The Infinite Bewilderment of Signing Up for Obamacare Subsidies

You thought there was nothing worse than doing your taxes. You were wrong.


Having spent quite some time last week deep in the weeds of Obamacare, whacking my way through the burrs and brush of its extensive questionnaires with a story subject, I am here to tell you two things. First, it is confusing. Second, every little bit of misinformation and confusion matters.

The main reason the uninsured give for not buying insurance after visiting the new Obamacare websites is that they're not certain if they can afford a plan, according to a report Monday by the Commonwealth Fund's Affordable Care Act Tracking Survey. You might hope to answer this question easily with a few pieces of information and a calculator. But you can't.

Take, for example, the site, the largest private exchange for purchasing health insurance in America. It's has put together a user-friendly calculator allowing people who are having trouble with or the state health-insurance-exchange sites to get a sense of whether or not they are eligible for subsidies under Obamacare. Reporters have started using the information from the calculator to debunk Obamacare horror stories. Regular people have started using it to think about what they're eligible for. The online insurance company offered just last week to take over the "shopping and enrollment process in all 36 federal exchange states—without cost to the taxpayer" while is getting fixed. The company is a licensed partner of the Department of Health and Human Services, and it's becoming a place where people can actually buy federal-subsidy-eligible insurance plans.
But until Friday night, its existing subsidy calculator (screenshot, above) was wrong. Right there, where it asked people for income, it clarified that it was asking for taxable income. But Obamacare subsidies are not calculated using taxable income (line 43 on a Form 1040). According to the IRS and Kaiser Family Foundation Vice President Gary Claxton, they are calculated using something called MAGI: modified adjusted gross income (which is basically line 37, with some minor modifications).
The difference between the two figures is that the income on which you pay a tax has already been reduced by the amount of either Schedule A itemized deductions, or the standard deductions. The net result is that if people use this calculator and enter their taxable income into it, they will think they are eligible for subsidies of a certain size—or maybe even eligible for subsidies at all—when they in fact are not, because they will be working from the wrong version of what their income is.
Nate Purpura, director of communications for eHealth, said the calculator was not supposed to be totally accurate. "This is one of those things where its really hard to calculate for everyone," he told me. "It's not perfect. It's an estimator, and we try to really explain how this works in the longer disclaimer."
Prompted by a call from The Atlantic, the company added a link from their calculator to a page talking about MAGI over the weekend.  That sort of fixes the problem, but only for people who normally go two clicks in on a site, which as everyone who works on the web knows only a small minority of them.
The situation is not much better over at the Kaiser Family Foundation's subsidy calculator, which is, by reputation, the best independent mechanism people can use to get a sense of whether they are eligible for subsidies or not:

As you can see, the calculator asks for total household income. But, as I discovered last week, this is easier said than done for people who work as freelancers, contractors and the like—precisely the sort of self-employed people you're most likely to find in the individual insurance market. The difference between gross income and adjusted gross income is not going to be huge for most people who are lower- to middle-class and get paid through W2s. But for people paid through 1099s and piecemeal work, adjusted gross income can be thousands of dollars lower than gross income, since it's the figure that comes after all the Schedule C deductions (such as for home office, internet, business use of a phone, computer equipment, etc.).

Forms that are not precise about what constitutes income for the purposes of calculating the subsidy make the process of figuring out eligibility for Obamacare subsidies as confusing as doing your taxes without an accountant, TurboTax or that fat newsprint book of instructions from the IRS.

To Kaiser's credit, if you check its FAQ, it does explain the MAGI situation. But for individuals who are perhaps not so good at doing their own taxes, this is still not the world's clearest explanation. Not to mention the fact that it asks people to predict their 2014 income, when at this point in the year they are often still trying to figure out what it was for 2013, because of all the Schedule C deductions. (If you've never lived in the world of piecework and Schedule C deductions, imagine saving all your expense receipts for an entire year and then having to do them before you can begin to calculate what your MAGI is. This is, in fact, exactly what has to happen.)

The New York State of Health exchange run by New York seems to be doing a pretty solid job of enrolling people in the new plans. But here again we see a calculator—and an application—that hardly seem optimized for self-employed individuals. Here's their calculator, which you have to download as an Excel file.

Note how this page also erroneously asks for taxable income. The site is trying to speak plain English. The result is confusing rather than illuminating.

The real New York State of Health application, on the other hand, is much more specific, according to the below screengrab sent to me by someone trying to fill it out. Individuals used to getting paid for work piecemeal are asked to imagine themselves as businesses filling out reports of sales, rents, royalties, inventory, and monthly business expenses.

Note: They are effectively being asked to calculate their quarterly adjusted gross income, which is to say, to do their taxes. Right there, in the application form. (And also ignore that the year is standardized to 2014 when it is still 2013.)

These applications and calculators make IRS forms, smoothed out over years of use by millions of people, look well designed. How will a person who gets paid by 1099s know to gather up three months of them and then subtract all her work expenses, and that this is the right thing to do? Will she know from the above that she also can deduct part of her self-employment taxes, as well as the cost of the tax-deductible part of what she's already been paying for health insurance, as instructed by this great MAGI description from UC-Berkeley's Labor Center? No. None of this is transparent.

In short, for the self-employed, applying for Obamacare subsidies can be as much fun as doing your taxes, because—depending on the state forms—it can actually involve doing part of your taxes. But without any of the user-friendly infrastructure the IRS has developed over decades, and the careful and precise attention to detail of that agency, there's a high risk that people using these systems will spend days wandering fruitlessly in the weeds before figuring out what they are supposed to do to proceed, or if they're eligible for subsidies, in the first place.