Health Insurance Exchange Subsidies–Another Warning Sign???

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.

The top secret Obama administration’s efforts to implement the Affordable Care Act took another strange and unhelpful twist this week with these announcements timed when they apparently hoped no one would notice––one immediately before the holiday and the other on the Friday after.

If I believed in conspiracies, I would really have to wonder about what was going on?

What’s next?


Kudos to Washington Post reporters Sarah Kliff and Sandhya Somashekhar for, as of Sunday evening, 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 wastheir hard work that led them to report insurance subsidies and employer status will be based on the honor system.

Apparently, the Obama administration was hoping no one would be willing to dive into over 600 pages of regulations on a holiday weekend.

The Obama administration came within two Washington Post reporters of being right.

Robert Laszewski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.

12 replies »

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  3. Anyone who receives a premium tax credit is *required* to file a tax return if they otherwise were not required, as per the Internal Revenue Code, § 1.6011–8(a) “Requirement of income tax return for taxpayers who claim the premium tax credit under section 36B. (a) Requirement of return. A taxpayer who receives advance payments of the premium tax credit under section 36B must file an income tax return for that taxable year on or before the fifteenth day of the fourth month following the close of the taxable year.” If you don’t think there is a penalty for not following that requirement, see what happens if you don’t file next year.

  4. The individuals who will be applying for subsidies have by definition an income above the poverty level.

    I would assume that well over half the applicants for subsidies are regular filers of tax returns.

    Why not make them bring in their latest return to get a subsidy?

    If their income has fallen since 2012, they can bring their latest pay stub showing 2013 income to date.

    Of course some people work for cash or do not file returns. There is probably a solution for that minority. There is also a group that may have gotten married or divorced since their last return,

    The subsidies are worth a lot of money, well over $3000 in most cases. What is wrong with requiring a iittle effort to get the subsidy?

  5. I still don’t get the need to convince people, sell people on the idea they should buy an ObamaCare product. A good product sells itself. Anytime a new product comes out that is useful and/or attractive, whether it is affordable or not, people buy it. They lined up on the street when the latest iPhone came out. If the ACA has such a great line of insurance products to sell to the American people, especially if they are truly affordable as the ObamaCare sales and marketing team claims that they are, just publish the information and people will be eager to buy one of these products.

    I’ve noticed that there are a lot of hidden costs in these products in terms of deductibles and co-pays. Eliminate these hidden costs and people will be less reluctant to buy an ObamaCare product. Oh, but that will never happen. All of these hidden costs are how the insurance industry turns a profit. Needless to say, profit by deception has a very short half-life; but apparently, the Obama Administration is totally clueless to this fact.
    Read more at http://www.nakedcapitalism.com/2013/07/obamacare-train-wreck-on-the-twitter-administration-pr-team-launches-google-hangout-to-online-derision-part-ii.html#iTU6ysDRyQRLqOIO.99

  6. No, Peter, it won’t reduce the actual risk. The risk is just going to get spread around, lowering what boomers would otherwise paid, and raising what young people would otherwise have paid, presumably to be offset by these subsidies. Nor will moral hazard disappear. Lots of people will take what they can get out of this system, and if the rates rise as now forecast, this administration will blame it on the industry.

    Lots of the big commercial insurers are sitting out the first round of exchange enrollment, and I’ve not seen anyone yet assay how aggressively Blue Cross, which controls a lot of local insurance markets, is participating. The exchanges will put price pressure on those who participate in them, but do nothing whatever to interfere with insurer market concentration.

    The most alarming part of this post is the inability of the data hub to verify income. It’s one thing not to be able to verify that a person applying for subsidies is not receiving qualifying benefits from an employer. It is quite another to be unable to verify their income.

    That’s an inexcusable performance deficit, and it is irresponsible to be dispensing subsidies without being able to verify that the person actually qualifies for them. We’re just going to be flinging taxpayer dollars (at least a third of which are still borrowed) at people who simply claim them. . ..

    The right thing for the administration to do was postpone implementation of the enrollment for a year until they have their act together. Wait until they try to turn the damned thing on.

  7. I admit that I do not read the Wash Post or the NY Times as often I should —

    but I never saw the emergence of any figure or office that was dedicated and budgeted to getting the exchanges right.

    To paraphrase the old line of Lloyd Bentsen’s….

    .”I have read about Harry Hopkins…….and Ms. Sebelus, you are no Harry Hopkins.”

  8. “The exchanges are better than what we have now.”

    The exchanges will be what we have NOW, but with subsidies. Do you think that “competition” in insurance will reduce their actuarial risk assessment?

    We’re already seeing a minimum 30% premium increase through the exchanges because of Obamacare.

  9. Having been in insurance and underwriting technology for the past 15 years, the integrations that the new exchanges for Obamacare require are quite daunting to say the least. The major reason is that these are services that will be provided by the government (and we all know how efficient they are) and they will contain sensitive data and must use a unique id (typically SSN) to match with records etc. As such, the security required for these integrations is significant and thus the time required for actual integration is extended quite a bit. Now for the IRS specifically, I do believe that they have services available, but the exchanges have to access a bit different set of data than just income verification potentially, but without being directly involved in that I can’t be 100% on that. There are other integrations to government systems like CMS etc. that are also very complex as evidenced by even the most “complete” state exchanges not having actual live integrations even at this late date.

    Also, as identified in the recent delay in the employer mandate, the ability to confirm that a person has been offered coverage by an employer is quite difficult as well, since a majority of employers in the US are small (<50 employees), so collecting this data from the employers AND making it standardized and able to be available in a service is quite daunting as well.

    Overall, having built similar service based platforms like the new exchanges, even the simplest integrations can be daunting from a data standardization perspective and not to mention the security and performance hurdles to make the new exchanges emulate "Amazon" like shopping experiences as we have heard is the final goal of the exchanges.

  10. Anybody how technically complicated pulling taxpayer info from the IRS databases is? For some reason I’m thinking there are other sites that do this kind of thing. What are the technical challenges?

    On the other hand – letting people off the hook in the early stages is a great way of deferring the political pain when the exchanges actually do go live ..

    Most people will tend to underestimate, one would think ..

  11. The exchanges are better than what we have now. At least it will help prevent insurance companies from having the regional monopolies they have now. Still, it’s not as good as having a public option or universal health care.