Tax Man Cometh: Obamacare Subsidies Pose Risk for Millions of Tax Filers

Millions of Americans buying insurance in the Obamacare marketplaces could be in for a rude awakening when 2016 rolls around. For one, the cost of insurance in the exchanges is set to rise across the country, in some cases by double digits; in Missouri, for example, insurer Coventry has already asked for a whopping 29% hike on some of its individual insurance products.

But the pain may not hit customers in the price tag alone. Indeed, many Obamacare insurance purchasers are subsidized by the government on the basis of their income, meaning that even when the price of insurance goes up, those consumers usually don't bear the brunt of the hike—the taxpayers subsidizing them do.

At least, that's how it's supposed to work.

According to an update on Obamacare that the IRS recently sent to Congress, out of the 4.5 million taxpayers who got Obamacare's "advance payment" subsidies last year, only 2.7 million had filed the required tax forms as of the end of this May.

The rest filed for an extension (360,000), haven't filed at all (710,000), or didn't submit (760,000) the new ObamaCare form—Form 8962—that's required to make sure they got the right subsidy amount.

These 1.8 million taxpayers actually represent 2.8 million individuals, according to the IRS, because one taxpayer can file on behalf of his or her spouse and children.

In other words, taxpayers who have not filed the proper paperwork for their subsidies—or those whose income has moved them out of the subsidy range—might not only lose that money next year, but also have to return subsidies they have already received incorrectly. And in case you were wondering whether the government would really demand subsidy money back, rest assured: it's already happening. Not only could subsidized consumers see hikes in their insurance rates for insurance they're now forced to buy, but they could suddenly experience those costs without the financial insulation that had been provided to them by the government. 

Rather than simplify America's already complicated health care system, Obamacare made it even more complex, and that hurts the poor and those unaware of how this Rube Goldberg–style law operates. That complexity could lead to a new round of negative financial consequences for millions of Americans in the months ahead.