Two recent government reports present conflicting pictures of the implementation of the Affordable Care Act (ACA). On July 16, 2015, Government Accountability Office (GAO) testimony before the Senate Finance Committee entitled Observations on 18 Undercover Tests of Enrollment Controls for Health-Care Coverage and Consumer Subsidies Provided under the Act presents a dismal picture of bungling by the federally facilitated marketplaces (FFMs) in the handling of fictitious applications submitted by the GAO in an undercover investigation.
On the other hand, the National Taxpayer Advocate’s mid-year report, released on July 15, 2015 reports that “Overall, the IRS has done a commendable job of implementing the first stages” of the ACA. The report contains data from 2014 tax filings related to premium tax credits and to individual responsibility penalties.
The Processing Of Fictitious Applications
The GAO report updates testimony submitted to Congress by GAO in July of 2014. In the Spring of 2014, during the first open enrollment period, the GAO submitted a dozen fictitious applications for coverage to the FFMs in three states. A quarter of the applications provided no Social Security number, half submitted invalid Social Security numbers, and a quarter purported to be from noncitizens claiming to be lawfully present in the U.S. Half of the applications were submitted online and half were submitted by telephone.
All of factitious applications submitted online were blocked at the identity proofing stage. All but one of the applications submitted by phone, however, were initially approved — one of the applications without a Social Security number was rejected. The six applications that were blocked online were resubmitted by phone, and all were tentatively approved. The applications submitted by phone were approved because the Department of Health and Human Services (HHS) allows phone applications to be approved based on verbal attestations under penalty of perjury, subject to a request for supporting documentation.
In 10 of the eleven approved applications, the FFM sent written requests for additional supporting documentation (in the 11th, additional information was requested during the telephone application). HHS document requests were unclear and inaccurate as to which documents were needed, however. The GAO sent all of the information requested in about four cases, partial information in four, and no information in three.
In two of the cases the documentation submitted showed income substantially higher than that claimed in the original application, which should have disqualified the applicant from eligibility. In all of the cases, however, the GAO was told that no further documents were needed. Despite the fact that the GAO only sent documents establishing eligibility in four of the cases, eligibility was granted in all of the eleven cases through the end of 2014, both for premium tax credits (worth $30,000) and cost-sharing reduction payments.
All 11 fictitious applicants who had been initially approved were automatically reenrolled for 2015. Notices that the applicants received leading up to the open enrollment period, however, were inconsistent, and in some instances requested additional information due by dates that had already passed. All applicants received form 1095-As reporting their 2014 coverage, but in three cases the reported information was incorrect and in two of these cases the applicant received more than one 1095-A.
Six of the reenrolled fictitious individuals received notices after they were reenrolled for 2015 terminating their coverage, citing failure to supply documents to support their new applications. The remaining five received continued coverage without interruption. In five of the six terminated cases, subsidized coverage was reinstated following a phone call, while the sixth case was turned over to a caseworker and was still pending at the time the investigation was concluded. The five enrollments that were reinstated each saw an increase in premium tax credits (which would not be unusual since the tax credits would have been based on 2015 premiums rather than simply the extended 2014 tax credit amounts that would have been applied at reenrollment).
The GAO also, in the spring of 2014, asked for assistance from navigator and non-navigator assisters on behalf of six additional fictitious applicants. Half of the fictitious applicants had purported income below and half above eligibility levels. The goal of this exercise was to see if the assisters would encourage the applicant to overstate or understate their income—essentially to commit fraud—a real concern at the time when the navigator program was at the center of political controversy. While one navigator correctly told the applicant that the applicant was ineligible, and in another case the navigator gave incorrect advice, in the other four cases the assister simply did not help at all, either telling the applicant that the applicant did not qualify for help or telling the applicant to call back and then not responding to calls.
The report presents a dismal picture of incompetence, carelessness, and lax processes that will no doubt infuriate ACA opponents and embarrass supporters. There are some things that can be said in response, however. First, the report is based on a very tiny sample in a handful of states, and the GAO clearly understood that its results were not at all generalizable.
Second, much of the work was done in the spring of 2014 during the first open enrollment period, when both the FFM and assisters were completely overwhelmed and often confused; indeed often barely functioning. I would imagine, for example, that had the GAO interacted with navigators and assisters in 2015 it would have had a rather different experience.
Third, none of the fictitious persons benefited from the fraud. Had they been real individuals trying to defraud the program by getting medical care, they would have had to show up at doctor’s offices or hospitals with photo identification and a medical history. And they would have had to file tax returns for 2014 or have their coverage terminated for 2016. The GAO admits that it has no evidence of actual fraud.
A larger point is that, as HHS pointed out, the exchange eligibility system is not designed to identify and screen out deliberate fraud and misrepresentation. This is, it seems to me, true of our tax system generally. If the GAO had submitted a dozen tax filings for small businesses claiming fictitious business expenses or underreporting income, I doubt the IRS would have batted an eye.
Indeed Congress in 2011 repealed an ACA provision that would have required businesses to submit 1099 forms for certain purchases which would have provided a check on underreporting of income, even though the repeal was anticipated to cost $25 million in lost tax revenue over 10 years. HHS contractors are instructed to reject documents that have obviously been altered, but not otherwise to establish their authenticity. Authenticating documents in all instances would be a time-consuming and expensive enterprise.
Moreover, HHS faced in 2014 specific limitations in its capacity to detect and deal with fraud in the first year that will, it is hoped, be addressed over time. Because of the delay in implementation of the employer mandate, HHS did not receive any reports from employers or insurers as to insurance coverage for 2014 that could have been used to verify claims on applications.
The 2016 open enrollment process should ensure that re-enrollees have filed tax returns and should take into account their actual reported income for the prior year. It is to be hoped, indeed expected, that HHS contractors are by now better educated and more capable of identifying and responding to obvious problems. HHS has not yet responded to the report, so we do not know what steps they have taken or are taking to address the issues it reveals.
For the first year of marketplace implementation, HHS placed a higher priority on getting people enrolled than on definitively establishing eligibility. HHS stated in response to the GAO report, for instance, that its policy during 2014 was that if individuals sent in at least one document in response to a request for additional documents, they would be seen as complying in “good faith” with the policy. This is to some extent in accord with the policy adopted by Congress in the ACA, which allows online applications without requiring in-person authentication of documents, permits a 90-day grace period for resolving inconsistencies, and allowed HHS to extend the time for resolving inconsistencies in 2014.
The GAO criticizes HHS for not recovering wrongfully paid cost-sharing reduction payments, but the ACA explicitly does not provide for recovery of cost sharing reduction (CSR) payments. HHS did terminate enrollment for over 200,000 enrollees for data inconsistencies by the spring of 2015, but it seems obvious that many questionable enrollments slipped by.
In the end, however, many of the problems identified in the report are simply unacceptable, such as applications being approved without Social Security numbers where they should have been available. HHS needs to do better. Its response to the report will presumably explain how it is doing this.
The National Taxpayer Advocate Report
The IRS received somewhat higher marks from the National Taxpayer Advocate’s office for the 2014 tax year, the first year in which tax returns reflected ACA requirements. The report notes, for example, that the level of service for the ACA telephone hotline was about 68 percent, compared to only 37 percent overall performance for the IRS. The Advocate also found that 13 of the 14 Free File programs accessible through the IRS website accurately calculated the individual responsibility payment owing when they were tested by the Advocate for three different scenarios. The Advocate commented, however, that some of the programs did not explain how they reached their results, passing up an opportunity to educate taxpayers on how the penalty works. The Report notes that the IRS has worked with the Free File Alliance to correct identified issues for the future.
During the 2014 filing season, 2.6 million returns were filed with the 8962 premium tax credit reporting form attached, 2.4 million of which reported the receipt of advance premium tax credits. A total of $8.7 billion in advance premium tax credits were reported and $7.7 billion in tax credits were claimed, an average of $3,000 per return. The report does not explain how the 2.6 million returns relates to the approximately 4 million 1095-A sent out to individuals who reportedly enrolled in coverage with financial assistance through the FFM. The Report does note, however, that some 2014 premium tax credit recipients did not file returns for 2014 and will thus be ineligible for premium tax credits for 2016 until they file a 2014 return.
Far more returns were filed reporting individual shared responsibility (individual mandate) payments or exemptions from the shared responsibility requirement. Ninety-four million returns were filed claiming coverage, while 6.6 million returns were filed with an individual responsibility payment, with payments averaging $190, a total of $1.25 billion. This was about 10 percent more returns than predicted. For those claiming an exemption from the requirement, 10.7 million returns were filed, with 3.2 million of these claiming an exemption for income below the filing threshold and 7.5 million for other reasons.
The Report states that about 300,000 taxpayers overpaid their individual responsibility penalties to the tune of $35 million through April 30. Most did not owe a penalty because of their low income. The average overpayment was about $110. The Taxpayer Advocate recommends that the IRS simply adjust these returns and refund the money rather than requiring amended returns, which would rarely be cost-effective for these small amounts.
Some of the problems identified by the Taxpayer Advocate for 2014 had more to do with HHS or the state exchanges then with the IRS. Errors that HHS identified in 800,000 1095-A advance tax credit reporting forms delayed returns and caused some returns to be filed incorrectly. Late receipt of electronic data from HHS on premium tax credit claims delayed the processing of returns, although the Taxpayer Advocate faulted the IRS for not using paper documentation to continue processing the returns. The Taxpayer Advocate also faulted the IRS for offering taxpayers who were overpaid premium tax credits an incorrect form of penalty relief and for glitches that offset too much or too little in refunds against taxpayers’ individual responsibility penalty liability.
On the whole, however, the IRS performed reasonably well during the first ACA tax filing season despite the severe budget cuts it has had to endure in recent years and the extensive responsibilities it has under the ACA.
No comments:
Post a Comment