Obamacare: Many choose penalty over enrollment

Many Uninsured Choose Penalty Over Enrollment Offer Under Health Law

ENLARGE

Many Americans without health insurance will have to pay a penalty when filing taxes with the Internal Revenue Service in Washington. Photo: Susan Walsh/Associated Press

By

Stephanie Armour

March 20, 2015 5:59 p.m. ET

WASHINGTON—A special enrollment period to obtain health insurance for millions of uninsured people who owe a tax penalty under the Affordable Care Act is off to a slow start.

The health law requires most Americans to have insurance or pay a fine at tax time. The open enrollment period under the health law ended Feb. 15, but the Obama administration said it would allow people who discover they owe a fine to sign up for coverage through April, at the end of the tax season.

Major tax-preparation firms say many customers are paying the penalty and not getting health insurance. It is still early, since the special enrollment period launched Sunday, but research also suggests that many people who lack health insurance will pay the penalty and not get covered this year.

Only 12% of uninsured people would buy policies if informed of the penalty, according to a survey of 3,000 adults polled through Feb. 24 by McKinsey & Co.’s Center for U.S. Health System Reform.

At H&R Block Inc., “our analysis indicates that a significant percentage of taxpayers whose household members were not covered for at least a portion of 2014 are opting” to pay the penalty, said Mark Ciaramitaro, a vice president of health-care enrollment services at the tax-preparation firm.

Richard Gonzalez, 59 years old, of Navarre, Fla., found out he will pay a $250 penalty for going without insurance. The retired employee of United Parcel Service Inc. said he won’t take advantage of the special enrollment period because it is cheaper for him to pay out-of-pocket for health care than to buy insurance on the exchange. He said he shopped on the exchange but would have to pay $400 a month for a plan with a $6,000 deductible.

“I think it’s wrong I have to pay the penalty,” said Mr. Gonzalez. “But it beats paying more than $10,000 a year.”

ENLARGE

The tax season has faced other hiccups related to the ACA. The Obama administration sent about 820,000 people incorrect tax statements—known as 1095-A forms—about their health coverage in 2014, causing many to taxpayers to have to wait to file their returns.

Federal officials said on a Friday press call that about 740,000 corrected forms have been mailed out or can be downloaded from the HealthCare.gov site. About 80,000 corrected forms will be mailed and available online next week, they said.

Consumers who already filed their tax returns using the incorrect forms provided though state or federal exchanges won’t be required to file amended forms, and the Internal Revenue Service won’t assess additional taxes, said Mark Mazur, the Treasury Department’s assistant secretary for tax policy.

The Obama administration may re-evaluate filing extensions because of the incorrect forms, but at this time, April 15 is the end of tax-filing season based on statute, officials said.

Lackluster sign-ups during the special period mean the Obama administration may only get a small enrollment boost. About 11.7 million people have already signed up on state and federal exchanges this year, though not all of them have yet paid premiums.

While federal officials have said that as many as six million households may owe a penalty for not having insurance, they haven’t said how many people they expect to sign up for coverage during the special enrollment period. Still, the administration has been eager to increase sign-ups, especially for key demographics such as healthy young adults and minorities who have high uninsured rates.

“It was a good PR move and aligns enrollment with tax season, but we’re not seeing a massive rush,” said Mark Steber, a spokesman with Jackson Hewitt Tax Service Inc. “It’s been pretty unremarkable.”

The special enrollment period applies to people who have to pay a penalty for going without coverage in 2014 and also face a penalty in 2015. They must pay any penalty they owe for not having coverage but can use the special enrollment period to obtain coverage and not generate any more fines.

Those who were uninsured in 2014 face penalties of $95, or 1% of their income—whichever is higher—when they file taxes this year. Fines will grow to $325, or 2% of income, for 2015, though millions of people qualify for exemptions.

Those with insurance through the exchanges might find another unpleasant surprise: As many as half the nearly 7 million Americans who got subsidies to offset their premiums may have to refund money to the government, according to an estimate by H&R Block. The subsidies are based on consumers’ own projections of their 2014 income, but some estimated incorrectly and received overly generous credits. Those people will see smaller-than-expected refunds or could owe the government money.

Tax experts say the problem will persist because the subsidy system is still based on consumers’ own—and often inaccurate—income projections. Many of the people enrolled for coverage in 2015 include customers who were automatically renewed by the federal government, which means their subsidies could be inaccurate if they didn’t update their income.

“These flawed income projections can just perpetuate because so many people were auto-renewed. That concerns me from a policy standpoint,” said Tara Straw, a health-policy analyst at the Center on Budget and Policy Priorities, which trained people who assisted consumers with tax issues under the health law. “If it was wrong for 2014, it will be wrong for 2015.”