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New challenge for HealthCare.gov: Tax forms

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Reuters

The federal agency that had trouble launching a health insurance website last fall has a massive new project. Any glitches on this one could delay tax refunds for many Americans.

Because of complicated connections between the new health care law and income taxes, the Department of Health and Human Services must send out millions of new tax forms next year. They're like W-2s for people getting health insurance tax credits under President Barack Obama's law.

The forms are called 1095-As, and list who in each household has health coverage, and how much the government paid each month to subsidize those insurance premiums. Nearly 5 million people have gotten subsidies through HealthCare.gov.

If the forms are delayed past their Jan. 31 deadline, some people may have to wait to file tax returns -- and collect their refunds.

A delay of a week or two may not sound like much, but many people depend on their tax refunds to plug holes in family finances.

The uncertainty is unnerving to some tax preparation companies, which try to run their filing season operations like a military drill. The Obama administration says it's on task, but won't provide much detail.

States operating their own health insurance marketplaces will also have to send out the new forms, even if they had website problems. But the biggest job belongs to the federal exchange serving 36 states. HHS will have to manage that while in the midst of running the 2015 health insurance sign-up season, when millions more are expected to try to get coverage.

"It's very unrealistic to expect that they would be able to implement a process that distributed these forms in the middle of open enrollment, and on time," said George Brandes, vice president for health care programs at Jackson Hewitt Tax Service.

The average tax refund is about $2,690, and people who count on getting money back often file early.

Liberty Tax Service vice president Chuck Lovelace said his company is giving the feds the benefit of the doubt but the possibility of delays "is not something we can turn a blind eye to."

"It could have a dramatic impact on our customers," Lovelace said. "The tax refund is the largest check many consumers get."

Administration spokesman Aaron Albright said officials are "working to develop the technical processes to ensure the forms are generated accurately and timely."  Part of the plan will include "robust outreach" to educate consumers about the importance of the forms, so 1095-As don't accidentally wind up in the recycling bin.

Some states running their own exchanges are providing more details about their plans.

California says it will include a cover letter with each form to help consumers understand what they need to do. The state is looking at using email blasts, public events and other educational efforts.

"We do not foresee any problems in meeting our responsibility," said James Scullary, a spokesman for the state marketplace.

The new health care law offers tax credits to help people without workplace coverage buy private health insurance. Next year is when the connections between the law's coverage expansion and the tax system will start to surface for consumers.

The nearly 7 million people who got insurance tax credits through federal and state exchanges will have to tally up accounts with the Internal Revenue Service to ensure that they got the amount they were legally entitled to.

Funneling subsidies through the income-tax system was once seen as a political plus for Obama and the law's supporters. It allowed the White House to claim that the Affordable Care Act is "the largest tax cut for health care in American history." But it also promises to make an already complicated tax system more difficult for many consumers.

Supporters of the law are also concerned about a related issue: People who got too big a subsidy for health care in 2014 will have to pay it back next year. And docking refunds will be the first way the IRS seeks repayment.

That can happen if someone's income for 2014 ends up being higher than they estimated when they first applied for health insurance. Unless they promptly reported the change to their health insurance marketplace, they will owe money.

"If someone wound up having more overtime than they projected, or they received a bonus for good work, these are the kind of changes that have an impact on subsidies," said Ron Pollack, executive director of the advocacy group Families USA. "My impression is that the overwhelming majority of people are unaware these kinds of changes require them to notify the exchange."

Since the whole system is brand new, experts are predicting that millions will end up having to repay money.