It’s tax time, and there is more to be said about the many issues that swirl around reconciliation of premium tax credits and accurate assessment of the penalty for going without health insurance. But there is one issue in particular that I am worried about for consumers who were enrolled in a Marketplace plan with financial assistance but then transitioned to Medicaid at some point during the calendar year.
Let’s start with some background. There are several types of 1095 forms, noted as A from the Marketplace and individual market issuers, B from Medicaid, and either B or C from employers. The purpose of all of these versions of the 1095 is to prove that an individual was enrolled in minimum essential coverage and is therefore not subject to a penalty for not having health insurance. This is the first year that Medicaid and CHIP agencies are required to send 1095B forms to enrollees showing which months they were enrolled in Medicaid or CHIP. Not all enrollees will have yet received these forms as the deadline for agencies for sending was extended for a month until February 28.
So here’s the problem. Consumers transitioning from the Marketplace to Medicaid will receive a 1095A from the Marketplace and a 1095B from Medicaid that may show overlapping coverage. The reason is because Medicaid coverage is effective as of the date of application or the account transfer date. Generally, speaking people are not eligible for premium tax credits when they have other minimum essential coverage. However, during the period of time it takes Medicaid to approve the application, the individual may continue to receive premium tax credits toward the cost of their Marketplace plan. This rule is clear in example six that the IRS provides in 26 CFR 1.36B-2:
Example 6. Mid-year Medicaid eligibility redetermination. The facts are the same as in Example 5, except that G returns to the Exchange in July 2015 and the Exchange determines that G is eligible for Medicaid. Medicaid approves G for coverage and the Exchange discontinues G’s advance credit payments effective August 1. Under paragraphs (c)(2)(iv) and (c)(2)(v) of this section, G is treated as not eligible for Medicaid for the months when G is covered by a qualified health plan. G is eligible for government-sponsored minimum essential coverage for the months after G is approved [emphasis added] for Medicaid and can receive benefits, August through December 2015.
In essence, the rule protects consumers who were enrolled in Medicaid retroactively from having to pay back premium tax credits received until the month following the date Medicaid was approved – which is the actual date that eligibility was determined.
So what’s the problem if consumers are protected? The big problem is that tax filers and tax preparers are likely unaware of the rule. The fact that the rules protect consumers in this situation is not well known and there has not there been adequate public education or instructions so that assisters, tax filers’ and tax preparers know how to handle the overlap in coverage. When they go to complete Form 8962 to reconcile premium tax credits, they may incorrectly assume that premium tax credits received in any month they had Medicaid coverage will have to be paid back.
We are also worried about how this offers another opportunity for unscrupulous tax preparers to rip off consumers and line their pockets just as they did last year by not alerting tax filers about potential exemptions and telling tax filers to pay the individual penalty to them. The IRS cautions tax filers to choose their tax preparer carefully to avoid such despicable practices.
We are already hearing reports from assisters that this is a real problem. And it will be worse in states with application backlogs that may have taken weeks or even months to process a new application or account transfer. It will also be a problem for CHIP programs in states that provide retroactive coverage in CHIP similar to Medicaid.
What can be done in the short run? Given no systemic solution at this point, it is really important that Medicaid agency staff, Marketplace call centers, assisters, tax preparers, and consumers have access to clear information describing how to deal with this issue. The simple solution is to ignore Medicaid coverage in the months before (and including) the month in which eligibility was approved. However, I suspect that not all consumers will know when their Medicaid was approved. While the date should be reflected on the eligibility notice from Medicaid, consumers may not have saved those notices. Even then, this could still present a problem when the IRS compares the various 1095 forms it receives and acts on the information at face value.
Another option is for Medicaid agencies to issue a corrected 1095B to reflect coverage starting the month after the determination date. But again, this would require enrollees and tax preparers knowing to ask for a corrected form.
What are the longer-term solutions? The most straightforward option is for the 1095B form from Medicaid or CHIP to be updated to reflect the determination date. But still, this would require that tax filers and tax preparers know whether the date is meaningful and why. Certainly, we don’t want to confuse tax filers who need to show retroactive Medicaid in order to avoid any penalty for not having insurance.
A more complicated solution would require system changes in both the Marketplace and Medicaid. The Marketplace could send an indicator reflecting whether the account transfer is for someone who is currently enrolled in a Marketplace plan. Medicaid could store that indicator and use a different process for creating 1095Bs for those individuals by showing coverage effective the month after the determination date. I can envision all those systems programmers rolling their eyes at this one, but it could help avoid consumer confusion.
Whatever the solution – CMS and the IRS need to take action now.
A special thanks to the Robert Wood Johnson Foundation for its support of our work on providing feedback to HHS and highlighting how ACA implementation is impacting consumers.