50+ Lifestyles

There’s No Free Lunch

By Richard J. Schillig, CLU, ChFC, LUTCF
Independent Insurance and Financial Advisor

2014 brought in the “Individual Mandate” requiring all to have major medical insurance. This insurance coverage required must provide the minimum 10 essential benefits specified within the Affordable Care Act.

The good news of this law is that 6.7 million people acquired health insurance through the Marketplace according to a  government report. Bad news is that millions of people that received a government subsidy to help pay for that mandate may face income tax surprises at filing time.

Almost everyone will have some tax tasks related to the Affordable Care Act, according to a recent Bankrate.com article. Even if that task is simply  checking off the box on their form 1040 that says “yes” I have major medical insurance. But for everyone that received major medical insurance  coverage through the Marketplace (Exchange), there will be some additional tax reporting documents required. These extra reporting documents may result in either smaller refunds or larger tax bills to pay.

Recall the premium subsidy – or sometimes called by other names – tax credit or premium tax credit – the premium subsidy is a financial aid and is income to the recipient and could be taxable. Subsidies were originally designed to help offset the cost of major medical insurance. The amount of the
subsidy received is based on income. The Department of Health and Human Services reports that 85 percent of folks who bought 2014 policies via the Marketplace were eligible for some subsidy. At application time, folks were asked to estimate 2014 or 2015 household income.

During this tax filing time, recipients of the subsidy may discover they estimated lower household income in order to receive a higher subsidy. In  addition, income may have increased due to job change or promotion. Failing to notify the Marketplace of this change in income may result in having received more subsidy than allowed. Further changes in life’s circumstances, such as marriage, divorce, death in the family, adoption, birth of child  may affect subsidy eligibility due to changes in income. Failing to notify the Marketplace of these life changes may also result in adverse eligibility.

Folks who bought a major medical insurance policy from the Marketplace and received a subsidy will now receive a new form at tax time – Form 1095-A. This form is similar to a W-2 form received from an employer or a 1099-INT for bank or other interest accounts. The new Form 1095-A is supposed to be received by January 31.

The result of this new form could be a requirement to repay all or a portion of the subsidy and/or paying additional taxes on the amount of subsidy and/or reduction in any tax refund you may receive. There is no free lunch when it comes to government subsidies.

On another medical insurance topic – Medicare – In 2015 we continue our monthly Community Meeting. Next meeting is scheduled for February 19. If you are currently on Medicare OR if you are turning age 65 sometime in 2015 you are probably being inundated with information and solicitation materials on Medicare program – supplements, prescription drug plans, advantage plans. Sometimes it is difficult to sort out all this information and understand Medicare requirements and choices. Our meeting will be a great help in knowing the basics and in knowing what choices available to us. Join us Feb 19.

Richard J. Schillig, CLU, ChFC, LUTCF is an Independent Insurance and Financial Advisor with RJS and Associates, Inc. He can be reached at (563) 332-2200.