With repeal pending, IRS will enforce mandate on 2017 taxes
Republicans in Congress are aiming to repeal the health insurance mandate tax penalty before the holidays, but the IRS still plans to enforce it when people file their 2017 returns next year.
Here’s the message from the IRS: “For the upcoming 2018 filing season, the IRS will not accept electronically filed tax returns where the taxpayer does not address the health coverage requirements of the Affordable Care Act,” wrote IRS Spokesman Anthony Burke, in response to a question from the Journal.
“The IRS will not accept the electronic tax return until the taxpayer indicates whether they had coverage, had an exemption or will make a shared responsibility payment. In addition, returns filed on paper that do not address the health coverage requirements may be suspended pending the receipt of additional information and any refunds may be delayed.”
Burke emphasized that “taxpayers remain obligated to follow the law and pay what they may owe at the point of filing. The 2018 filing season will be the first time the IRS will not accept tax returns that omit this information.”
According to the IRS, 19,970 Alaskans paid the penalty taxes instead of purchasing health insurance in 2015 and a similar number is likely for 2016.
The tax, called a penalty, fine or the individual mandate, is one Congress may ditch in the current tax reform bill. For 2017 it comes to $695 per individual and $347.50 per child, or 2.5 percent of annual income. The penalty payments by Alaskans in 2015 totaled $12.5 million.
The IRS is prohibited by law from garnishing wages or other means to collect the penalty tax, but it can reduce the amount of refunds by the amount of the penalty owed or deduct it from future refunds.
More Alaskans chose to pay the penalty than those who purchased health insurance on the federal exchange this year. Premera Blue Cross-Blue Shield estimates it currently has 16,000 enrolled on its various levels of plans, according to senior spokeswoman Melanie Coons.
If, in its sweeping tax reform bill the individual mandate is removed, relief won’t arrive from the penalty until 2019 or whatever effective date is attached to the legislation, said Matt Shuckerow, spokesman for Sen. Dan Sullivan.
The IRS breaks down the Alaska income groups of those who paid the fine, or “health care responsibility payment,” as Burke said the tax is called by the IRS.
Some 4,230 of those earned an income between $10,000 to $25,000. These people would likely qualify for Medicaid or Medicare but apparently didn’t apply. If on either of those government programs, they wouldn’t have to pay the penalty.
Twice that many, or 8,420 Alaskans, are in the $25,000 to $50,000 income bracket. Just more than 5,000 earned an income in the larger ranges between $50,000 to $100,000. Another 40 listed an income between $500,000 and $1 million.
Some 6.5 million people across the country also paid the individual mandate penalty, according to the IRS. Of those 79 percent make less than $50,000 a year.
Sen. Lisa Murkowski wrote in a recent editorial that Alaskans paid more than $9 million to the IRS under this penalty in 2014, and over $12 million in 2015. She favors getting rid of the mandate in the new tax reform bill. Sullivan and Rep. Don Young also have spoken in favor of ridding the tax.
“There are Alaskans making the calculated risk to go without insurance and pay the tax,” she wrote. “They prefer to take a gamble, pay for care out of pocket, and hope nothing too bad happens because the insurance available to purchase is unaffordable. Eliminating this tax would allow Alaskans to have greater control over their money and health care decisions.”
Murkowski wants to protect gains made in certain provisions of the Affordable Care Act while giving states more control.
“(That’s) why I have been working for bipartisan solutions to the health care challenges we face. Instead of taxing people for not being able to afford coverage, we should be working to reduce costs and provide options,” Murkowski wrote.
But insurance companies, hospitals and doctors have disagreed about removing the mandate on the fear that people need that “stick” along with the “carrot” of premium subsidies or they won’t join insurance pools.
Fewer people sharing costs, Premera’s President Jim Grazko has said, helps drive Alaska’s high costs of insurance. Another reason Alaska’s costs are high is because the individual market risk pool includes people who experience chronic illnesses and consume a majority of the health care services in the state.
Sullivan, in a Nov. 30 press conference, said he has spoken to Gov. Bill Walker’s office about the impact of losing the mandate.
He spoke to people “focused on health care and they don’t think removing the mandate will increase premiums in the state hardly at all,” Sullivan said.
He also said the mandate is a regressive tax on middle class and working families, pointing to the statistic provided by the IRS that shows 80 percent of those who paid the penalty earn less than $50,000 a year.
Coons said that since open enrollment began Nov. 1, Premera saw a surge in web traffic and phone call inquiries the first two weeks of open enrollment. The insurance company has ad campaigns letting people know the price of premiums have dropped, thanks to the Section 1332 “innovation” waiver Alaska was granted under the Affordable Care Act provisions.
When Alaska gained the waiver in July, $48.9 million in federal funds will go to the Alaska Reinsurance Program, or ARP, in the coming year, which when combined with $11 million in state funds allowed Premera to lower its rates for next year by more than 21 percent.
The five-year waiver will send about $332 million to the ARP. The ARP was created by the Legislature in 2016 and with $55 million in funds collected from every insurance policy sold in the state, Premera was able to reduce the 2017 rate increase from 42 percent to 7 percent.
Further optimal financials allowed Premera to repay the Alaska Division of Insurance $25 million into the ARP, as announced Nov. 29.
Premera is also the lone company offering Alaskans individual insurance plans on the federal exchange after three companies exited in 2016.
With lower rates, the 1332 waiver uses the savings from smaller premium subsidies paid by the federal government to cover the costs of 33 expensive medical conditions. These remain in place even if Congress removes the insurance mandate.
Premera was able to reduce Gold plans in 2018 by 26.7 percent. Still, the costs Alaskans pay for insurance, even with the federal subsidies, is often three times higher than a resident of Washington state, who pays in the $300 per month range, according to the Seattle Times.
Insurance Division Lori Wing-Heier noted in the Nov. 29 announcement that Alaska has gone from the most expensive premiums in the country to the fourth-highest for 2018.
Silver plans for Alaskans will go down an average of 20.6 percent, though the reduction was to amount to 29.0 percent before CSR funding was eliminated, Coons said.
Bronze plans will go down an average of 23.9 percent.
To show how that cost reduction translates, Coons said that for the Preferred Plus Silver 3000 HSA plan, a 40 year old non-smoker in Anchorage paid $879 in 2017, in 2018 they will pay $709.
Naomi Klouda can be reached at [email protected].