Obamacare Subsidy Overpayments: How to Recoup?
Policy + Politics

Obamacare Subsidy Overpayments: How to Recoup?


The battle against Obamacare is still ongoing – and now some conservatives are focusing on the law’s subsidies for low-income people.

Conservative groups warned the House Ways and Means Committee this week that the health care subsidies, which the majority of Obamacare enrollees qualify for, could be a substantial liability to taxpayers. Since the law has such complex rules regulating the subsidies, the groups said it will be hard for the government to recoup overpayments – leading to hundreds of billions in lost tax dollars.

Related: Problems Found with 2 Million Obamacare Signups

Under the law, consumers who receive subsidies that are too high are required to pay them back to the government. This situation might occur if, for instance, a consumer qualifies for a subsidy and then receives a pay raise. That individual’s income would then be higher than originally estimated for the 2014 application process – so when filing their 2014 taxes, the consumer would have to repay a portion of the subsidy.

The problem, according to Douglas Holtz-Eakin, former director of the Congressional Budget Office and now head of the American Action Forum, a center-right policy institute, is the complex rules surrounding the reconciliation process that could make enforcement more difficult, he said.  Those who earn below 200 percent of the federal poverty line (FPL), for example, would not be required to pay back more than $300. Individuals  between 200 and 300 percent of the FPL would only have to pay up to $700.

Meanwhile, those making between 300 and 400 percent of the poverty line are capped at paying a $1,250 limit, and those making four times the poverty level would have to repay the entire subsidy.

“The system [is] essentially unworkable,” said Holtz-Eakin in testimony on Tuesday. He likened the complexities of the subsidies to the Earned Income Tax Credit. “The ACA premium credits are novel, which when paired with a complex design will likely precipitate erroneous payments. The combination of these elements and lax enforcement standards risks error rates on the order of those observed in the EITC program… These erroneous payments will result in enormous budgetary costs.”

Related: Big Increases in Obamacare Premiums and Deductibles Coming in November

Democrats on the committee accused Republicans of trotting out witnesses to “fake outrage” over the subsidy enforcement, using it as their latest campaign strategy ahead of the 2014 midterms.

“It sounds to me as though the testimony of some of the ... witnesses is fear-mongering to make people afraid,” said Rep. Jim McDermott (D-WA).

Still, others have expressed concerns about the Internal Revenue Service’s implementation and enforcement of the law. Earlier this year, the inspector general for the taxing agency warned the IRS may be too overburdened to efficiently enforce the individual mandate, as well as the handful of other new provisions under the law.

“I am deeply concerned about the ability of the IRS to continue to fulfill its mission if the agency lacks adequate funding. Our current level of funding is clearly less than what the agency needs, especially to provide the level of taxpayer services the public has a right to expect,” IRS Commissioner John Koskinen told Congress.

Related: HHS Chief Burwell Confirmed with Strong GOP Support

The warning from conservative groups comes about a week after the Centers for Medicare and Medicaid Services, the agency overseeing the health care law, revealed that there was a wide range of income inconsistencies on roughly 1.2 million insurance exchange applications.

Republicans have called on the administration to stop offering subsidies until “it is able and willing to verify income information and ensure it is not making erroneous payments,” GOP lawmakers on the House Ways and Means Committee wrote in a letter to Treasury Secretary Jack Lew.

Meanwhile, Obamacare advocates say the discrepancies aren’t as big of a deal as Republicans are making them.

Ron Pollack, executive director of Families USA, said the application inconsistencies were “worth examining” but described the concerns as “much ado about very little.”

HHS officials have said they’re already working to fix discrepancies and will continue to do so over the next few months. HHS has created and implemented a system to automatically “turn off” benefits for those enrollees who are found to be ineligible.

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