Health Insurance

Tax forms show fewer people paid Obamacare tax penalties, more received Obamacare aid

A person holds a sign directing people to an insurance company where they can sign up for the Affordable Care Act, also known as Obamacare.
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Fewer people are paying Obamacare fines, while more are getting Obamacare help.

The number of people who owed Obamacare fines last year dropped by about 20 percent, while the number of Americans who benefited from financial aid for Obamacare plans grew to more than 5 million, the IRS said.

In a letter to Congress, Internal Revenue Service Commissioner John Koskinen said 5.2 million people got $19.2 billion worth of tax credits to reduce their monthly premiums for health coverage bought from government-run marketplaces during 2015. Those subsidies were declared in tax filings last year.

The average amount of premium tax credits an Obamacare customer received for 2015 coverage was $3,620, according to the IRS's letter. That letter arrived as Congress moves toward repealing Obamacare.

The number of people receiving Obamacare subsidies was up from 3 million in 2014. For that year, customers got more than $10 billion in tax credits, with an average subsidy of $3,430 annually, according to the IRS.

Obamacare subsidies are available to people with low and moderate incomes. People who earn less money get more in assistance than higher earners.

The subsidies were implemented to help uninsured people and others comply with the Affordable Care Act requirement — called the "individual mandate" — that most Americans have some form of health coverage or pay a fine.

Koskinen wrote that about 6.5 million taxpayers last tax season reported owing a total of $3 billion in such tax penalties for failing to have coverage in 2015. 

The average Obamacare fine during last tax season was about $470, while the median fine was about $330, Koskinen said.

In contrast, about 8 million people owed an Obamacare fine for lack of coverage in 2014. Fines related to lack of coverage in 2014 totaled $1.6 billion, with an average payment of about $210.

"The vast majority — 77 percent — of taxpayers" who reported owing a fine in the last tax year still reported being owed a net refund on their income tax filings, Koskinen said.

About 12.7 million people claimed one or more exemptions from the ACA-coverage mandate when they filed their taxes last year, according to Koskinen's letter. The exemptions are wide ranging, and can include having very low income, being incarcerated or having a close family member die recently.

About 4.3 million failed to check the box on their tax returns indicating their insurance status, according to Koskinen. In a footnote to his letter, he noted the IRS is continuing "to analyze these cases to determine their status."

The Republican-led Congress last week began taking steps toward repealing key parts of Obamacare, which include the funding of premium subsidies and the individual mandate.

While congressional leaders have discussed replacing Obamacare in some way after repeal, it is not clear to what extent people would receive assistance to help pay for their premiums.

Insurers are deeply concerned that if there is no mandate to have coverage, along with no subsidies or reduced subsidies for customers, then millions of people will exit the individual health plan marketplace.

If that happens, health-insurance experts say, the insurers' "risk pools" of customers will be overloaded with sicker people, whose use of benefits will cause premiums to rise considerably, further discouraging healthier customers from buying coverage. Such a phenomenon is known as a "death spiral."

Republicans initially considered repealing Obamacare and then suspending the repeal until they figured out how to replace the health-care law. But that strategy has lost support in recent weeks amid warnings that insurers would flee the individual health plan market without a replacement in place.

On Tuesday, President-elect Donald Trump said he wanted Obamacare repealed and replaced "very quickly," rejecting the repeal-and-delay strategy. But it is considered impossible for Congress to both gut the ACA and craft a replacement that could draw necessary support from Democratic senators in such a short time frame.