The House will vote today on a bill that would seriously weaken health reform by imposing large tax penalties on many people who received subsidies to buy coverage in the health insurance marketplaces (“exchanges”) the law will set up. That would discourage many people from applying for subsidies in the first place, leaving more Americans to remain uninsured. It also could create a public backlash against health reform among people who bought coverage and then found themselves owing large sums to the IRS.
The bill would repeal a provision of the health reform law — usually referred to as the 1099 tax reporting requirement — that’s designed to raise revenue by improving small businesses’ compliance with the nation’s tax laws. Repeal would cost $21.9 billion in revenue over ten years, according to Congress’ Joint Committee on Taxation. To offset this cost, the bill would dramatically increase the amount that people would have to repay the federal government if they received larger subsidies than they turned out to qualify for.
The details are in our analysis, but here are the basics: Under health reform , the final subsidy you receive in a year depends on your income for the entire year, not your income at the time you apply for a subsidy. So, for example, if you apply at a time when your income is low, then you stop receiving the subsidy later in the year when you get a job with employer-sponsored coverage, your income for the year will be higher than it looked like it would be when you were receiving the subsidy. When you file your taxes, if the subsidy you received exceeds the final amount you qualified for based on your annual income, you will have to pay back some or all of the difference.
The health reform law capped the amount that people could be forced to repay. But Congress raised the caps significantly in December and the bill before the House would raise them further:
Families with incomes at 200-300 percent of the poverty line ($37,060 to $55,590 for a family of three) could owe up to $1,500.
Families at 300-400 percent of poverty ($55,590 to $74,120) could owe up to $2,500.
Families above 400 percent of poverty ($74,120), even by a small amount, could owe the entire subsidy they received.
Older people would end up owing more at tax time than younger people because they receive higher subsidies to reflect the higher premiums they have to pay for coverage. Similarly, people who receive higher subsidies because they live in areas of the country where coverage costs more would also owe more at tax time.
The current repayment requirements already risk driving people away from the health insurance exchanges; substantially increasing them, as the House bill would do, would be a serious mistake.