In recent years, the Ways and Means Subcommittees on Oversight and Health have held numerous hearings on the implementation of the Affordable Care Act, including the new tax burdens under the law, the improper administration of tax credits, and taxpayer rights. This morning’s hearing will explore the Affordable Care Act’s income and eligibility verification system, which lies at the nexus of all three of these concerns. What is increasingly clear is that even if this system works as it is intended, there is potential for a nightmare scenario during the 2015 tax-filing season.
Under the Affordable Care Act, the Internal Revenue Service will distribute over $1 trillion dollars in new premium subsidies over the next decade. To administer these subsidies accurately the federal government requires precise and timely information about income, family status, the availability of employer-sponsored insurance, and other eligibility information. Yet after implementation delays, failures of healthcare.gov, and poor administration, the federal government lacks this information, but has nonetheless begun to pay out billions of dollars in potentially incorrect premium subsidies.
We know from experience where this story leads, and it does not end well for American taxpayers. The rate of improper payments across the federal government is 4.35 percent. The rate of improper payments for the Earned Income Tax Credit – which, like premium subsides is paid based on income calculations – is approximately 22 percent – the worst error rate in government. If this new subsidy is implemented with the average degree of improper payment – the low end for the IRS – the federal government will pay out over $44 billion in improper payments. If premium subsidies are administered with the same degree of accuracy as the Earned Income Tax Credit, the federal government will pay a whopping $220 billion in improper payments over ten years.
Although these subsidies are going directly to insurers, next year the IRS will be in the position of recouping overpayments directly from individuals. Many of these individuals will end up with unexpected tax debt through no fault of their own – but from simply not understanding the quirks and complexities of the President’s health care law. The rules regarding employer sponsored insurance, for example, can leave a taxpayer owing the IRS the entirety of their subsidy payments.
These are not hypothetical problems in the distant future – these are problems developing right now, and ones that will haunt taxpayers and businesses during the next filing season. I hope today’s hearing will cast new light on these issues, and thank our guests for joining us in this important discussion.