Though the Affordable Care Act was rolled out with great fanfare, it has failed to meet expectations primarily due to the complex design of the law’s exchange subsidy programs. With the enactment of the law individuals not covered by government insurance or employer groups can buy health cover protection from private insurers and in turn avail income-based subsidies in the form of advanced payments of a premium tax credit from the government. However, the criteria for availing these subsidies have complicated matters for the individual and have failed to make the law fully effective.

As per the criteria, an individual planning to avail the subsidies needs to estimate their income and family size for the coming year. The ACA permits the individual to adjust the advance payments made for them by the government with the amount of tax credit they are supposed to receive after filing their tax returns. The crux of the problem therefore lies in making a correct estimation. How can an individual predict the family size given that a family may shrink or grow through births, deaths and marriages? Therefore chances of individuals erring on the estimation are always high.

The other major flaw which has added to the complexity is the inability of the government to detect the eligibility of individuals for subsidies. This is because of the absence of a reliable procedure for matching and verifying the information submitted by the applicants and information contained in the federal data base. It is because of this loophole that in 2014, 11 out of 12 false applicants got away with fabricated documents.

The spurious applicants not only received their advanced premium tax credits but also got re-enrolled under the Centers for Medicare and Medicaid Services policy for continuation of subsidies for 2015. Also the methodology of computing advanced credits received with which an individual is actually entitled to, is not well defined because of which the government stands to lose out the most. This is evident in the fact that out of the 4.5 million taxpayers who had to file and reconcile their credits for 2014, 710,000 individuals didn’t even bother to file a tax return.

Nearly 760,000 US citizens filed a tax return without the mandatory Premium Tax Credit Form 8962; while many of those who adhered to the process became victims of bureaucratic oversight. Much of the complicacies can be resolved by introducing an age-adjusted fixed tax credit independent of the income of the individuals purchasing insurance both on and off the exchanges. This would take away the need to guess ones income and family size as well as get rid of the subsidy reconcilement model. This would remove the confusion pertaining to the value of the subsidy and make insurance predictable and transparent. In turn, insurance would become more affordable and individually purchased and employer provided insurance would then on an equal footing in terms of tax treatment.


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