Lack Of Income Verification For Exchange Subsidies Raises Questions

Come October, millions of people will be applying for tens of billions of dollars in federal health insurance premium subsidies on the honor system.

On the Friday after the Fourth of July––when the administration apparently hoped no one would be paying attention––the Obama administration dropped 606 pages of regulations. Buried inside was the news that that insurance exchanges can ignore any personal income information they get from the Federal Data Hub during 2014 if it conflicts with “attestations” made by individuals.

That came three days after the administration announced it was putting the employer mandate on hold––and therefore not requiring detailed information from employers regarding the health plans they offer to their workers. The administration said the delay was because of the burden the reporting put on employers. But, was the administration ready to handle the data?

Because there will be no employer reporting in 2014, the administration also said in the Friday regs that the new health insurance exchanges “may accept the applicants attestation regarding enrollment in eligible employer-sponsored plan…without verification.” Given the incredibly complex “ObamaCare” 60%/9.5% employer benefit eligibility rule, that will be a challenge for most citizens.

But here’s the biggest deal in the new “ObamaCare” regulation: The exchanges are to rely upon the applicant’s statement regarding their income the vast majority of the time. Instead of requiring proof of their income, as had been expected when the Federal Data Hub couldn’t verify someone’s representation, the exchanges will only do a formal check on a “statistically valid sample” of applications.”

For those not part of this “statistically valid sample,” “the exchange may accept the attestation of projected annual household income without any further verification.”

Apparently, millions of people will receive tens of billions of federal premium subsidy dollars “without any further verification.”

It would appear that the administration is going to rely upon subsequent 2014 tax filings, made in early 2015, to reconcile what it paid people compared to what they were actually eligible for.

That presents some big issues.

First, tens of thousands of new “navigators” will be helping people sign up for health insurance. I am sure the vast majority will be well meaning––but about all will be very inexperienced and likely most concerned about getting the maximum benefit they can get for their “clients.”

I can imagine lots of ways the new system can be gamed to get at taxpayer money.

I can also imagine lots of innocent consumers getting their subsidy all bollixed up on the front-end (Do you know your likely “modified adjusted gross income” for 2014?) only to get hit with a whopper tax bill when they finally reconcile all of this on their 2014 tax return. For example, a family of four getting subsidies based upon 200% of the poverty level but ending up making 250% of the poverty level for the year, would see a retroactive liability of about $1,700 on their tax return because of subsidy overpayments.

That begs another question: What happens if subsidy recipients don’t file a tax return––as millions of Americans now don’t––for 2014?

Two of the essential things the Federal Data Hub was supposed to be able to do was to determine and report to the exchange if a person was eligible for a qualifying employer plan and to be able to feed an individual’s income history to the exchanges to help determine the amount of subsidy they would be eligible for.

As of the week of the Fourth of July, it would appear the Federal Data Hub will be doing neither of these things––or at least not doing them to the extent they can be relied upon.

That begs yet another question: Is the Federal Data Hub not working as intended?

Now let’s be clear. Any administration that tried to launch a refundable tax credit system was going to run into many of these kinds of challenges. George H.W. Bush proposed such a system, as did George W. Bush, and so did Presidential candidate John McCain––albeit nowhere near as complicated as “ObamaCare.”

For me the big problem with this administration is how opaque they have been in trying to launch all of this instead of being forthcoming on what they––and the stakeholders who have to work with them––need to be ready to face. It also doesn’t help that they waited until the day after the November election to really kick this process into high gear. Nor, does it help their cause to continually tell us there are no problems when everyone knows something is going on.

What’s next?

Kudos to Washington Post reporters Sarah Kliff and Sandhya Somashekhar for being the only reporters who had gone through the 606-page federal regulation the Obama administration dropped the Friday after the Fourth of July. It was their hard work that led them to report insurance subsidies and employer status will be based on the honor system.

Robert Laszewski serves as the president of Health Policy and Strategy Associates of Alexandria, Va. A version of this article was originally published at the Health Policy and MarketPlace Blog.