The following is an
edited article from Forbes written by
Avik Roy, Contributor
Without employer mandate, Feds to rely on applicant
‘attestations’
If you’ve been following the latest news around
Obamacare, you know that on Tuesday evening, just before the Independence Day
holiday, the White House announced that it would be delaying the implementation
of the health law’s employer mandate—requiring all firms with more than 50
employees to provide health coverage to their workers—until 2015.
I, and several others at the time, said “wait a minute.” According to the law, you
aren’t eligible for Obamacare’s subsidies if your employer has offered you what
the government considers “affordable” coverage. But
if employers are no longer going to report whether or not they’ve offered
“affordable” coverage, how can the government verify whether or not workers are
eligible for subsidies?
Now we know the answer. The government is going with what
Kliff and Somashekhar call “the honor system.” “We have concluded that
the…proposed rule is not feasible for implementation for the first year of
operations,” say the Centers for Medicare and Medicaid
Services. “The exchange may accept the applicant’s attestation regarding
enrollment in an eligible employer-sponsored plan…without further verification,
instead of following the procedure in §155.320(d)(3)(iii).”
And it’s not just there. The feds will also allow people
to gain means-tested subsidized coverage on the exchanges without having
to…test their means. “For income verification, for the first year of
operations, we are providing Exchanges with temporarily expanded discretion to
accept an attestation of projected annual household income without further
verification.”
Presumably, since the IRS knows your income, it could
claw back these excess subsidies afterwards, if it chooses to. But the IRS’
record of impartiality is, shall we say, contested. And people who don’t file
tax returns—such as those with incomes below the poverty line—would probably
not be subject to that enforcement mechanism. That’s a route to enhanced
benefits for poor residents of states that don’t expand Medicaid.
Subsidize first, ask questions later?
The goal here is plain as day. The Obama administration
is laser-focused on making sure that enough Americans enroll onto
Obamacare-subsidized health insurance platforms, because if they do, it will be
politically impossible for Republicans to repeal Obamacare in the future.
Politics ain’t beanbag, they say. But deliberately
encouraging tens of billions of dollars of waste, fraud, and abuse in order to
achieve a political objective is profoundly immoral. It’s a breach of faith
with the hard-working taxpayers whose paychecks are being harnessed to a cause
many of them don’t support.
A key ramification of this announcement is what it means
for uninsured people who were slated for Obamacare’s Medicaid expansion, who
live in states that don’t expand Medicaid. Effectively, states no longer need
to expand Medicaid, because this newly Medicaid-eligible population can now
sign up for the exchanges, at no cost to the state, and know that their incomes
won’t be verified by the IRS (because their incomes are too low to file tax
returns).
That is to say, if your income is at 90 percent of the
federal poverty level, and you live in Texas, where the state isn’t expanding
Medicaid, all you have to do is write on the form that your income is actually
105 percent of FPL, and magically, you qualify for the exchange. I could easily
envision certain activist groups signing people up for coverage this way. The
upshot is that it could dramatically increase exchange subsidy spending, but
also lower pressure for the Medicaid expansion.
Fast, accurate income verification presents a
particularly serious difficulty. For one thing, ObamaCare requires subsidies to
be based on family income, not individual income. So the process will have to
include multiple family income streams, which means the government will have to
check spousal salaries when determining eligibility. Tax returns are the most
obvious verification method, but tax returns reveal only what someone made last
year. They don’t reflect the mid-year shifts that ObamaCare was intended to
address, such as job losses that mean people can no longer obtain insurance
through their employers and are newly eligible for subsidies. Yet states will
have to create systems to account for such changes. “States are supposed to
have data systems in place that can figure out this person’s income and if
they’re qualified for federal subsidies and then apply that federal subsidy
quickly to the plan of their choosing,” [James] Capretta says. “That is a
monumental undertaking. I don’t think anyone has any earthly idea how this is
going to happen.”
Sharon Begley of Reuters quotes a number of experts who say that “the IRS will
have a hard time policing that sort of conduct” [misrepresenting one's
eligibility for exchange subsidies]:
“The shift of employees to the exchanges could
cost (the government) a boatload,” said Nicholas Bagley, a law professor at the
University of Michigan. “Some people who are ineligible for subsidies, because
their employer offers affordable insurance, may attempt to get subsidies on the
exchanges. The IRS will have a hard time policing that sort of conduct.”
States
running their own Obamacare exchanges are scrambling to figure out how to deal
with the delay in the employer-reporting requirement.
California,
said spokeswoman Anne Gonzales, “was planning to tap into information from
large employers to verify employee health coverage. The exchange is currently
evaluating how the delay in implementation of the large employer mandate will
impact enrollment and verification.”
Of
course, a good deal of the information Americans send the IRS, such as the
value of the household goods they donated to the Salvation Army, already relies
on the honor system.
“Obviously
the government has made the decision that they’re willing to live with that,”
said Kendra Roberson, a healthcare lawyer at law firm Covington & Burling
LLP, referring to an honor system for these aspects of the 2010 Patient
Protection and Affordable Care Act.
The
honor system may force the government to leave even more money on the table.
The law imposes a penalty of $95, or 1 percent of household income, on people
who fail to obtain coverage. But those whose employer-sponsored policy is
unaffordable – defined as more than 9.5 percent of household income for
purposes of penalty assessment – do not have to pay the penalty even if they do
not buy insurance.
To
check whether someone is truly exempt, the IRS has to know whether the employer
offers coverage and at what price.
“If
the IRS doesn’t have information about the plans large employers offer, it will
be very hard to verify that. It will be an honor system,” said Michigan’s
Bagley. “It could cost the government some money” if individuals elude the
penalty through error or dishonesty.
It’s worth noting that this regulatory change applies to
states that set up their own exchanges, not to the (mostly
Republican-controlled) states that did not. In other words, the states that did
what the Obama administration wanted them to do—set up their own exchanges—are
the ones getting hosed here.
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