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Will Tax Refunds Spur More Enrollment in Marketplace Plans?

By Rebecca Adams, CQ HealthBeat Associate Editor

January 17, 2014 -- Tax prep companies are predicting that February and March may bring more sign-ups for the marketplace health insurance plans, not only because of the approaching end to the open-enrollment period but also because low-income people may have more money due to tax refunds.

On Jan. 31, the federal income tax filing season will begin. This year, the Internal Revenue Service (IRS) is expected to distribute at least an estimated total of $325 billion in income tax refunds.

One former state government health policy official who now works for a tax prep service says enrollment was lower than it could have been in the fall not only because of technical problems with marketplace websites but also because families who need insurance did not have a lot of extra money lying around.

"One of the most important opportunities for the federal government is to leverage that huge injection of liquidity into taxpayers' pockets," said Brian Haile, senior vice president for health care policy at Jackson Hewitt Tax Service. "When you think about how to get uninsured people into coverage, it's even better when they've got the cash to buy it. The thing that drives me to distraction is the idea you'll be able to compete with Christmas. Nobody's gonna buy it then."

Haile estimates that as many as 90 percent of uninsured households will get refunds.

The average federal income tax refund in the United States was $2,860 in late 2013, according to IRS statistics. People who file earlier in the year tend to have the highest refunds, the data show, because people who will get money back are motivated to file early.

Most tax filers get refunds, according to other IRS statistics. Data from fiscal 2012 showed that more than 80 percent of individual income tax returns generated a refund. A separate breakdown of 2011 tax returns by income categories shows that the vast majority of households with income under $250,000 get refunds, with the percentage getting refunds dropping off a bit as income rises above that amount.

The theory that tax refunds could spur more enrollments is interesting, said Bob Williams, a fellow at the Tax Policy Center, an initiative run by the Urban Institute and the Brookings Institution. But he said that it's not certain how many people who are uninsured will get a tax refund that would put more money in their pockets to pay for insurance.

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