The Impact of Tax Season on King v. Burwell

December 26th, 2014

King v. Burwell will be argued on March 4, which is approaching the peak of tax season. For the first time, millions of Americans will now be forced to pay a tax penalty, and maybe even have to refund the government for having received too many subsidies. The Times reports on some of the problems that will ensue come April 15.

For instance, most of the 6.7 million people who bought insurance through the exchanges received subsidies, which reduced their monthly premiums. But those subsidies were based on previous years’ income — so people whose incomes have changed will inevitably have to pay some of that money back, while others may receive fatter refunds.

Paying the penalty may also deliver some surprises. People who were uninsured for more than three consecutive months may owe something. (And since the penalty will double next year, now is the time to determine how much that might cost, before it is too late to buy a health policy through a federal or state-run marketplace for 2015.)

Polls show most people are not aware that going uninsured requires paying the government a penalty. I suspect there will be a lot of outrage in March and April as people realize their tax bill goes up because they didn’t buy insurance.

Will this have any impact on the resolution of King v. Burwell? It’s hard to say. On the one hand, it is true that if the subsidies are eliminated in 34 states, the individual mandate effectively vanishes for millions, and there would be no need to pay the tax penalty. On the other hand, if the subsidies are eliminated in 34 states, millions will likely be unable to afford to buy insurance without subsidies, as insurers will exit the market.

But, as for timing, people will start complaining loudly about the tax bill in March and April, during deliberations. Subsidies would not be cut off till September, long after the Supreme Court recesses for the summer. I don’t know how that washes out in the meta-thinking that is the Supreme Court decision making process.