Roberta and Curtis Campbell typically look forward to tax time. Most years, they receive a refund – a little extra cash to pay off credit card bills.

But this year the California couple got a shock:  According to their tax preparer, they owe the IRS more than $6,000.

That’s the money the Campbells received from the federal government last year to make their Obamacare health coverage more affordable. Roberta, unemployed when she signed up for the plan, got a job halfway through the year and Curtis found full-time work. The couple’s total yearly income became too high to qualify for federal subsidies. Now they have to pay all the money all back.

“Oh my goodness, this is just not right,” said Roberta Campbell, who lives in the Sacramento suburb of Roseville. “This is supposed to be a safety net health care and I am getting burned left and right by having used it.”

As tax day approaches, hundreds of thousands of families who enrolled in plans through the insurance marketplaces could be stuck with unexpected tax bills, according to researchers. Those payments could be as high as $11,000, although most would be several hundred dollars, one study found.

The result is frustration and confusion among some working and middle-class taxpayers, whom the Affordable Care Act was specifically intended to help. The repayment obligations could dissuade people from re-enrolling and provide more fuel to Republicans’ continuing push for a repeal of the law.

The problem is that many consumers didn’t realize that the subsidies were based on their total year-end income and couldn’t reliably project what would happen over the course of the year, said Alyene Senger, research associate at The Heritage Foundation, a conservative think tank.

“How do you know if you are going to get that promotion?” she said. “How do you know what your Christmas bonus is going to be?”

In addition, Senger said the government didn’t go out of its way to publicize the tax consequences of receiving too much in federal subsidies. “It isn’t really something the administration focused on heavily,” she said. “It’s not exactly popular.”  

The system was intended to ensure that people received the right amount in subsidies, no more or less than needed. But the means the government chose to reconcile the numbers was the tax system — notorious for its complexity well before the Affordable Care Act passed.

Enrollees who enrolled in Obamacare now are realizing that certain positive life changes – a pay raise, a marriage, a spouse’s new job – can turn out to be a liability at tax time. “We are definitely seeing some pain,” said Jackie Perlman, a principal tax research analyst at H&R Block.

H&R Block released a report Tuesday saying that 52 percent of customers who received health coverage through the insurance marketplaces last year underestimated their income and now owe the government. They estimate that the average subsidy repayment amount is $530.

At the same time, about a third of those enrolled in marketplace coverage overestimated their income and are receiving money back – about $365 on average, the report said.

Under the Affordable Care Act, the federal government made subsidies available to people who earned up to 400 percent of the federal poverty level — about $47,000 for an individual and $63,000 for a couple.  For families who ended up making less than that, the federal government limits any repayments that might be due: The poorest consumers will have to repay no more than $300 and most others no more than $2,500. But the Campbells’ income last year exceeded the limit to receive federal help, so they have pay back the whole amount.

Roberta Campbell said she was only trying to do the right thing. Campbell, now 59, lost her job as a program director for the Arthritis Foundation in late 2012. She and her husband, who was working part-time as a merchandiser, downsized and moved into a smaller house.

They were left uninsured but were mindful of the federal mandate to be covered as of January 2014. So they signed up for a plan through California’s insurance marketplace, Covered California. The plan cost about $1,400 a month, but they were able to qualify for a monthly subsidy of about $1,000.

“We are rule followers,” she said. “We decided to get insurance because we were supposed to get insurance.”

They barely used the coverage. Roberta and Curtis each went to the doctor once for a check-up.  Then, about halfway through the year, Roberta got a job at UC Davis and became insured through the university. Curtis, who had been working part-time, got a full-time job for a magazine distribution company.

They notified Covered California, which Campbell said cancelled the insurance after 30 days. But with the new salaries, his pension from a previous career and a brief period of unemployment compensation, the couple’s year-end income totaled about $85,000, making them ineligible for any subsidies.

Their tax preparer told them they would have been better off not getting insurance at all and just paying the fine for being uninsured. In that case, the Campbells say their financial obligation would have been much smaller – about $850.

“The ironic thing is that we tried to pull ourselves up by our bootstraps,” Curtis Campbell said. “Now they are going to penalize us. It’s frustrating.”

It’s not surprising that the projections people made about their income in 2014 in many cases were incorrect, said Gerald Kominski, director of the UCLA Center for Health Policy Research. The first open enrollment period started in October 2013, meaning that some enrollees based their estimates on what they earned in 2012.

Kominski said that policy experts knew there would be significant “churn” of people whose incomes change throughout the year and who would gain or lose their eligibility for subsidized coverage. But he and others said there was less understanding among consumers about how that could affect their taxes.

With tax season still underway, it not entirely clear how many people will have to repay the government for excess subsidies. But along with the recent H & R block estimates based on the firm’s customers, a UC Berkeley Labor Center study published in Health Affairs  in 2013 suggested the numbers would not be not small.

Nationwide, 6.7 million people enrolled in marketplace exchanges through Obamacare in the first year. About 85 percent of people got federal help paying their insurance premiums.

Using California as a model, labor center chair Ken Jacobs estimated that even if everyone reported income changes to the insurance marketplace during the year, nearly 23 percent of consumers who were eligible for subsidies would have to pay the government back at least some of the amount received. About 9 percent of those receiving subsidies would have to pay the full amount. If no one reported changes, 38 percent would owe money.

The median repayment – if people reported income changes along the way — would be about $243 but some couples could owe more than $11,000, according to the research. The median amount due if people didn’t report the changes during the year would be $750.

“The most important thing for people to do along the way is to report [income] changes so the subsidy amount is adjusted,” Jacobs said.

For those who must repay money, the IRS will allow payment in installments, even after the April 15 tax deadline. Interest will continue accruing, however, until the balance is paid.

Covered California spokesman Dana Howard said he understands paying back excess subsidies puts some in a difficult spot. But he said consumers who think their circumstances might change can decline the money or just take part of it.

Howard also said the subsidies were designed to give the working class and middle class folks a leg up in affording health coverage. So when people get good jobs, he said, they don’t necessarily need the federal help to get insurance.

“When you get that really good fortune, that has to be shared back,” Howard said. “That is just how the ACA law was written.”

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

Making health insurance available and affordable to millions of people who buy their own coverage was a key goal for backers of the federal health law known as Obamacare.

But if the Supreme Court strikes down the insurance subsidies of millions of Americans who rely on the federal insurance marketplace, it could leave many worse off than they were before the law took effect, say experts.

“The doomsday scenario could materialize and it does impact everyone” — those getting subsidies, as well as those paying the full cost of their plans on the individual market in states using the federal exchange, said Christopher Condeluci, an attorney who worked for Iowa Republican Sen. Charles Grassley on the Senate Finance Committee staff during the drafting of the law.

That’s because millions of consumers likely would drop their policies, which they could no longer afford without subsidies.

Most insurers could not drop plans without giving one-to-three months’ notice. But the companies remaining in the market would likely seek sharp increases in premiums for the following year, anticipating that the consumers most likely to hold onto their plans would be those needing medical care.

One Rand analysis projects that unsubsidized premiums could increase by almost half — an average annual increase of $1,600 for a 40-year-old — and that 70 percent of consumers would cancel their policies.

Those price increases, in turn, would drive more people to drop coverage, spurring further price hikes and potentially leading to what insurance experts call “a market death spiral.”

“It’s not the subsidy market that will fall apart, it’s the whole market” for everyone who doesn’t get job-based insurance coverage, said Robert Laszewski, a consultant for the insurance industry who is no fan of the health law. “There will be millions of Republicans who are not subsidy-eligible who are also going to get screwed.”

Legal Arguments

At issue in King v. Burwell  —  slated to be argued before the Supreme Court March 4 — is the basis of subsidies that go to millions of low- and moderate-income Americans in the approximately three dozen states that rely on the federal marketplace.  More than 85 percent of the 8.6 million people who purchased plans in those states qualified for subsidies, administration officials say.

The law’s challengers point to four words in the Affordable Care Act that say subsidies shall be distributed through marketplaces “established by the state.” They argue that that wording bars the government from subsidizing insurance purchased through a federally administered exchange.

Supporters of the law argue that Congress intended the subsidies be available through both federally run and state-run markets, which they say is clear in reading the overall bill.

The ruling would have no effect on the subsidies provided to residents through state-run markets, such as those in California, New York and Washington.

The Obama administration has declined to discuss contingency plans, expressing confidence that it will prevail with the justices. “Congress would not pass a law that 87 percent of folks would not get subsidies, but people in say, New York, would,” Health and Human Services Secretary Sylvia Mathews Burwell said Wednesday.

Experts say Congress could also apply “fixes,” such as voting to allow subsidies to continue through the rest of the year.

But whether a Republican-controlled Congress that has pledged itself to the law’s repeal would agree to that is uncertain.

Aetna spokeswoman Cynthia Michener said the insurer is talking with lawmakers from both parties “about how to make a grand bargain should the Supreme Court decide against federal exchange subsidies.” A decision to strike the subsidies would likely “spur bipartisan action to resolve the issue promptly,” she added.

At the state level, officials could decide to establish state-run marketplaces, but they would have to move fast before the start of open enrollment for 2016, tentatively set to begin Nov. 1.  And lawmakers in many GOP-led states are likely to resist such steps, citing opposition to the law.

Governors in at least five of the states — Louisiana, Mississippi, Nebraska, South Carolina and Wisconsin — told Reuters they would not create their own exchanges if the court invalidated subsidies.

In another four — Georgia, Missouri, Montana and Tennessee — politics could make it very difficult to set up a state program, Reuters reported.

Florida and Texas, where there is strong opposition to the health law, but also large numbers of residents benefitting from subsidized coverage, officials would face even tougher decisions. “Florida has the highest number of enrollees in the federal marketplace and guess who is running for president? The former governor of Florida,” said Condeluci.

That might make Florida lawmakers more agreeable to a solution that would keep subsidies flowing, he said, noting that “Republicans are going to be blamed for the subsidies ceasing.”

‘Nuclear Option’?

Insurers that sell plans in the federal exchange states would find themselves in a drastically changed market.

Joel Ario, a managing director at consultancy Manatt Health Solutions, said insurers are already working on rates for 2016, which are scheduled for submission by April — two months before the court is expected to rule.

Some insurers have asked state regulators if they could submit two sets of rates for 2016, one that would reflect the subsidies being struck, he said. That idea was backed this week in a letter to the Obama administration by the professional society of the nation’s actuaries, who help insurers set rates.

As for the states, Ario estimated that perhaps one third would set up their own markets fairly quickly. If states move at the same rate as they have to expand Medicaid, it could take several years before two-thirds of states have their own markets he said.

Even if insurers wanted to drop coverage immediately in the event the high court struck the subsidies, most could not do so legally. State laws require anywhere from 30 days to 90 days’ notice for an insurer to exit a market. And, if they withdraw, they have to pull all their plans, not just those offered through the federal exchange. Under state rules, they may not be allowed back into the market for years, creating a disincentive to bail out, said Laszewski, whose clients include major insurers.

Many insurers don’t yet have contingency plans, he said, partly because it’s so hard to tell what may happen or what alternatives might be available.

“This is the nuclear option and there really isn’t a contingency plan for nuclear destruction,” Laszewski said.

Others don’t see a ruling against the administration in such dark terms.

“The Supreme Court generally doesn’t go out of its way to wreck the economy or the health system,” said Stuart Butler, a conservative scholar and senior fellow at the Brookings Institution.

He believes the court is likely to offer some temporary remedy, such as a grace period when the subsidies could continue to flow.

“The idea that there will be some cataclysm the day after is extremely unlikely,” Butler said. “We’ll see a number of states moving toward essentially setting up a state exchange. We could still see Texas and a few others saying no. But if two-thirds of states find a way to accommodate it, I don’t see that a critical mass for the collapse of the Affordable Care Act is there.”

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

Buying health care in America is like shopping blindfolded at Macy’s and getting the bill months after you leave the store, economist Uwe Reinhardt likes to say.

A tool that went online Wednesday is supposed to give patients a small peek at the products and prices before they open their wallets.

Got a sore knee? Having a baby? Need a primary-care doctor? Shopping for an MRI scan?

Guroo.org shows the average local cost for 70 common diagnoses and medical tests in most states. That’s the real cost — not “charges” that often get marked down — based on a giant database of what insurance companies actually pay.

OK, this isn’t like Priceline.com for knee replacements. What Guroo hopes to do for consumers is limited so far.

It won’t reflect costs for particular hospitals or doctors, although officials say that’s coming for some. And it doesn’t have much to say initially about the quality of care.

Still, Guroo should shed new light on the country’s opaque, complex and maddening medical bazaar, say consumer advocates.

“This has the potential to be a game-changer,” said Katherine Hempstead, who analyzes health insurance for the Robert Wood Johnson Foundation. “It’s good for uninsured people. It’s good for people with high deductibles. It’s good for any person that’s kind of wondering: If I go to see the doctor for such-and-such, what might happen next?”

Guroo is produced by the Health Care Cost Institute (HCCI) working with three big insurance companies: UnitedHealthcare, Aetna and Humana, soon to be joined by a fourth, Assurant. The idea is to eventually let members of these plans use a companion site to see how differing provider prices affect their co-payments.

A nonprofit known for its cost and utilization reports, HCCI receives some industry funding but is governed by an independent board. This is its first tool for consumers.

Consumer advocates praised Guroo but cautioned that the movement toward “transparency” in medical prices is still in its very early stages. Data on insurer, employer or government Web sites are often limited or inaccurate. Consumer information from Fair Health, which manages another huge commercial insurance database, is organized by procedure code.

Even on Guroo.org, “the average user may not have a good sense of what they’re looking at and what they’re supposed to do with the resulting price,” said Lynn Quincy, a health care specialist at Consumers Union.

HCCI says its prices are what insurers pay for about 70 tests and “bundles” of services described in understandable terms so patients don’t need a medical textbook to figure out what they are. Users get the average as well as a range for local and national prices.

It plans to add more procedures later — all for “shoppable” services that can be scheduled, not emergency treatment of a heart attack.

“This at least arms consumers with information about the range of prices in their community [for] one of these care bundles,” said David Newman, HCCI’s executive director.

If you have a high deductible, for example, you might use Guroo.org as a starting point for checking prices from medical providers if your insurance company doesn’t provide such a tool.

That’s not the same as seeing provider-specific prices online, of course. But within a year, HCCI expects to let members of UnitedHealthcare, Aetna, Assurant and Humana track spending on a companion site and check how switching caregivers could lower their out-of-pocket costs.

Initially Guroo.org doesn’t have much information about quality of care, either, which is essential to help patients to make smart choices. Newman says that is coming, too. It’s also missing information for Alabama, Michigan and several other states.

BlueCross BlueShield of North Carolina set a high standard for disclosure recently by posting prices — doctor by doctor and hospital by hospital — based on its reimbursement rates, Quincy said. Guroo doesn’t do that.

Still, she said, it’s an important step.

Given its size, influence and openness, Guroo could become a dominant portal for health care prices, said Hempstead.

“Their stance as a neutral broker and the amount of data that they have and the amount of data that they’re going to have really puts them in a difference place,” she said.

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.