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Senate report finds ‘pay and chase’ Obamacare tax credit failure

By   /   February 8, 2016  /   News  /   No Comments

MADISON, Wis. – The Affordable Care Act has proved less-than-affordable for many consumers.

Now a new report shows the ACA – a.k.a. Obamacare  – is plagued with accountability problems with the tax credits the government hands out, potentially costing taxpayers hundreds of millions of dollars.

U.S. Sen. Ron Johnson, R-Wis., chairman of the Senate Homeland Security and Governmental Affairs Committee, released the report Monday detailing the problems in the distribution of Obamacare tax credits.

“Affordable Care Act Premium Tax Credits: HHS and IRS Lack Plan to Recover Improperly Spent Taxpayer Dollars” focuses on the Centers for Medicare and Medicaid Services’ (CMS) “wasteful practice of distributing cost assistance in the form (of) tax credits to Obamacare enrollees,” according to a press release from Johnson’s office. The Obama administration has distributed the tax credits without first verifying the enrollees’ citizenship or lawful presence in the U.S. – a practice the report describes as “pay and chase.”

AP file photo

LOVE AND LIES: A new Senate Homeland Security and Governmental Affairs Committee report shows Obamacare paid out an estimated $750 million in tax credits before verifying the citizenship or legal residency of recipients.

Johnson’s committee found that CMS, part of the U.S. Department of Health and Human Services, distributed an estimated $750 million of taxpayer-subsidized tax credits to people later unable to prove their citizenship or lawful presence in the country.

A committee investigation, launched in March 2015, found that CMS had awarded Obamacare tax credits “on behalf of more than 500,000 individuals who CMS later determined to be ineligible for coverage and tax credits.”

“This ‘pay and chase’ model has potentially cost taxpayers approximately $750 million,” the report asserts.

CMS spokesman Aaron Albright in an email told Wisconsin Watchdog that the agency has a “robust verification process to make sure that those who are eligible for financial assistance can receive it, while also protecting taxpayer dollars.”

“As a result of that process, we ended coverage for approximately 471,000 consumers with 2015 coverage who failed to produce sufficient documentation on their citizenship or immigration status in the necessary timeframe,” Albright wrote.

Asked how many improperly distributed tax credits the government recovered, Albright referred Wisconsin Watchdog to the IRS. A spokesman for that agency could not be reached for comment Monday evening.

Only U.S. citizens or “lawfully present” individuals qualify for benefits under the law, including premium tax credits and cost sharing reduction subsidies through federal and state exchanges. The exchanges determine who is eligible for the tax credits, the CMS distributes credits and subsidies to insurers on behalf of the beneficiaries, and the IRS is responsible for reconciling the amounts.

Consumers must attest to the information in their applications under penalty of perjury and acknowledge that any overpayment or underpayment of tax credits would be reconciled on their annual tax filings. Providing false information can cost up to $250,000.

“Lack of verification does not mean an individual is ineligible for financial assistance, but only that (an insurance) marketplace did not receive sufficient information to verify eligibility in the time period outlined by law,” Albright said. He added that citizenship and immigration status is verified through the Social Security Administration or the Department of Homeland Security.

Any inconsistencies between the consumer’s application and the federal agency databases require the applicant to submit documentation to resolve the questions. Failing to do so is supposed to cost the consumer their insurance coverage. But the exchange must, by law, provide the applicant with time to provide verification.

The Senate committee investigation found the IRS and the CMS have been unable to “implement an effective plan to recoup credit and subsidies improperly awarded on behalf of people who failed to verify their citizenship, status as a national, or legal presence.”

The report also notes the agencies have failed to coordinate with each other, as evidenced by confusion over what bureaucrats were responsible for recouping funds.

“Even though the IRS ultimately assumed responsibility for the recoupment process, it still lacks an effective plan. Instead, the IRS plans to rely on tax forms that do not solicit the information required to identify or recoup improperly awarded credits,” the report states.

In August, Senate Judiciary Committee Chairman Chuck Grassley, R-Iowa, raised the concern that some exchange customers could falsely estimate their income, and hit an ACA-imposed cap on insurance credit reimbursement.

“It’s unclear how many people might be intentionally underestimating their income to get an overpayment, and whether the statutory repayment cap should be changed to minimize this incentive,” Grassley said, as quoted by the Washington Times. “The challenge is to balance cracking down on the intentional gaming of the credit with fairly treating taxpayers who have been overpaid through no fault of their own.”

Grassley said the loophole in the law could cost taxpayers $350 billion.

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M.D. Kittle is national First Amendment reporter at Watchdog.org. Contact him at [email protected]