scenario will also apply to individuals who misstate their income to qualify for a better plan. Eg: A family’s income is so low that they qualify for Medi-Cal [free insurance]. If the family decides they don’t want Medi-Cal and state they actually make more money in order to qualify for the APTC on a Silver plan, they fall into the same scenario as the hypothetical story above.

Friends, this is the IRS we’re dealing with, NOT insurance carriers. Although the Insurance carriers determine the rates, the Government is providing the APTC and it is the Government who will be monitoring and auditing everything via your taxes.

To end on a little softer note, there has been a lot of discussion between legislators, Health and Human Services and the IRS on how these fines will be handled with some limitations proposed. This is only discussion so it is my suggestion that you make sure you understand and report correctly in order to avoid these situations.

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