ACA has created a clear intersection between Health Care & Taxes

1. The Impact of the Affordable Care Act on Taxpayers Mark Ciaramitaro - VP Health Care ServicesMay 21, 2014

2. ACA has created a clear intersection between Health Care & Taxes

3. Step into the mind of a Consumer • Overwhelmed with information • Given the politics …don’t know what sources of information to trust • Unaware, confused and worried about the Tax consequences • On-going concerns about affordability Affordable Care Act Individual Mandate Marketplace Subsidy Open Enrollment Premium Deductible Tax Penalty Tax Credits

4. What could Tax Filers be facing in the upcoming Tax Season ?

5. Six Major 2015 Tax Impacts • Health insurance coverage verification • Premium Tax credit “reconciliation” • Non-coverage Tax penalties • Exemption eligibility • New Tax form complexity • Estimating future Tax impacts

6. 1. Health Insurance Coverage Verification • Purpose: Indicate the period that individuals/household members were covered under qualified health plans • 1095-A • 1095-B • 1095-C CLIENT IMAGE • Issued by larger (>50) employers for coverage • of full-time employees • Issued by insurance issuers, military, small employers and • self-insured employers • Issued by Health Marketplace Voluntary for 2014

7. Potential Tax Filer issues • Tax filer awareness of need to save/bring notices • Late issuance and incomplete 1095 notices • Documentation needed when 1095 not issued

8. 2. Advance Tax Credit “Reconciliation” Purpose: Adjust the credit, based upon actual 2014 household income Step 1. Determine Actual Premium Tax Credit • Determine 2014 actual modified adjusted gross income (MAGI) • Compare to FPL family size bracket • Calculate share of premium cost as a percentage (2% to 9.5%) of MAGI • Subtract from benchmark premium in client's rating area to get the actual Premium Tax Credit amount

9. 2. Advance Tax Credit “Reconciliation” Purpose: Adjust the credit, based upon actual 2014 household income Step 2. Compare to Advance Tax Credit used in 2014 • Calculate difference between Advance Tax Credit used in 2014 and the actual Premium Tax Credit • If actual Premium Tax Credit is > the Advance Tax Credit used, client receives difference in the form of a refundable credit • If actual Premium Tax Credit < the Advance Tax Credit used, an additional tax liability is applied to the federal tax return

10. 2. Advance Tax Credit “Reconciliation” Purpose: Adjust the credit, based upon actual 2014 household income Step 3. Adjust the tax return based on difference • Any tax liability* is further adjusted, based upon household income and filing status table • Step 3. Adjust the tax return based on difference • Any tax liability* is further adjusted, based upon household income and filing status table

11. Potential Tax Filer issues • Basic awareness of how the Premium Tax credit works and the need for reconciliation • Increased Tax preparation complexity (especially if only partial year coverage) • Refund and Taxes due impact due to overpayment of Premium Tax Credit • Potential return processing delays without proper documentation

12. The Tax Penalty Most Americans who do not get qualified health insurance coverage may face a tax penalty

13. 3. Two Methods of Tax Penalty Assessment Purpose: Determine the tax penalty, based upon 2014 individual/household insurance coverage gaps 1. Flat Fee Calculation Method • $95 for every adult, $47.50 for non-covered dependent children under the age of 18 • Maximum family penalty is $285 • 2. Percentage Calculation Method • 1% x (MAGI – the household tax filing threshold) • Example: Single person earning MAGI of $55,000 • 1% x ($35,000 - $10,150) = $450 Apply whichever penalty amount is greater OR

14. 3. Tax Penalty Assessment Purpose: Determine the tax penalty, based upon 2014 individual/household insurance coverage gaps 3. Calculate impact on the tax return • For clients receiving a tax refund, the tax penalty will reduce the refund amount • For clients with a net *tax liability, the penalty will be added to their taxes • Max penalty must not exceed national average for a bronze plan.

15. Potential Tax Filer issues • Confusion regarding amount of the Tax penalty and how its calculated • Increased complexity driven by variance in household member coverage or partial coverage • Tax refund or Taxes due impact • Inability or unwillingness to pay Tax penalties

16. The Tax Penalty Most Americans who do not get qualified health insurance coverage may face a tax penalty But what about exemptions?

17. There are 14 Exemption categories! But they fall into 2 broad buckets

18. 4a.Tax Penalty Exemptions • a. Tax Return Exemptions Purpose: Indicate individual/household who qualify for exemptions from tax penalties Tax Return or Marketplace Unaffordable Coverage Options Member of Indian tribe Member of Healthcare Sharing Ministry Incarceration • Tax Return Only* • Not Lawfully Present • Short Term Coverage Gaps • Coverage Effective by May 1, 2014 • Income Below Filing Requirement *Automatic exemptions – likely just require a checkbox • Note: Automatic exemption issued for those whose income is below the filing threshold

19. 4b.Tax Penalty Exemptions • 2. Marketplace Issued Exemption Certificates Purpose: Indicate individual/household who qualify for exemptions from tax penalties • Marketplace Only* • Indian Health Service Eligibility • Member of Religious Sect with Insurance Objection • 15 Hardship Exemptions – Most Common *Will likely be a key code number included • Note: Automatic exemption issued for those whose income is below the filing threshold

20. Hardship Exemptions … and growing • Available via Marketplace Only • Homelessness • Eviction / Foreclosure • Utility shut off • Domestic Violence Victims • Death of a Close Family Member • Disaster Victims • Bankruptcy • Medical Expenses – Unpaid • Ill, Disabled, or Aging Family Members • Dependent Children w/out Insurance • Marketplace Eligibility Appeals Decision • Medicaid Ineligibility – non-expanded states • Cancellation of Health Plan • AmeriCorps (State and National) / VISTA / National Civilian Community Corps Members • Other Hardships • Note: Automatic exemption issued for those whose income is below the filing threshold

21. Potential Tax Filer issues • Awareness of exemptions eligibility and exemption submission process( via the FFM/SBM Marketplaces) • Getting proper Exemption documentation during Tax preparation

22. 5. Tax Form filing Implications ... • Tax form complexity • Tax form usage • More time/Higher costs • Mistakes, Delays, Amendments and Notices

23. Potential Tax Filer issues • Understanding new 1040 lines and worksheets • Coverage and exemption documentation requirements • Ability to continue to use 1040EZ • Where to go for answers to Tax questions • Potential media hyped political venting and confusion during the Tax filing season

24. 6. Future Tax Impacts • Implications of 2/15 Open Enrollment end date • For those applying for Tax Credits -accurately estimating future income • Calculating potential future tax penalty amounts and future eligibility for Exemptions • IRS Tax Notices due to incomplete or inaccurate documentation

25. In a nutshell, the upcoming Tax filer impact is pervasive and complex! • Low awareness NEW 1095 insurance coverage verification notices • Confusing Tax credit reconciliation ! • Surprising Tax penalty amounts and potentially frustrating penalty Exemption eligibility process • Increased complexity with new IRS line worksheets, schedules and forms • Difficulty ascertaining potential future tax impacts

26. Needed industry actions to address the coming Tax filer confusion • Timely release of new IRS Tax forms, instructions and guidance …so that the industry can prepare …. and avoid processing delays • HHS/CMS needs to consider Tax impacts and dialog with the Industry before issuing further changes that impact tax filers. • Focus around timely issuance of 1095 notices and alternatives if not notice is provided • Broad consumer education around Premium Tax credit reconciliation, penalties and Marketplace Exemption process • Thorough and complete Tax Preparer training, tools and access to help • Comprehensive customer support and accurate software content for DIY clients • IRS should revisit 7216 limitations associated with Tax Preparers providing Health Plan enrollment assistance … to help avoid future tax penalties