Sign-up season for President Barack Obama's health care law doesn't start for another couple of months, but the next few days are crucial for hundreds of thousands of customers at risk of losing financial aid when they renew coverage for 2016.
Call them tardy tax filers: an estimated 1.8 million households that got subsidies for their premiums last year but failed to file a 2014 tax return as required by the law, or left out key IRS paperwork.
Because of coordination issues between the IRS and marketplaces like HealthCare.gov, consumers who keep procrastinating into the fall are taking chances with their financial aid, according to insurers and the tax agency. That means, for example, that someone who's been paying a monthly premium of $90 could suddenly get hit with a bill for $360.
Government officials say they have a backstop planned that should help many procrastinators. Nonetheless, insurers and advocacy groups say they've been told the best way returning customers can avoid hassles is to file their taxes correctly by Aug. 31.
"You don't want to get to December and realize that your subsidy amount isn't there," said Clare Krusing, spokeswoman for the industry group America's Health Insurance Plans. Sign-up season starts Nov. 1, and insurers typically send bills for January in mid-December.
The last thing insurers want is consumers blaming them. They're particularly concerned that satisfied customers just waiting for their coverage to automatically renew might get a nasty surprise.
Hoping to stave off problems that could get amplified in an election year, the IRS started notifying tardy filers in mid-July. The form letters spell out in bold type that filing an electronic tax return within 30 days "will greatly reduce the risk of an interruption" in health care subsidies.
Obama's health care law created tax credits to help people afford private insurance. Nationally that aid averages $272 a month, covering roughly three-fourths of the premium. By funneling dollars through the income tax system, Democrats were able to call the overhaul the largest middle-class tax cut for health care in history. But in doing so, they also spliced together two really complicated areas: health insurance and taxes.
That's led to confusion for many consumers. For example, low-income people who weren't previously required to file tax returns must do so now if they received health care tax credits, which means dealing with complex new forms. Although 2015 is the second year of the program's coverage expansion, is the first year for tax implications.
The program is also complicated to administer for its two lead government agencies, the Centers for Medicare and Medicaid Services, which runs HealthCare.gov, and the IRS. Federal law imposes strict privacy safeguards for tax returns, and there are limits to information the IRS can provide to other agencies. Tax returns take time to process, and HealthCare.gov can't get real-time updates.
So even if a procrastinator realizes his mistake and files a tax return in October, HealthCare.gov might not reflect that information until much later.
The administration says it has a backstop for consumers who get tripped up by the time lag. They will be able to attest that they filed their tax returns and continue to receive their subsidies in 2016. "We want to make sure they don't have a gap in affordable coverage," said Lori Lodes, communications director for HealthCare.gov.
HealthCare.gov will also recheck IRS data in late December.
But the backstop only works if the customer actually filed. If they did not, the system will catch up to them eventually. Those who lie about having filed a tax return would violate perjury laws.
Republican critics say the administration bends the rules to keep enrollment numbers up and are sure to find fault with the backstop.
As of the start of the summer, the IRS estimated that up to 1.8 million households were at risk of losing subsidies. Although some of those probably followed through, it's still the latest official number. It breaks down as follows:
—About 760,000 households that got tax credits and filed their tax returns, but omitted a new form that is the key to accounting for the subsidies. Called Form 8962, it was new for this year's tax filing season.
—About 710,000 households that did not file a 2014 return by the tax-filing deadline, although they were legally required to account for health insurance tax credits.
—Some 360,000 households that got tax credits and requested an extension to file their returns. Under tax law, they have until Oct. 15 to file and that would still be considered timely. But to avoid problems with their health insurance subsidies, they really need to act much sooner.
