In light of the genuine disaster that was the launch of Obamcare last fall, California is hoping to make the renewal process as painless as possible. But in light of foreseeable tax problems associated with auto-renewal, Covered California also hopes to keep consumers informed.
The Los Angeles Times reports that California’s 10 insurers will be sending renewal information to consumers during the last two weeks of October. “Health plans are working with Covered California to streamline renewals,” the President of an industry trade group told the Times.
Part of the streamlining is the auto-renewal process, which will allow anyone who wants to keep their plan to do so without doing much. In fact, those who don’t choose a different plan will be auto-renewed on December 15th.
However, as discussed at length here, there is a problem associated with auto-renewal. Obamacare subsidies not only vary based upon a person’s changing income level, but also based upon the benchmark plan available in the exchange. The benchmark plan is defined as the 2nd cheapest silver plan available. If the cost of that plan drops, those who auto-renew into their old plan (which is now above the cost of the benchmark) could find out later they owe the IRS money.
This problem could be avoided by advising everyone to shop for a new plan every year, but obviously that wouldn’t be very user-friendly. According to a spokesperson for Covered California, the state is trying to walk a line between making it easy and also keeping people fully informed.
In practice that means no one will be able to auto-renew by doing nothing. At a minimum, each person will have to grant Covered CA the ability to verify their income on a federal database before renewing. Those who fail to approve the income check lose their access to subsidies on the exchange. Obviously, with 90% of consumers getting subsidies that would be a big problem. The details of how this income approval will work aren’t fully fleshed out yet, but it will be a requirement.
Having people verify their income is one way to help reduce unexpected changes in subsidy amounts which could lead to tax problems. In addition, Covered CA will be encouraging every consumer to check his or her plan on the website’s shopping tool to make sure their subsidies haven’t changed. Since subsidy calculations are already available on the site, anyone who checks can find out if there has been a change. Doing so is not a requirement for renewal, i.e. people won’t lose subsidies if they don’t do it–it’s just a suggestion for now.
But there is one extra safeguard for those buying at Covered CA. After renewal, the customer will be sent a statement which says how much subsidy they are eligible for going forward. If there has been a shift in the amount of subsidy, the consumer would at least find out about it fairly quickly. Better that than not finding out until the end of the year, when the IRS does a reconciliation.
Covered California is looking to streamline the process, and auto-renewal makes things simple. Do almost nothing (except approving the income verification), and you’ll keep the same plan you had last year. But based on my conversation with Covered CA, the Times may have overstated the degree to which they want this to be a process one can glide through without much thought.
Covered CA is taking a few steps that should help consumers be aware their subsidies could change even if their income has not. The plan as it stands now may not work for every consumer, but things could change as the letters and messages haven’t been finalized yet.