Tax Penalty Phase begins for health insurance

By: Margot Sanger-Katz (NY Times) February 2015

The Affordable Care Act’s second open enrollment period ended on Sunday. Well, almost. Some computer problems over the weekend have led the administration to give a one-week extension to people who tried and failed to sign up.

But its tax penalty season has just begun. For people who didn’t sign up for coverage last year, and didn’t qualify for a special exemption, the consequences are starting to become clear. As people file their taxes, people who remained uninsured will be hit with penalties of either $95 or 1 percent of their income — whichever is higher. Those fines rise for people who don’t sign up this year, though they won’t feel the pain of that decision until next year.

The tax penalties are a key feature of the law, devised as an extra encouragement for reluctant people to enroll in health insurance before they become sick. But awareness remains low among the uninsured, about both signup deadlines and the penalties.

For those who know the trade-offs, the mismatch between the sign-up period and the penalty period doesn’t matter much. But for people who don’t understand how Obamacare works, unpleasant surprises are likely. Say you didn’t buy insurance last year, because you missed the deadline or you were unaware that subsidies would help make it affordable. You let this year’s enrollment period slide by for similar reasons. Only after it’s too late to sign up will you learn that you’ve been hit with a hefty fine for last year and will face a bigger one for next year.

That’s why Democratic senators have been pressing the Obama administration to offer an extra “special enrollment period” for people to sign up at tax time. Health and Human Services Secretary Sylvia Mathews Burwell told Bloomberg News last week that the administration would consider such a proposal, allowing people who faced penalties for 2014 to sign up late for coverage this year.

Many experts in health policy and taxes have long questioned the administration’s decision to make insurance enrollment line up with the calendar year. For the last two years, enrollment has run from fall through the winter, with the earliest available coverage beginning in January. But there’s no real reason that insurance plans must run from January to December. Since taxes are filed and penalties are assessed in the first few months of the year, a later enrollment period might better synchronize the Affordable Care Act’s carrots and sticks.

“The statute says that they have complete flexibility” to design enrollment periods, said Brian Haile, a former senior vice president at the tax preparation firm Jackson Hewitt who has also worked as a state official. Mr. Haile said the decision to have calendar-year policies is “stupid and makes no sense,” given the timing of tax penalties.

Scheduling enrollment for the months surrounding the New Year has other problems, as well. For many of the low-income people the Affordable Care Act is meant to help, the holiday season is the worst possible time to ask people to take on a new financial commitment, since it is typically a time of financial stress. Come tax time, a few months later, many are opening checks for big tax refunds or earned-income tax credits — and, perhaps, bills for failure to get insurance.

Critics also point out that, if tax filing and insurance sign-up were synchronized, tax preparers could help people sign up. They help many in the target population file taxes, and the family and financial information they collect is similar to what the enrollment website requires.

The administration’s openness to a special enrollment period suggests that it may be listening to the criticisms of the current schedule. But its latest regulations tell a different story. Instead of shifting the open enrollment period further into the new year, a current proposal would instead shift the whole thing back into the fall, widening the gap between the timing of sign-ups and tax penalties even more.

NY Times