Covered CA adds greater complexity to tax system

Tax time has become even more of a challenge under the Affordable Care Act, and in California, taxpayers have found matters especially difficult. Despite racking up relatively big successes in enrollment and implementation, the Covered California exchange has struggled in its own way with tax documentation.

California media has picked up on reports of invalid code assignments and unresponsive customer service. Amid the headaches, officials have been forced to extend deadlines and re-send key forms, keeping many consumers in a state of confusion and frustration.

Red tape

Thousands of Californians who had missed the deadline for avoiding Obamcare’s so-called “tax penalty” were granted a last-minute clemency by state exchange officials. “Peter Lee, executive director of the Covered California exchange, said Tuesday that since Feb. 23 more than 18,000 people have signed up for a private health plan and cited that reason for enrolling during the extended period,” the Los Angeles Times reported.

“Normally, obtaining a policy outside regular open enrollment, which closed Feb. 20, is reserved for people who experience a qualifying event such as divorce, having a child or losing employer coverage. That type of special enrollment is available year round.”

But even after correcting and re-sending some 120,000 tax forms, Covered California admitted last month that tens of thousands of residents were still waiting on proper documentation. The trouble concerned Californians’ ability to accurately indicate how large of a federal health insurance subsidy they received in 2014. Without that number, it’s not possible to file federal taxes correctly.

In response, the Times noted, “the U.S. Treasury Department announced that taxpayers who got incorrect information from state exchanges such as Covered California won’t be required to submit corrected returns if they have already filed their taxes. The Treasury had previously offered the same reprieve for people in the 37 states served by HealthCare.gov, the federal exchange.”

Though the move let California’s exchange officials off the hook, the broader tax consequences of Obamacare have yet to be felt fully in the Golden State. Already, the ins and outs of the complicated tax code have mixed with the ACA in hard-to-anticipate ways. The chaos has even extended to unlawful immigrants sheltered by president Obama’s recent executive action. As California Healthline reported, although they were exempted from the individual mandate’s tax penalty because they are ineligible to purchase health insurance through state exchanges, they have also struggled (along with tax preparers themselves) to understand whether or not the penalty applies.

Pension perils

Even those who clearly understand the changes, however, have found reason for worry. Not only individuals but large organizations have begun to brace for dramatic changes in the years ahead.

At a meeting last month, for instance, CalPERS’ Pension and Health Benefits Committee voiced dismay over the so-called “Cadillac tax” due to hit the kinds of coverage many of its beneficiaries have enjoyed to date. A cost report for staff warned that the excise tax, which takes effect in 2018, will impose “a 40 percent excise tax on the aggregate cost of health benefits that exceed $10,200 for individual coverage and $27,500 for family coverage, indexed to inflation. Contracting agencies that offer health benefits through CalPERS are very concerned about cost impacts of the 40 percent excise tax.”

According to the report, “as part of exploring options for containing costs while maintaining high quality, the Board’s Pension & Health Benefits Committee directed staff to research the option of removing the broad networks in areas where narrow networks are widely available.”

At the same time, CalPERS recently announced that the Golden State “and its schools will increase their contributions to employee pension funds by 6 percent starting July 1,” according to Reuters. “The California Public Employees’ Retirement System, or CalPERS, said the increases were driven by payroll growth, salary increases and retirees living longer.”