Wednesday, July 9, 2014

How Proposals for Obamacare Subsidies in 2015 Could Cost Taxpayers

In a Think Tank post last week, I explained why the number of unresolved inconsistencies in applications on the federal insurance exchanges probably exceeds the 2.9 million cited in two recent Department of Health and Human Services reports. Recent HHS proposals could allow many income-related inconsistencies to persist in 2015–potentially risking taxpayer funds.

In its proposed rule and related guidance for the 2015 open-enrollment season, the administration made two key decisions about determining re-eligibility for insurance subsidies. First, the guidance indicates that the exchanges would request updated tax return information solely from the IRS to determine eligibility for 2015 subsidies. Currently, the exchanges determine eligibility using information from the Social Security Administration and other income data sources, as well as tax information.

Second, most individuals who do not respond to requests to update their information would remain eligible for subsidies in 2015 at the same amount they received this year. (Their subsidies would not increase because of higher age or any premium changes.) Only individuals whose incomes appear to vastly exceed the thresholds for subsidies—what’s likely to be a “very small” group, HHS said in its guidance–or those who did not authorize the exchanges to review tax return data would not automatically receive subsidies in 2015.

The administration is seeking to streamline the process to determine eligibility, but the HHS inspector general’s investigations found the existing processes to be largely ineffective. An HHS report last week noted nearly 1 million inconsistencies relating to income reporting on applications. Because that includes only the federally run exchanges and only cases handled through Feb. 23, the number of inconsistencies is probably significantly understated. The inspector general’s office also found that HHS had resolved only about 1% of inconsistencies that occurred on the federal exchange between Oct. 1, 2013, and Feb. 23, though the health-reform law requires the department to resolve issues within 90 days.

With 1 million—and probably many more—applications containing inconsistencies over income, further liberalizing the subsidy eligibility criteria could create more problems. At best, individuals with inconsistencies that persist could eventually be forced to repay excess subsidies for 2014 and 2015. At worst, taxpayers could be on the hook for significant amounts of improperly paid subsidies.

This post was originally published at the Wall Street Journal Think Tank blog.