The Obama administration is trying to quiet growing concern that people will lie about their incomes and other personal information in order to land larger health insurance-premium tax credits, the cash assistance that will help millions pay for coverage next year.
Once health plan enrollment begins on new state insurance exchanges in October, an estimated 7 million people are expected to purchase individual and small-group coverage by the end of March.
The tax credits aim to help low- and moderate-income people pay for big chunks of their premiums. The credits target people with household incomes between 100 percent and 400 percent of the federal poverty level who can't get affordable health insurance from their employers.
Forty-six percent of uninsured adults and 40 percent of those with individual coverage will be eligible for the federal subsidies, according to the consulting firm Avalere Health. The lower an applicant's income, the greater the potential tax credit.
Even though the money will go to insurers and not individuals, congressional Republicans and conservative critics say the application process leaves plenty of wiggle room and incentives for people who want to game the system.
That's because applicants initially will self-report information about their incomes, citizenship and the quality and cost of any workplace coverage, all of which helps determine their eligibility for the tax credits.
Employers were supposed to provide information about workers' health coverage to the Internal Revenue Service, but that requirement was delayed for a year when the Obama administration postponed enforcement of the "employer mandate" on July 2.
Verifying those facts now requires the government to contact employers and ask for the information, which they may or may not provide. That leaves no quick way to determine whether tax credit applicants have access to affordable workplace coverage.
"People are only human. Sometimes they'll fudge in their favor," said Rep. Michael Burgess of Texas, a tea party Republican and staunch Obamacare critic. "I don't know if that's going to be a problem or not, it's just one other wrinkle that someone at some agency needs to be thinking about."
Obamacare supporters say self-reporting is the norm for many government functions, such as income tax returns. And Obama administration officials say the likelihood of health care tax-credit fraud is limited.
"The individual can try to penetrate the system and gain money, but they're not going to get money. The money is going to be sent to the insurer," acting IRS Commissioner Daniel Werfel said in recent congressional testimony. "They're going to get health care, and they might get more affordable health care than they're otherwise eligible for."
Fraud concerns also have been raised about verifying applicants' incomes, citizenship, household sizes and other information that may not be available through other government data sources.
Generally, people below the poverty level aren't eligible for the tax credits. At what point those poorest Americans qualify for Medicaid varies widely from state to state.
However, tax credits can go to legal immigrants with incomes below the poverty line if their immigration status makes them ineligible for Medicaid.
In the first year of operation, federally run exchanges will use a scientific sampling process to weed out applications that understate household income. Income declarations also will be checked against credit reporting bureau data and IRS records.
Suspected cheaters might be asked to submit additional information. Eligibility support workers then would try to confirm that information and might withdraw coverage if it can't be validated, said Marilyn Tavenner, the administrator of the Centers for Medicare & Medicaid Services.
"As soon as we find out that there is a problem, if they're not eligible for tax credits, they would be removed immediately," Tavenner told the House Committee on Energy & Commerce last week.
But that verification process might take up to three months. While reviews are pending, ineligible applicants could receive coverage in qualified health plans and their tax credits already will have been sent to their insurance companies and applied to their premiums. Depending on an applicant's income and family size, the tax credit could exceed $10,000.
The potential for fraud could be heightened by enrollment workers who get paid by the number of people they enroll through the exchanges, Burgess said.
He said that scenario was most likely in the 21 states that wouldn't implement the Affordable Care Act's "Medicaid expansion," which would extend program coverage to people who earn up to 138 percent of the federal poverty level.
"If I'm in an income group that would perhaps qualify for Medicaid expansion, but my state isn't doing it and someone's getting paid $56 per person for everyone they sign up in the exchange, there's an incentive there to say, 'You know what? If you could say you're going to mow a few extra lawns and get your income up to this level, you actually qualify for a subsidy in the exchange,' " Burgess said.
But deterrents exist. People who apply for coverage on the exchanges may face perjury charges for submitting false information. Negligence violations carry a $25,000 fine. Willful violations come with a $250,000 penalty. And ineligible people who get tax credits will have to pay them back when they file their taxes the following year.
Only people with incomes above 400 percent of the federal poverty level will have to pay back the entire amount of a wrongful tax credit issued on their behalf. Those with incomes below that must repay only a portion of the subsidy.
"As long as they will qualify for some subsidy, dishonest individuals have incentive to fudge their income," Chris Jacobs wrote in a recent blog post. He's a senior health policy analyst at the Heritage Foundation, a conservative research center.
Timothy Jost, a law professor at Washington and Lee University who's an Obamacare supporter, said the potential for tax credit fraud was no different from the fraud risk in income tax returns. Both, he said, rely heavily on most people filling out the forms honestly.
Jost said that when lawmakers had the opportunity to cut the fraud risk for businesses in the Affordable Care Act, they balked. A provision of the original 2010 health care act would have required businesses, tax-exempt organizations and government entities to file an IRS form for every vendor that they purchased more than $600 in goods from in a year.
About 40 million businesses would have been subject to the measure, which was expected to generate $22 billion over 10 years to help offset the cost of the health care bill.
But critics said it placed too large a burden on small businesses. Lawmakers from both parties voted to kill the measure and President Barack Obama went along, signing its repeal.
"Basically what they were saying is that 'We're perfectly happy to leave businesses on the honor system even though we're losing $22 billion a year and not all of them are honorable,' " Jost said. "But now all of a sudden low-income people are going to be on the honor system and it's a big problem? What's going on here that businesses are trustworthy, when we know that all of them aren't, but poor people aren't trustworthy?"
By Tony Pugh
McClatchy Washington Bureau