Repeal of the ACA’s quasi-notorious 1099 provision has now passed the House and Senate and is on its way to President Obama. The provision was scored as generating $22 billion in revenue, and so its repeal must pilfer $22 billion from elsewhere in the budget to achieve deficit-neutrality. The repeal bill, H.R. 4, essentially siphons the money from the ACA.
Under the ACA, people making between 133% and 400% of the federal poverty level (FPL) may receive tax-credit subsidies to purchase health insurance in the exchanges. If their income shifts into a higher bracket during the year—say, from 150% FPL to 300% FPL—they have to pay the government back for some portion of those tax credits, but the ACA capped the amount taxpayers (with incomes under 400% FPL) could owe at $400. If the taxpayer’s income ended up over 400% FPL, they’d have to pay back the whole subsidy. That “cliff” was smoothed out by legislation passed during the December lame-duck session, and subsidy paybacks were capped for incomes up to 500% of the poverty line, though on a raised sliding scale up to $3,500. If President Obama signs H.R. 4, subsidy recipients whose incomes rise above 400% FPL will once again have to pay back the entire subsidy, potentially thousands more than the capped amount under current law.
There’s no doubt that the ACA’s 1099 reporting requirements would cause widespread annoyance and some genuine headaches. Businesses would have to issue 1099s to any person or company they paid $600 to, for any goods or services. One thing that isn’t often mentioned though is that there were already rules requiring businesses to issue 1099s above the $600 threshold. But the ACA’s probably-soon-to-be-repealed provision would have required that 1099s also be issued (a) to corporations, not just individuals and partnerships, and (b) for sales of goods, not just for services.
But even as we pat ourselves on the back for rescuing businesses from headaches and paper cuts, we ought to be concerned about the very real difficulties we’re creating for people participating in subsidized exchange plans. Tim Jost explained this a while back:
Excess advance payments can happen easily and will happen often. The income of hourly-wage lower and middle-income Americans often fluctuates from week to week and is difficult to predict. Dependents may leave or return home. Family members may become eligible for Medicaid or CHIP. Taxpayers may be eligible for a premium tax credit in the early months of the year while unemployed but then get a job with coverage and no longer need premium assistance. Or they may lose a job part way through the year and face dramatically reduced income, even though their full year reported income remains high.
All these changes will affect the subsidy calculation. It will be difficult for the exchanges to keep up with changes in family circumstances and for families to know what changes they should report and to whom. It is inevitable that there will be some inconsistency between advance payments based on estimated income for the year and the final credit determined at tax time.
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Fear of potential end-of-year liability could be a substantial deterrent to participation in the advance premium tax credit program. It was estimated that the December amendment increased the likely number of uninsured after 2014 by about 200,000 people, who would rather be uninsured than face substantial repayments. Millions more consumers will face unanticipated financial burdens. This is likely to create a powerful backlash, as Americans who thought they were receiving a tax credit to help them purchase insurance find out it was in fact only a loan, and that they owe the IRS a substantial debt.
That’s serious cause for concern. With plenty of time to deal with the ACA’s 1099 provision (§ 9007) before it takes effect in 2012, I don’t think a veto should be out of the question.
UPDATE 4/8: Fixed an error in my description of the subsidy-payback provisions of the ACA.
UPDATE 4/18: President Obama signed H.R. 4 on April 14. So that’s that.
