Will Failing To File A Tax Return - Or Pay Taxes - Make You Ineligible For Obamacare? The Surprisingly Complicated Answer

Kelly Phillips Erb for Forbes writes:   It seemed like a simple question. A reader asked me: Would you still qualify for health insurance using the exchanges if you didn’t file a tax return or if you owed taxes?

For those of you just interested in the answer, it’s yes. With respect to the available advance payments and the tax credit, here are the details, straight from the Treasury:

Owing back taxes would NOT disqualify an individual from receiving advance payments of the premium tax credit. In order to receive advance payments, eligible individuals must indicate at the time of enrollment that they agree to file a tax return in 2015 to reconcile the advance payments they receive in 2014. Also note that, in the future, if individuals receive advance payments and then fail to claim the premium tax credit on a federal tax return and reconcile the advance payments, that could present a barrier to receiving additional advance payments. This barrier would not be relevant until the fall of 2015.

But you shouldn’t stop reading there. There’s more to it. Getting to the answer is the real story here.

The original question was triggered with a call from a potential enrollee to the exchanges out west. California, to be exact. California was the first state in the nation to enact legislation creating a health benefit exchange under the federal Patient Protection and Affordable Care Act. The marketplace for obtaining health care coverage is Covered California. As of two weeks ago, 1,410,919 California residents had started enrollment applications for health care coverage – that’s about 4% of the state’s population.

The new health care exchange system is tricky to maneuver no matter where you are in the country. That’s pretty much been the consensus all around and to be fair, it’s expected. The health care exchanges are new – and the legislation and related guidance is still evolving – and there are going to be some bumps in the road. That’s why the exchanges have representatives to help walk you through the process. In California, you can contact a representative by phone – but you should be prepared to wait. In the first full week in operation in January, the average hold time for callers to Covered California was 39 minutes, 44 seconds. That’s more than twice the length of timeyou’re forced to wait for the Internal Revenue Service to answer the phone – a problem that the National Taxpayer Advocate finds troubling.

I decided to give it a whirl myself. The first time I called, I was told that the average wait time would be “more than 30 minutes.” I made an effort to hold for a bit and gave up. About an hour later, I tried again. This time, the recording advised that there was an extremely high call volume, and that I needed to try again later. The recording then chirped, “Goodbye.”

While I didn’t get through, the potential enrollee with the original question had gotten through. And it was on one of those calls that he was told that he would not qualify for insurance under the exchanges if he could not demonstrate tax compliance. He didn’t go any further in the process – and that’s how the question ended up in my inbox.

Finding no luck with the phones, I poked around California’s website. The answer to the question, “Who can buy health insurance through Covered California?” had this answer:

Legal California residents, except for currently incarcerated individuals and legal minors, are eligible to buy insurance through Covered California. However, if an enrollee has access to affordable health insurance through another source, such as an employer or government program, the enrollee may not qualify for financial assistance through Covered California.

No mention of tax compliance.

I thought that perhaps California didn’t address the issue because it was covered in the original federal law. I’ve read the law – it’s long and awkward and bulky – and I didn’t recall seeing anything about lack of compliance being an obstacle to health care. To be fair, it was a few years ago so I went back to the drawing board. The law, known as Public Law 111-148, the Patient Protection and Affordable Care Act, is 906 pages long. It’s tough to slog through. But I did it. And I found the most relevant parts at Section 1411. There, the Act outlines eligibility requirements related to immigration status, income and current coverage options. Not a word about tax compliance. Nor could I find any at Section 1412, where the Act specifically outlines the premium tax credits. I couldn’t find anything in the amendment either.

I next checked out some agency regulations. There’s no way I could get through all of those – so I took a stab at the ones that seemed most relevant like 45 CFR Parts 155, 156, and 157 (for Department of Health and Human Services) where, despite the fact that the word “tax” appears 775 times, there’s no mention of tax compliance.

Still undeterred, I headed to the health care web site at healthcare.gov. Yes,that health care web site. The buggy one. I didn’t find any bugs. I also didn’t find any answers. I even downloaded the Marketplace Application Checklist(you can download it as a pdf). Still nothing.

So why did someone apparently say different on the phone? Where did that information come from?

There had to be an easier way to find out the answer. So, just over two weeks ago, I emailed the folks at healthcare.gov. I explained that I was working on a story and had what I thought were two easy questions:

1, Is there criteria that requires tax compliance before you can apply for health care?
2, If so, and you are not compliant, what steps would you have to take before you can qualify? For example, would it be sufficient to refile? Or would you have to wait for the statute of limitations to run… or something else?

I was referred to over to the Treasury. And then another person was looped in. And then they had to check with the exchange folks in California. Ten days after the original question, I got the answer posted above. And that is truly concerning.

Don’t get me wrong. The folks at Healthcare.gov and at Treasury were incredibly helpful. In particular, the Office of Public Affairs at Treasury did a lot of digging for me. And for that, I am thankful. I believe that those folks really did want to help answer my questions. I just don’t think those answers are easy for anyone to find. It shouldn’t be this hard, right?

Something as simple as the determination of eligibility for health care coverage should be easily accessible. And while I understand that you can’t imagine every question, it would seem to be a matter of common sense that if you’re going to use IRS to administer portions of the Health Care Act – and you’re going to rely on certain tax records to verify income and eligibility as well as issue credits which are related to the cost of the premiums – the issue of tax compliance should have been addressed. And assuming that it has been (somewhere), that information should be passed along to the folks who answer the phone. It shouldn’t take more than two weeks to find the answer.

I figured there ought to be some kind of direct connection between IRS and the state exchanges so I called up the media department at the California exchanges to inquire what sort of resources they had available, including accessibility to IRS and the Treasury to answer questions like this one. I was assured that they “followed the law” but beyond that, they did not have any answers for me.

I’ve been pretty vocal about the fact that I don’t think that IRS should be tasked with administering the Health Care Act. The IRS is already overburdened and underfunded. Piling on more responsibilities isn’t going to make that better. In fact, the National Taxpayer Advocate recently cited implementation of health care issues as one of the areas of focus in her2014 annual report to Congress (report downloads as a pdf). And the IRS web site has a laundry list of Affordable Care Act Tax Provisions on its web site that should give you pause.

To be clear, this isn’t meant to be a screed condemning the Health Care Act. Instead, it’s a concerned reaction to the staggering bureaucratic nature of the Act – and a deep worry about how we’re going to make this work. If the premise behind the Act is to give all Americans the opportunity to obtain basic health care coverage, the process should be simple. Looping in tax credits and eligibility based on tax terms (like MAGI) is already muddying the water. And sending confusing messages to applicants about tax filing and compliance scares off potential enrollees – remember, not everyone has to file a tax return.

It’s clear that 2014 will be important for the Act as implementation is phased in. From enrollment deadlines to benefits reporting to health care credits, this year will be the year that we collectively hash through the regulations and requirements. Hopefully, it will get easier moving forward.

(Author’s note: As of 1/30/2014, the IRS has updated their web site to confirm that you do not need to file a federal income tax return to qualify for advance payments of the premium tax credit and that the premium tax credit will not affect your 2013 federal income tax return.)