Amplifying the Connections Between Health Coverage Enrollment and Tax Filing

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By Zachary Baron | September 2015

This issue brief reflects lessons learned from how consumers handled the new intersections between health coverage and the tax filing process in 2015. Drawing on public data as well as Enroll America’s private survey research and outreach efforts, this issue brief examines the policy framework underpinning the linkages between taxes and health coverage, messaging considerations and opportunities, and effective partnerships to maximize enrollment. Based on this analysis, the report concludes with recommendations for policymakers and other enrollment stakeholders about how to improve the consumer experience.

Introduction

The second open enrollment period (OE2) posed several new opportunities and challenges for the enrollment community, but perhaps none appeared more daunting than the first-ever tax filing season after the key coverage expansion provisions of the Affordable Care Act (ACA) took effect. While enrollment stakeholders could build upon their experience and lessons learned from the first open enrollment period (OE1) to reach the uninsured and encourage existing enrollees to re-enroll for 2015, positioning new marketplace enrollees to be prepared for tax filing and leveraging the power of the tax filing moment to reach the remaining uninsured added an entirely new dynamic.

Taxes and health coverage are now more connected than ever. The tax filing moment creates a particularly powerful opportunity to highlight financial help and capitalize on the real impact of the fine to motivate uninsured consumers to take action. And for many of the same consumers newly eligible for coverage as a result of the ACA, tax season has long played a critical role in advancing their economic security.1 This past tax filing season allowed a unique chance to get the facts out both to uninsured consumers and existing enrollees and glean insights on how to build on successes and improve the process for future years.

In the months leading up to OE2, Enroll America recognized consumers would need support in understanding how their health coverage status (whether they got covered and received financial help,or remained uninsured) would affect them when filing their taxes in 2015. Enroll America employed a variety of different tactics to educate consumers and prepare them for this new aspect of their health coverage, while also encouraging partnerships between assisters and tax preparation experts.

As will be discussed in this issue brief, the 2015 tax filing season created new avenues for the enrollment community to communicate key messages to both uninsured consumers and existing marketplace enrollees at an optimal time of the year when these messages could best break through. In future years, enrollment stakeholders should work diligently enrollees about the need to report income and other household changes, as well as the significant role tax forms and filing play in maintaining coverage. And for the remaining uninsured, messaging should increasingly underscore the growth of the fine when explaining the consequences of going without coverage.

However, while the enrollment community should take such steps regardless, existing policies limit the ability to seize on the close ties between health coverage and tax filing. Policymakers should act swiftly to address this challenge by:

1. In 2016, creating a Special Enrollment Period (SEP) between February 1 and April 30 for consumers facing the fine for not being covered in 2015.

2. In 2017 and beyond, setting the annual marketplace open enrollment period dates as November 15 to March 15, while maintaining the January 1 start to coverage year. See Figure 1.

EA_issue-brief_tax_figure-1-1

Policy Background

The ACA contains several provisions aimed at expanding access to comprehensive and affordable health coverage. Two of its most consequential reforms involved adding new sections to the federal tax code.2

First, the ACA created new refundable premium tax credits to help make monthly coverage through marketplace plans more affordable. Consumers have the option to receive their tax credit in advance, during the coverage year, instead of waiting to receive it as part of their federal tax return the following year. Most consumers opt to receive the credit in advance. If they do so, the credit is sent directly to their marketplace issuer, which lowers the consumer’s monthly premium. Then at tax time, consumers are required to compare the tax credit amount they received, which was based on their projected income, with the tax credit amount they are ultimately eligible to receive, which is based on their actual income for the coverage year.

To help consumers file their taxes, each marketplace is required to send consumers a 1095-A tax form (like a W-2) that lists the tax credit amount paid in advance to their insurer each month they were covered. Consumers must “reconcile” (compare) the amount they received in advance during the year with what they were actually eligible to receive by reporting the advance payments onto the tax return (through form 8962). As a result, they may receive an additional credit on their tax return or need to repay the difference if their circumstances changed during the year.3 Beginning in OE3, consumers who did not appropriately file their federal income taxes following receipt of advance payments of the tax credit (by attaching a completed form 8962 to their tax return) will be unable to continue receiving a tax credit in future years unless they take action. See Figure 2.

Second, the ACA specifies that consumers must maintain health coverage for the entire year. Unless exempt for a specified reason, uninsured consumers are required to pay a fine on their federal income tax return. The fine amount is the greater of a flat fee per uninsured household member or a percentage of household income, and is capped by the national average annual premium of Bronze plans. Consumers must complete form 8965 to claim an exemption from the fine on their tax return. As Figure 3 shows, the fine amount has increased dramatically each year since OE1.

Messages to Leverage the Tax Filing Moment

The 2015 tax filing season created a powerful opportunity for Enroll America and enrollment partners to double down on proven messages regarding financial help and the fine for not having coverage. Heading into OE2, an online survey conducted by Enroll America found that even while most respondents generally knew about the fine, the vast majority (85 percent) underestimated the size of the fine for not being covered in 2015; however, when shown a brochure with the details, 71 percent reported knowing that the fine was greater than $300.4 As a result, Enroll America made a concerted effort throughout OE2 to share detailed information about the size of the fine with consumers as an additional motivator to enroll.

In early 2015, Enroll America started conducting randomized tests regarding the level of detailed information about the fine that consumers who used the Get Covered Calculator would see alongside personalized information estimating the tax credit they could qualify for and premiums for marketplace plans in their area. Although the early results did not suggest that those who saw an estimate of their fine amount or information about the fine were more likely to enroll, the increasing fine amount in 2016 may ultimately prove motivational.5 Enroll America will be conducting further testing and evaluation in OE3 about how to use this information for maximum impact.6

Enroll America Outreach and Website Traffic

Federal and many state policymakers created a time-limited SEP from March 15 through April 30, 2015, for consumers paying a fine on their tax return. Enroll America worked to educate affected consumers through digital outreach (emails and information on its consumer-facing website, GetCoveredAmerica.org) and direct calls to consumers in key states. Consumers proved receptive to outreach that explained that this deadline was their last chance to sign up to avoid a full fine for next year. During phone calls across eight states, 61 percent of consumers had not yet filed their taxes, and over half of people asked (57 percent) were not aware of the fine.7

While substantially lower than enrollment activity during OE2 itself, traffic to GetCoveredAmerica.org during the tax filing SEP far outweighed the traditional interest in between open enrollment periods. Aligning with the SEP plan selection data released by the federal government, which further highlight the importance of year-round outreach, consumer action after OE2 spiked at the very end of the tax filing SEP.8 On average, more than three times as many consumers per day clicked “Enroll Now” on GetCoveredAmerica.org to apply for coverage during the six-week tax filing SEP compared to the subsequent six weeks, starting May 1.

Given the significant increase in the fine amount for consumers who are uninsured in 2016, it will be even more important for the enrollment community to make sure that consumers are aware of the consequences of going without coverage. Not only will they have to pay a fine several times larger than the amount they may have heard about or paid in 2015 (if they do not qualify for an exemption), but they will also be responsible for paying any costs related to receiving medical services during the year.

Maximizing the Power of Partnerships

Enroll America knew that effective planning and partnerships would lay the groundwork for leveraging the tax preparation process as an opportunity to educate consumers and encourage enrollment. After initially forming new relationships near the beginning of tax season to help connect more consumers to coverage, such as with Intuit TurboTax, the Get Covered America campaign responded to the announcement of the tax filing SEP by bringing 159 new community-based organizations, including those participating in the Volunteer Income Tax Assistance (VITA) program, into the orbit of enrollment coalitions in key states. See examples below. Tax-focused partners already serve as trusted messengers for consumers seeking financial help and security; their continued partnership will be crucial in years ahead so that the enrollment community can best help consumers get covered and stay covered.

Partnership with TurboTax for National Consumer Education

Enroll America teamed up with Intuit TurboTax on a consumer education campaign to better prepare consumers to successfully navigate the ACA-related complexities of the tax filing process. TurboTax experts helped Enroll America engage and inform several hundred thousand consumers through blog posts and social media outreach. As part of this partnership, Intuit embedded the Get Covered Connector on the TurboTax website, so that consumers with coverage questions could schedule appointments with in-person assisters to learn more about their insurance options. This resulted in more than 5,700 direct referrals to the Get Covered Connector by the end of April. Enroll America and TurboTax also collaborated on a webinar for enrollment coalition partners on how to best assist consumers who have questions about taxes as they consider their enrollment options.

Partnership with Legal Aid of North Carolina for Local Enrollment Events

In Raleigh, North Carolina, Enroll America staff partnered with Legal Aid of North Carolina (LANC), a Navigator organization that also conducts VITA efforts, regarding the most efficient way to structure a joint tax filing and enrollment assistance event. For example, Enroll America staff screened consumers for potential tax SEP eligibility when they signed into an event at the Hispanic Family Center. Even though only 10 percent of attendees initially came to the event for enrollment assistance, 80 percent met with an in-person assister at the event in addition to an individual providing free tax assistance.

Each of these partnerships reinforces ways to institutionalize enrollment within other key services being provided digitally and within local communities. Additionally, tax-related partnerships demonstrate the ability to identify uninsured consumers who may not be reached through other channels.

Analyzing Tax-Related Data and the Consumer Experience

Public Tax Data

Heading into the 2015 tax filing season, stakeholders were unsure what to expect. While a range of public estimates were released, the enrollment community did not know how many people would pay the fine, how much the fine would cost those paying it, or how the reconciliation process would affect marketplace enrollees receiving the premium tax credit in advance. However, now that the federal government has released preliminary data (through mid-2015), enrollment stakeholders can start digging deeper into how the tax filing process played out across the country.9

  • Premium tax credit helped millions: The data clearly show how millions of Americans benefitted from the new opportunity to receive financial assistance to lower the cost of health coverage. About 2.7 million taxpayers (some of whom filed on behalf of multiple household members) claimed an average premium tax credit of $3,400 on their federal income tax return. Among the 3.2 million taxpayers receiving financial help during the year or through their tax return, around 1.3 million (about 40 percent) claimed an additional credit (on average about $600) on their tax return. Roughly 1.6 million (50 percent) of such taxpayers received excess advance payments of the tax credit during the year, and as a result had to repay some or all of that difference (on average about $800) to the federal government. About 300,000 taxpayers (10 percent) received the appropriate amount of advance payments of the tax credit during the year.
  • Greater education needed concerning relevant tax forms: Preliminary data through the end of May 2015 illustrated that roughly 1.8 million taxpayers still needed to take action to appropriately file their taxes and reconcile the advance payments of the premium tax credit paid out during the year. About 360,000 of these taxpayers filed an extension to allow more time to file their federal income tax return. Approximately 710,000 of these taxpayers had not filed a tax return or sought an extension. And lastly, roughly 760,000 taxpayers filed a tax return, but did not attach a completed form 8962, which was needed to determine the final premium tax credit they were eligible to receive. While the Internal Revenue Service (IRS) and Department of Health and Human Services continue to conduct outreach to contact these consumers, and progress has almost certainly been made in the interim months, this only reinforces the need for the entire enrollment community to raise awareness for consumers about the tax filing moment as the final step needed to receive and maintain financial help through the marketplace. Table 1 describes the relevant tax forms that consumers will interact with if claiming the tax credit or an exemption from the fine.

  • Many paid a fine and claimed exemptions: While the vast majority of consumers filing taxes had health coverage all year, more consumers paid a fine than predicted. Approximately 7.5 million taxpayers paid a fine averaging around $200.10 However, many of these consumers may not have noticed the effect of the fine, as 85 percent still reported an overall refund on their federal taxes. Additionally, about 12 million taxpayers who were without coverage for all or part of the year claimed an exemption on their federal tax return.
  • Tax preparation organizations played a vital role: Separate data released by the Taxpayer Advocate Service (TAS),an independent organization within the IRS, reinforced consumers’ continued reliance on volunteer and commercial tax preparation organizations. TAS reported that a significant proportion of taxpayers completing the relevant tax forms relied on in-person tax preparers to do so: 62 percent of those receiving the premium tax credit and 53 percent of those claiming an exemption.11 Of those consumers preparing their own taxes, many use tax software.12

Enroll America Survey

Enroll America conducted multiple surveys during and after the close of OE2 to better understand how the consumers who interacted with the Get Covered America campaign understood the financial help provided under the ACA and to learn more about how people experienced new aspects of the tax filing process. While not nationally representative, the results nevertheless provide insight into the needs of recent enrollees in order to better navigate the intersection of their health coverage and taxes:

  • Identifying relevant paperwork: Despite surveying consumers in late February/ early March 2015, well after the date by which all 2014 marketplace enrollees should have received their 1095-A forms, almost one-third of respondents who said they were covered during 2014 (the vast majority of whom reported they were receiving a tax credit to lower the cost of coverage) indicated that they had not yet received the form.13 While the federal government indicated that a few 1095-As were sent late to some consumers, these responses suggest that many marketplace enrollees may need greater support to identify the relevant paperwork. With roughly half of all tax returns filed by mid- March, it is imperative that consumers receive timely and accurate forms from the marketplace so that their ability to file taxes appropriately is not delayed.14
  • Awareness of how tax credits and reconciliation work: Survey respondents also demonstrated a continued lack of awareness about how the ACA’s tax credits work — more than 40 percent of those re-enrolling or signing up for the first time during OE2 did not think it was clear that they might owe money back or get additional money on their taxes depending on the accuracy of their income estimate with the marketplace.15 Failure to properly comprehend the basic structure of marketplace financial assistance could create problematic surprises at tax filing time unless more is done to educate consumers on this process, set expectations, and ensure that they can access tax expertise while their tax credit eligibility is being determined or adjusted.

Recommendations

Experiences on the ground and in the digital space by Enroll America and partners during this past tax filing season clearly demonstrate that the tax filing moment remains a powerful opportunity to maximize consumer enrollment. However, action is needed from the entire enrollment community to ensure a smooth consumer experience for existing marketplace enrollees that best positions them to maintain their coverage. And outstanding policy decisions could play a key role maximizing the power of the fine to persuade the remaining uninsured to enroll.

Federal policymakers (and states managing their own marketplaces where applicable) can implement several improvements that would benefit consumers for both this upcoming tax filing season and beyond:

  • Create a Tax SEP in 2016: In 2016, make an SEP available from February 1 through April 30 for consumers who face a fine on their tax return, as general awareness of the fine does not mean consumers grasp the sizeable increase in the fine amount they may face. Give in-person assisters and tax preparer organizations sufficient time in advance to prepare for and coordinate efforts related to this SEP, while still leaning into the importance of the January 31 enrollment deadline. While total enrollment through the tax SEP in 2015 was fairly modest, delaying its start date to mid-March meant losing the opportunity for eligible consumers paying a fine during a particularly busy segment of tax filing season to immediately take action. Additionally, the late announcement in 2015 caused challenges for some in the assister community who had already made plans to diminish their staff and capacity following the close of OE2.
  • Establish New Open Enrollment Dates: For OE4 and beyond, establish November 15 to March 15 as the annual marketplace open enrollment period, while maintaining the January 1 start to the coverage year to reduce administrative complexity. This would capitalize on the ability to magnify the significance of the fine, broaden the availability of in-person assisters (including from tax preparation organizations), and reach the more than half of the total number of consumers who claim refunds when filing their tax returns.16
  • Faciliate Smoother Filing of Forms: Ensure that every marketplace enrollee receives and is better positioned to identify an accurate 1095-A form from their marketplace prior to tax filing season, and allow tax preparer organizations access to a secure online electronic database that will enable them to download such completed forms if given consumer consent. This will make it easier for tax professionals and volunteers to support consumers during the tax filing process.
  • Commit to Data Transparency: Release more in-depth geographic and demographic data regarding marketplace enrollees receiving financial help, paying the fine, and claiming exemptions to help enrollment stakeholders identify the most effective tactics to best serve these consumers.

But these actions by policymakers alone will not be enough. The broader enrollment community, especially in-person assisters, must step up as well to best position consumers to navigate the new intersections between tax filing and health coverage. At a minimum, enrollment stakeholders should:

  • Emphasize the Fine Amount: Reinforce the sizeable increase in the fine amount for uninsured consumers leading up to and during OE3. Consumers who paid a modest fine earlier this year may be unaware of the considerable jump in how much they already owe if lacking coverage for 2015 and the further growth in the fine if they choose not to sign up for 2016.
  • Encourage Reporting of Income and Other Changes: Incorporate messages about the importance of timely reporting of income and other household changes to the marketplace to minimize surprises upon tax filing. Enroll America is pleased that recent improvements to marketplace notices make it easier for consumers to identify the estimated income used by the marketplace in regards to their advance payments of the tax credit. The enrollment community should keep that estimate at the front of consumers’ minds when they experience changes during the coverage year so that enrollees can update their marketplace accounts as needed.
    • In tandem, secure consumer consent to maintain consumer engagement (by phone, email, and/or text) throughout the coverage year to help remind consumers to take action in reporting such changes.
  • Set Expectations: Discuss the significance of completing the appropriate tax forms with every enrollee, including the roadblocks consumers who fail to do so will face upon renewal and how the household income provided on the tax return can be used to inform their current estimate with the marketplace.
  • Build More Extensive Relationships With Tax Preparers: Develop more robust partnerships with tax preparation organizations as part of a comprehensive strategy to prioritize continued outreach efforts, especially if policymakers take action to promote greater alignment in 2016 and beyond between tax filing season and enrollment windows.

Conclusion

Thanks to the ACA’s coverage expansions, millions of Americans are already benefitting from newly available financial assistance associated with the tax filing process. In light of the analysis above, Enroll America recommends that messaging and outreach efforts to engage the remaining uninsured should remain linked to taxes, particularly since the fine is assessed when a consumer files their tax return. Targeted improvements by state and federal policymakers and greater dedication by the wider enrollment community can help make these key connections between coverage and tax filing more simple and consumer-friendly. At the same time, we recognize that there are important trade-offs in regards to creating a new SEP and setting new open enrollment period dates, which should be explored through further conversation and collaboration. Enroll America looks forward to continuing our work in this area and expanding partnerships with other organizations to help consumers navigate the tax filing process.

 


Acknowledgements

This piece was written by Zachary Baron, Senior Policy Analyst, Best Practices Institute.

Assistance was provided by Jennifer Sullivan, Director, Best Practices Institute. The author wishes to thank the following individuals:

  • Joel Bridgeman, Anna Gilbert, Marshall High, Stephanie Palla, Noe Rincon, and Aaron White from Enroll America; and Stan Dorn from the Urban Institute for their input and guidance.
  • William Tomasko, Lynne Venart, and Cynthia Youngblood from Enroll America for their editorial and design support.

Endnotes

See Laura Tach and Kathryn Edin, New York Times (op-ed), When Taxes Aren’t a Drag, Apr. 2015. Available online at: http://www.nytimes.com/2015/04/13/opinion/when-taxes-arent-a-drag.html. 

2 26 U.S.C. §§ 36B, 5000A.

3 The amount enrollees owe back to the federal government is capped under the ACA to provide protections for lower-income consumers. However, for consumers with household incomes above 400 percent of the federal poverty level upon tax filing, they must repay all advance payments of the tax credit paid to their issuer. See 26 CFR § 1.36B-4(a)(3).

4 Enroll America, #Ready4OE2: Providing Consumers With Information That’s Effective, Oct. 2014. Available online at: https://www.enrollamerica.org/blog/2014/10/ready4oe2-providing-consumers-with-information-thats-effective/.

5 Enroll America, Cost Information More Important Than Fine Language Among Calculator Us- ers, Mar. 2015. Available online at: https://s3.amazonaws.com/assets.enrollamerica.org/wp-content/uploads/2015/03/OE2_Calculator_Test.pdf.

6 Furthermore, such testing is not able to account for the potential that results could differ in a situation where a fine has actually been assessed on the tax return and afterwards the consumer is considering their coverage options.

7 These phone calls to consumers whom Enroll America had previously identified as uninsured for part or all of 2014 through previous engagement occurred in Arizona, Georgia, Florida, Michigan, North Carolina, Ohio, Pennsylvania, and Texas.

8 Centers for Medicare and Medicaid Services, 2015 Special Enrollment Period Report – February 23 – June 30, 2015, Aug. 2015. Available online at: https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2015-Fact-sheets-items/2015-08-13.html.

9 Letter From IRS Commissioner John Koskinen to Members of Congress, July 2015. Available online at: http://www.irs.gov/pub/irs-utl/CommissionerLetterlwithcharts.pdf. Each statistic regarding financial help received by marketplace enrollees, fines paid, exemptions claimed, and outstanding tax forms/returns cited in this section is described within this letter.

10 This includes an estimated 300,000 low-income taxpayers who paid a fine despite being eligible to claim an exemption. The IRS has communicated with these taxpayers regarding their options to file an amended federal income tax return.

11 Taxpayer Advocate Service, Objective Report to Congress, Volume 1, Fiscal Year 2016, July 2015. Available online at: http://www.taxpayeradvocate.irs.gov/Media/Default/Docu- ments/2016-JRC/Volume_1.pdf.

12 See Experian, Talking Taxes: Exploring Trends in Tax Preparation and Deductions, Apr. 2012. Available online at: http://www.experian.com/blogs/marketing-forward/2012/04/10/talking-taxes-exploring-trends-in-tax-preparation-and-deductions/.

13 Enroll America’s post-open enrollment survey (n=1,617). February 28 – March 4, 2015. Respondents included a mix of consumers who self-reported being uninsured, signing up for the first time during OE2, and re-enrolling during OE2. Respondents were more likely to be over 55, female, and white (non-Hispanic). Full analysis is available upon request.

14 See Internal Revenue Service, 2015 and Prior Year Filing Season Statistics, last accessed Aug. 2015. Available online at: http://www.irs.gov/uac/2015-and-Prior-Year-Filing-Season-Statistics.

15 Enroll America’s post-open enrollment survey (n=1,617). February 28 – March 4, 2015.

16 For further discussion and rationale regarding the most optimal timing for annual marketplace open enrollment period dates, see Stan Dorn, Urban Institute, Enrollment Periods in 2015 and Beyond: Potential Effects on Program Participation and Administration, Feb. 2015. Available online at: http://www.urban.org/sites/default/files/alfresco/publication-pdfs/2000104-Enrollment-Periods-in-2015-and-Beyond.pdf; Stan Dorn, Mathew Buettgens, and Jay Dev, Urban Institute, Tax Preparation Services: Potential Contributions to ACA Enrollment (forthcoming).

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