Roughly $200bn taxpayer dollars are at stake if the Internal Revenue Service doesn’t accurately manage the complex tax credits under the Affordable Care Act, two Republican senators said Tuesday.
In a letter addressed to IRS Deputy Commissioner Daniel Werfel, Sens. Tom Coburn, R-Okla., and Orrin Hatch, R-Utah, questioned whether the ACA’s requirements that applicants sign a personal attestation saying they are qualified for tax credits would be enough to reduce the potential for fraud.
“The subsidies are both advanceable and refundable—meaning pay out first and verify later—and [that could result in] improper payments to taxpayers,” the senators wrote.
Coburn and Hatch are particularly concerned after learning that the IRS mishandled up to 25% of Earned Income Tax Credit payments in 2012. The senators said the IRS encouraged taxpayers to use the complicated tax credit, which led to widespread fraud.
“If these health coverage premium tax credits experience an improper payment rate similar to that of the EITC, about $200bn taxpayer dollars could be wasted or lost to fraud,” the senators wrote to Werfel.
However, Howard Goldblatt, director of government affairs for the Coalition Against Insurance Fraud (CAIF), believes the senators are being a bit hasty with their concerns. Goldblatt said the CAIF considers the possibility for ACA tax credit fraud an “open question.”
“I’m not sure it’s going to be as big of a problem as Hatch and Coburn presume it would be,” Goldblatt said. “It’s possible, but with people filing income tax returns, their information is already in the IRS system, so it would be difficult for someone who has filed income at a certain level to then say they don’t have that income.”
Goldblatt acknowledged that the IRS is “built for back-end enforcement,” but doesn’t believe that would inspire people to lie about their income in order to qualify for a federal tax subsidy.
“How many people are caught in tax fraud these days within five months of filing their return?” he said.
Matthew Roy, a New Jersey broker, isn’t so confident the IRS will be as quick at stamping out fraud.
“Eventually someone might get caught, but it will be two years down the road,” he said.
Roy expressed concern that the temptation to misrepresent income in order to gain a subsidy would hurt his small business clients, who may lose the option to offer health insurance if too many employees are tempted away by federal subsidies.
“There are some areas where someone can get a [fraudulent] subsidy even though employers are trying to do everything right,” he said. “The average group size in New Jersey is five people. There are tons of two-and three-employee groups. It’s hard to know how it will play out, but it is a concern of ours.”
