Unexpected Tax Bills for ACA Policyholders: What You Need to Know

This tax season, many Affordable Care Act (ACA) policyholders may face unforeseen financial challenges due to fraudulent enrollments. Not only are these individuals potentially liable for unexpected tax bills, but ongoing policy changes proposed by the Trump administration could further complicate their health coverage and associated costs.

Tax Implications of Fraudulent Enrollments

Tax season often reveals unsettling surprises for some ACA consumers who discover they were enrolled in health plans without their consent. Reports indicate a surge in unauthorized enrollments, leading to over 274,000 complaints in the first eight months of 2024 to the Centers for Medicare & Medicaid Services (CMS). These complaints predominantly stemmed from rogue brokers or misleading call centers.

Consumers may find themselves facing significant tax liabilities if they inadvertently received premium tax credits that exceeded their eligibility. In such cases, they could be required to repay a portion or even all of these credits, resulting in unexpected tax bills that range from a few hundred to several thousand dollars, depending on their income levels.

A typical indication that a consumer has been affected is receiving a 1095-A form, which outlines any tax credit payments made to health insurers on their behalf. This document helps taxpayers report their premium tax credit when filing their returns. Delays in processing returns can occur if the IRS finds discrepancies related to reported ACA coverage.

In response to rising fraud rates, the Biden administration has implemented measures aimed at mitigating fraudulent enrollments, including requiring a three-way call involving the broker, client, and marketplace for specific enrollment issues. Erin Kinard, director of systems and intake at Pisgah Legal Services in North Carolina, noted, “While we may be seeing less [fraud], we’re still dealing with 2024 taxes.”

Steps for Consumers Facing Fraud

If individuals suspect they were fraudulently enrolled, experts advise them to promptly contact their state or federal ACA marketplace. Many will be assigned to specialized federal caseworkers for assistance. However, ongoing budget cuts under the Trump administration have led to significant layoffs within these divisions, resulting in longer resolution times for affected consumers. Jeffrey Grant, former deputy director at CMS, stated, “With fewer caseworkers, it will take longer to get problems taken care of.”

Fraudulent activities often involve brokers misrepresenting enrollees’ income to maximize subsidies or enrolling individuals who qualify for affordable employer-sponsored healthcare, making them ineligible for ACA benefits. Case studies, such as that of Anthony Akra and Ashley Zukoski from Charlotte, North Carolina, illustrate these complications vividly. Akra stated, “I didn’t know what the hell it was,” referring to the unexpected 1095-A form indicating they had been receiving monthly tax credits for a plan they never authorized.

Potential Policy Changes Ahead

In addition to tax complications, ACA policyholders may encounter other changes affecting their health coverage. Congress is currently debating whether to extend enhanced premium tax credits introduced during the COVID-19 pandemic, which significantly increased eligibility and subsidy amounts for many enrollees. The Congressional Budget Office estimates failure to extend these credits could add $335 billion to the deficit by 2034.

Should these enhanced subsidies expire, premium costs could rise dramatically, by an average of over 75% in most states, with some witnessing even higher increases. Such developments could provoke widespread public outcry, especially considering that enhanced subsidies have been integral to the ACA’s enrollment surge, bringing more than 24 million individuals into coverage.

Proposed rules from the Trump administration aim to tighten enrollment processes by shortening enrollment periods and eliminating the special year-round enrollment option for low-income individuals. These changes are touted as fraud prevention measures but could lead to a significant reduction in coverage, potentially causing between 750,000 to 2 million fewer people to enroll. Xonjenese Jacobs of Florida Covering Kids & Families emphasized that these restrictions would negatively impact vulnerable populations, saying, “They don’t have the same ability to plan.”

Conclusion

As the landscape of healthcare coverage continues to evolve amid fraudulent activities and proposed policy changes, it is crucial for ACA enrollees to remain informed and proactive in managing their health coverage and tax obligations. Staying in touch with marketplace representatives and utilizing navigator programs may provide essential support during these tumultuous times.