Obamacare’s $11 Billion Vanishing Act

Recipients of Affordable Care Act advance premium tax credits (APTCs) reported receiving $15.8 billion in subsidies as of April of this year. However, according to information released by the Department of Health and Human Services, the government has paid out $26.7 billion of these subsidies.

In other words — there is $11 billion in unaccounted tax credits for last year.

There is $11 billion in unaccounted [Obamacare] tax credits for last year.

Most of that $11 billion is missing because of misfiled and missing paperwork. With advance premium tax credits, people estimate their income for the year, and the government pays tax credits to their insurance company to help cover their health care expenses. The amount of money people receive is based on a sliding-scale income estimate — the less they make, the more they get. At the end of the year, they are supposed to file a Form 8962 with their tax return and pay back any excess credit.

Except that most beneficiaries of these credits, it turns out, aren’t filing the correct form.

As of Oct. 31, 2015, more than 1.4 million households had not correctly reconciled their 2014 APTC. About two-thirds submitted a return but did not include Form 8962. The remaining one-third did not file any return, according to Brian Blase, senior research fellow at the Mercatus Center at George Mason University in Arlington, Virginia.

“The $11 [billion] in missing subsidies payments is not an indication of how much shouldn’t have been paid,” Blase clarified.

We don’t know how much of that should have been paid back to the government because the tax returns are missing. The data does show, however, that the average household received a little more than $500 in excess subsidies.

Related: Obamacare October ‘Surprise’ Was Evident All Along

“There’s an incentive to underestimate your income because you qualify for more tax credit during the year, and there are limits on what the government can recapture,” Blase told LifeZette. “The IRS is going to have a tough time tracking that money down through letters and phone calls, which will carry their own expenses in personnel hours. Those people who didn’t bother to file a tax return will prove especially difficult to track down.”

“There’s an incentive to underestimate your income because you qualify for more tax credit during the year, and there are limits on what the government can recapture,” said one health care analyst.

“Regardless, people are supposed to file this form. The fact that 40 percent of people haven’t filed the correct form is a big deal and shows how complicated the implementation of the law is,” Blase explained. He said using a flat tax credit would eliminate some of the complications of a sliding-scale subsidy. “It would have a distributional effect. It would be giving more money to people in the middle class and less tax credit to people who are below the poverty line, below $24,000.”

But repealing some of the regulations that have driven insurance price hikes, he said, would help to make insurance less costly for these lower-income families.

It’s unclear why so many people are underestimating their income. Many people may misunderstand that they’re expected to pay the money back, and they may not know how much they’re actually making. Most people signing up for Obamacare are making between $18,000 and $20,000 a year. “People [with] lower incomes have more variable income from year to year,” Blase said. “They may change their jobs more frequently; they may have multiple part-time jobs. They’re much less likely to have a predictable income string than someone who has a middle-class income.”

Related: Obamacare: Millennials Aren’t Buying It

This news breaks just as more problems for Obamacare have cropped up. Premiums and deductibles have skyrocketed, insurance companies are ditching the marketplaces — and the White House is under scrutiny for using taxpayer dollars to backfill subsidies to insurance companies.

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Additionally, the White House said the penalty for skipping insurance is once again going to rise. In 2014, refusing to purchase insurance meant paying a penalty that was only 1 percent of one’s income — an average of $150 per household. In 2015, that rose to 2 percent, or $325 per household; and in 2016 it rose to 2.5 percent, or $695. Now, in 2017, it’s set to rise to its highest level yet — still at 2.5 percent of household income, but the flat fee will increase with inflation.

Clearly the law needs a substantial overhaul to halt rising prices, provide reasonable assistance to those who need it, and restore voter faith in the health care system. Or perhaps it will finally be — in the words of Donald Trump — “repealed and replaced.”