Instructions For Reconciling Tax Credits, Basic Health Plan Funding Methodology Released

Implementing Health Reform.

Tax Form 8962 Draft Instructions

On October 20, the Internal Revenue Service (IRS) released draft instructions for the 2015 form 8962. Form 8962 is the form that taxpayers use to reconcile the advance premium tax credits (APTC) they have received during a year, based on their projected income and household composition, with the premium tax credits they were in fact entitled to given their actual income and household composition for the year. It is filed together with the taxpayer’s tax return to determine whether the taxpayer will receive additional premium tax credits or pay back excess premium tax credits.

As far as I can tell, the IRS has not yet released the draft 2015 form 8962 itself, but one can infer what it will look like from the instructions (much like the 2014 form 8962). The 2014 draft instructions are three pages longer than the 2014 instructions, however, and deviate from them in a number of details. The draft 2015 instructions, for example, like the 2014 instructions, note that individuals are ineligible for APTC if they were enrolled in minimum essential coverage through their employer or eligible for affordable and adequate employer coverage; however, the draft 2015 instructions further note that the employee will receive a 1095-C form from the employer (a form that was not available in 2014) with information about employer coverage. (Curiously, the instructions do not mention form 1095-B, which a taxpayer might receive from an insurer or government program documenting other forms of minimum essential coverage.)

The 2015 form 8962 will include a separate check box for victims of domestic abuse and spousal abandonment, who are exempt from the otherwise applicable joint filing requirement. The new instructions contain additional directions as to how to address missing or incorrect second lowest-cost silver plan information on the 1095-A. They substantially rearrange and reorganize the instructions for handling shared policy allocations and calculations of premium tax credits during a year of marriage.

Unlike the 2014 instructions, the new instructions explicitly note that individuals who received APTC but who are not lawfully present in the United States or who also received Health Coverage Tax Credits (for example, under the Trade Adjustment Act) are not eligible for APTC and must pay it back. In its second year, the form 8962 and its instructions continue to be works in progress and don’t seem to be settling down.

Basic Health Program Funding Methodology

In other news, the Centers for Medicare and Medicaid Services (CMS) released on October 21 its proposed Basic Health Program federal funding methodology for 2017 and 2018. The Basic Health Program (BHP) gives states an alternative for offering coverage to individuals with incomes between the Medicaid eligibility level (138 percent of the federal poverty level) and 200 percent of the FPL that might better meet the needs of that population. Since two states—Minnesota and New York—are now implementing Basic Health Programs, the methodology is no longer of just theoretical interest.

The goal of the funding methodology is to determine the amount that would have been paid in premium tax credits and cost-sharing reduction payments for enrollees in the BHP had they been enrolled in qualified health plans through the marketplaces, so that the states can be paid 95 percent of that amount to finance the BHP. The proposed 2017 and 2018 funding methodology is essentially identical to the 2016 methodology, which was in turn virtually the same as the 2015 methodology.

The 2017 and 2018 methodology will merely update the 2016 methodology for certain variables such as updated FPLs and inflation adjustments in the applicable percentages of income that individuals must spend on premiums before premium tax credits are applied. I refer the reader to the links above to earlier posts describing previous BHP funding methodologies for further details.