Beware of the Premium Tax Credit Scam: The Hidden Costs of ACA Health Insurance
It’s one of the cruelest scams in the American capitalist game, and unfortunately, your Fed is in on it.
The Fed Gives, Then Takes Away
In 2010, the Affordable Care Act (ACA) ushered in a new era of healthcare for millions of Americans. In previous decades, the health insurance industry disenfranchised many from healthcare coverage for petty reasons such as “pre-existing conditions”, capping age limits on dependents, and of course, not making enough to cover the premiums.
With Obamacare, these forgotten Americans finally were able to receive the healthcare they deserved. And with that, the healthcare exchange opened and madness ensued as our Fed pulled an Oprah Favorite Things moment — “ You get healthcare…and YOU get healthcare….and THEY ALL get healthcare!”
Regardless of whether you were for or against Obamacare, this legislation would impact us all. At first, there was the honeymoon phase with new state healthcare exchanges, lower private insurance premiums, expanded Medicare and Medicaid, and guaranteed health rights/protections. However, we knew the freebies (i.e. subsidized funding and advance tax credits to cover insurance premiums) would come to an end and change in due time if certain protections were not extended or made permanent into law.
In the early years of ACA, insurance companies agreed to receive cost-sharing reimbursements from the Fed to offset the financial losses of charging lower premium plans to sell on the healthcare exchange. When subsidies (i.e. Fed funding) decreased in paying out insurances companies to keep premiums low, insurance premiums started to rise again around 2017/2018. Since 2011, multiple Obama-era funding bills were voted down along with Trump executive orders, which reduced the funding for ACA.
What’s the Solution to the Defunding of ACA?
Well, a bunch of politicians and academically decorated tailholes came together to decide that THE PEOPLE should pay for the “free or discounted” insurance ACA. Cue in new taxes and rising healthcare costs until…the pandemic of 2020.
In 2020 and 2021, the American Rescue Plan Act (ARPA) expanded funding and coverage for healthcare exchange costs. While at first this seems like a good thing, beware that if your marital status, job or unemployment status, location, and even income have changed in the last two years, you might no longer be eligible to reap the Premium Tax Credit benefit, and Uncle Sam is coming to collect.
Who will this most likely affect and may owe this year:
- Self-employed or Small business owners with changes in annual revenue
- Unemployed within the last 2 years
- Married or divorced within the last 2 years
- Personal income increase within the last 2 years
- Relocated within the last 2 years
3 Things You Should Know to Avoid Paying Back the Advance Premium Tax Credit:
1.) Always report to your health insurer/healthcare exchange if there has been a life change in the last 30 days.
- Failing to report changes in marital status, employment, location, children, etc. may lead to surprise bills on your tax returns. Discounts are calculated using these life factors and can make or break your bank if you fail to disclose them.
2.) Remember to update income changes when they happen.
- Your income determines a major aspect of the insurance premium discount given in the Premium Tax Credit.
- If you were unemployed in 2020 then started a new job in 2021; or received an increase in annual income, then failing to submit the income change to your insurer may lead to paying back some or all of the advance tax credit. The amount owed can easily leap into 4-5 figures owed to the Fed.
3.) It’s OK not to have conventional health insurance.
Now, I’m sure rule-followers and many healthcare providers would completely disagree with this idea, but I beg to differ.
I found myself in a peculiar situation when I owed the IRS $5000+ in paying back the advance premium tax credit for healthcare insurance I obtained from the healthcare exchange, Covered California.
When I first enrolled in this insurance, it was in 2018 when I was just starting a new medical practice in California and qualified as a single small-business owner. Although Covered California was supposed to obtain updates every year on changes in life circumstances and income, they would still auto re-enroll members into the same plan even if no updates were submitted.
In fact, across numerous states, healthcare exchanges can automatically re-enroll members under the same insurance plan and premium tax credit.
They [healthcare exchanges] do this while knowing the member could face repayment, penalties, and interest owed to the IRS for any unreported changes.
When I updated all the correct changes to my eligibility this year, I no longer qualified for the tax credit and would have to decide if I wanted to pay $400+/month for ACA bronze-level health insurance, or save my money and skip health insurance altogether.
For 2022, there is no penalty in most states for not buying health insurance for the year. And now, short-term medical plans are taking the helm as an option for healthy individuals who rarely need medical support or care.
Many savvy consumers are also choosing to join Direct Primary Care (DPC) and concierge clinics (such as my own) as alternatives to health insurance and medical care. Personalized healthcare is rising in popularity and people want to invest in medical support that makes sense both economically and ideologically.
Certainly, if you have serious medical conditions, skipping health insurance may not be an option. However, for the bold and healthy, save your dollars wherever you can because the ACA and Premium Tax Credit is a healthcare scam unless you know when to hold and when to fold. Always read the fine print folks; but even more so, let’s invest in better and alternative healthcare solutions.
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