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Sluggish exchange plan users could face big 2016 tax bills

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Current exchange plan users who ignore advice to update their exchange application information could end up owing money to the Internal Revenue Service (IRS) in 2016.

Officials at the Center for Consumer Information and Insurance Oversight (CCIIO) — the arm of the U.S. Department of Health and Human Services (HHS) responsible for running the Patient Protection and Affordable Care Act (PPACA) exchange system — talk about the dangers facing exchange users who fail to update their information in a new 2015 renewal and re-enrollment process slide deck.

The information affects consumers enrolling in coverage through the HHS system.

Low-income consumers have a strong financial incentive to buy through the public exchange system to qualify for new PPACA premium and cost-sharing subsidies available only through the exchange system.

Some high-income consumers may use the public exchange system to support the exchange system, for reasons of convenience, or because they prefer the qualified health plans (QHPs) available through the exchange system to off-exchange products.

If current QHP users have incomes over 500 percent of the federal poverty level (FPL), or have sidestepped the exchange subsidy eligibility verification process by refusing to let the exchange system use IRS income information, they can also go through an automatic re-enrollment process, officials say.

In most cases, moderate-income exchange QHP users who appear in exchange information systems to have reasonably stable incomes can simply sit still and get automatically re-enrolled in coverage.

But QHP issuers are supposed to send enrollees notices about coverage changes in mid-November, and exchanges are supposed to send QHP users notices if they believe the users have gone through income changes or other changes that might affect their eligibility for subsidies.

The government provides the PPACA QHP premium subsidies through tax credits.

If consumers are getting QHPs with premium subsidies this year, IRS information shows the enrollees have gone through big income changes, and those consumers fail to respond to QHP notices to update their 2015 application information, the exchange will renew those consumers in the same plans with the same premium subsidies, officials say.

If the IRS ends up paying those consumers too much subsidy money in 2015, those consumers could find that they have to pay the excess subsidy money back when 2015 tax time rolls around, in early 2016, officials say.

See also: Lawmaker blasts PPACA tax forms.