February 10, 2015 by Tony Novak
Imagine that you were lured to an auto dealership last year by an advertisement offering huge rebates. Once inside the showroom, the sales person clinched the sale with you by telling you that you qualify for a rebate program that significantly cut your purchase price and monthly payments. Your buy the car and drive it around for a year. Then 14 months later the accounting office for the dealership tells you that you really did not qualify for the rebate so you now owe double or triple what you paid for the car. Not only do you owe a lump sum repayment right now for the discount of last year’s payments but all of your future payments will now be double or triple. Unfair, right? Your next move would be to complain about unfair sales practices, right? Yet that is exactly what is happening in the federal health insurance marketing game.
The government’s massive advertising blitz of Obamacare on TV, online and in print was largely based on the claim that most applicants qualify for a full or partial subsidy that reduced the cost of coverage. On average, the ads said, 4 out of 5 people enrolling qualified for an advance subsidy credit. It is clear that the advertisements and the government’s insurance sales people, called navigators, pushed the rebates to enroll more members.
The online and in-person insurance sales systems were designed to allow buyers and sellers to bend the truth to maximize the rebate. No proof of eligibility for the rebate was required. Buyers did not understand that they might owe some or all of this rebate back. Enrollers pushed the rebates when they thought that would help make the sale. And of course what happened is that far too much money was taken in subsidies.
Meanwhile, The IRS knew that some of those people did not qualify for the subsidy. One IRS spokesperson at a webinar I attended in mid-2014 said that about 4 million people out of the final net figure of 8 million enrolled who enrolled through the exchange would have to pay back some or all of their subsidy. To me, that screams admission of deceptive practices affecting 50% of all buyers!
Now as we enter the tax filing season, we have new information. Based on the anecdotal reports of tax preparers in online social media forums like LinkedIn and Facebook, it seems that the portion who owe a repayment of the subsidy might be higher than the 50% originally forecast. I’ve read perhaps 50 accounts of tax preparers doing early returns for clients with the new Form 1095A and a large portion report that a repayment was due. It certainly seems larger than 50% based on what’s been written about early tax filers.
Of course we do not have hard data at this point*. All of the numbers I used in this post are subject to a wide range of fluctuation even within the realm of official estimates. Yet the conclusion is still solid: it is clear that the government effectively participated an unfair consumer marketing scheme to sell Obamacare policies to the American public.
* A report discussed in the editorial at https://www.linkedin.com/pulse/insurance-subsidy-rip-off-tony-novak-cpa-mba-mt issued after this blog post on February 14, 2015 includes reference to data gathered from 12,000+ taxpayers who received and health insurance subsidies.