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Covered California and Obamacare related questions from consumers, employers and agents are answered by Phil Daigle with the best information available at the time. Archived entries may no longer be accurate as the Covered California and Obamacare knowledge-base is evolving quickly. TO REQUEST A PERSONAL RESPONSE INCLUDE EMAIL ADDRESS.


Why Did I Get a Premium Rebate?

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Question: I just received a check from Blue Shield of CA for my 2014 health insurance premium rebate. However, my premiums in 2014 were fully reimbursed by the ACA subsidies. Shouldn’t this check be going to the government, not to me?

Answer: One of the provisions of the Affordable Care Act (Obamacare) is the requirement that insurers, like Blue Shield of California, spend at least 80 percent of premiums on medical expenses to help make certain that consumers get value for their healthcare dollars. If carriers do not meet this Medical Loss Standard (MLR), they are required to pay rebates to eligible subscribers. Blue Shield of California missed the 80 percent target by 3.3 percent of premiums for its Individual and Family Plans in 2014. By law the rebate is paid to the consumer, not the IRS, regardless of the consumer’s net premium.

8 Comments

Or I could recalculate 2014 form 8962 netting the MLR rebate against the premium the insurance company had charged for 2014.

It boils down to this. In my case, the insurance company charged $36 over what the fed would allow (SLCSP). Since the Feds would not pay it, I ended up paying that $36 overcharge.

So I should get to keep $36 of the rebate.

Trouble is nothing I have seen says I am allowed to do that. There is probably another way of looking at it that I have not thought of. And no matter how I look at it, most of the rebate is the Feds.

Unless turbotax revises its software to do the calculation, $36 is not worth worrying about until the normal audit period expires. So I’ll keep $0 and pay the full rebate back as “Other Taxes”.

On the other hand….

My Annual Contribution for Health Care (8962 line 8a) for 2014 was capped at $600. That is calculated ONLY on my income and Federal Poverty Line.

That should not change because of a MLR insurance premium rebate. I should still end up paying $600. The premium over that belongs to the feds so they should get ALL the MLR rebate.

That’s is probably what I will end up doing. Pay 100% of the MLR rebate back, $182 as “Other Taxes.”

Grain of salt at this point….

Most of the instructions on the link are about the months. In my case it is 12 months for both the $182 rebate and the HCTC. $182/12 = $15 x 12 = $182

It is line 6 where in my case the 90% comes in.

Per the link. “6 Multiply Line 5 by 65% (.65) for the HCTC tax credit percentage”.

In my specific case, I believe the “HCTC tax credit percentage” was 90%:

2014 Total Premium Tax credit (form 8962 line 11D) divided by the 2014 Annual premium

$5,400/$6,000 = 90%

$182 x 90% = $164 “Other Taxes” owed.

That makes sense to me. The Feds paid 90% of my annual premium, so they get 90% of the MLR rebate.

Glad I am getting started on this now.

Phil, please remove my previous comment.

I didn’t look at that pdf file closely enough — it seems to be only for those taxpayers who received the HCTC (Health Coverage Tax Credit), which I confused with the ACA premium assistance tax credit. Sorry about that.

Thanks, that’s exactly the info I needed. It looks like the government gets 65% of the MLR rebate. In my case, they paid 100% of the premium, so I don’t know why they wouldn’t get back 100%. But based on that pdf file, it looks like they want only 65%. That’s ok with me. :)

Dear Null, The link you provided in your comment contains instructions for calculating the tax consequences of the MLR (Medical Loss Ratio) rebate - a year-end rebate you may have received from your health insurance carrier. Your comment seems to confuse the MLR with the premium assistance you received when you said “Feds ended up effectively paying 90% of my premium, they get 90% back”. That is not what this link is about.

I finally found something on the IRS website. Since when I filed my 2014 income taxes, the Feds ended up effectively paying 90% of my premium, they get 90% back.

How to “calculate the amount you need to return to the federal government”.
https://www.irs.gov/pub/irs-utl/Medical%20Loss%20Ratio%20(MLR)%20Rebate%20Stuffer.pdf

And “Amounts Recovered for Credits” Publication 525 (2014) Page 25

Unfortunately, the TurboTax Deluxe I bought yesterday doesn’t like it. Entering “HCTC” in 2015 Form 1040, Additional Other Taxes Smart Worksheet, Line o results in error “Other tax description is invalid”.

Thanks, Phil. It is pretty crazy that we should get to keep it when we didn’t pay a thing.

I don’t suppose you have an opinion as to whether this rebate should be considered as taxable income or not? I found this IRS FAQ, however my situation isn’t directly covered. Still, my guess is this is not considered as taxable income. http://www.irs.gov/uac/Medical-Loss-Ratio-%28MLR%29-FAQs

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