Great News: Your Obamacare Subsidy Is Probably Too Big |
May 17, 2014 - 9:35 am
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The Washington Post has gotten a hold of some documents that the administration probably hoped would never see the light of day.
Apparently, more than a million people who are receiving subsidies for their Obamacare insurance policies are in for a surprise: the subsidies are either too large or too small.
The problem is that the income reported by more than a million consumers doesn’t match what the IRS has on file. And the procedure to match income with subsidy can’t be implemented because the back-end of the healthcare.gov website still hasn’t been built.
The problem means that potentially hundreds of thousands of people are receiving bigger subsidies than they deserve. They are part of a large group of Americans who listed incomes on their insurance applications that differ significantly — either too low or too high — from those on file with the Internal Revenue Service, documents show.
The government has identified these discrepancies but is stuck at the moment. Under federal rules, consumers are notified if there is a problem with their application and asked to upload or mail in pay stubs or other proof of their income. Only a fraction have done so, according to the documents. And, even when they have, the federal computer system at the heart of the insurance marketplace cannot match this proof with the application because that capability has yet to be built, according to the three individuals.
So piles of unprocessed “proof” documents are sitting in a federal contractor’s Kentucky office, and the government continues to pay insurance subsidies that may be too generous or too meager. Administration officials do not yet know what proportion are overpayments or underpayments. Under current rules, people receiving unwarranted subsidies will be required to return the excess next year.
The inability to make certain the government is paying correct subsidies is a legacy of computer troubles that crippled last fall’s launch of HealthCare.gov and the initial months of the first sign-up period for insurance under the Affordable Care Act. Federal officials and contractors raced to correct most of the technical problems hindering consumers’ ability to choose a health plan. But behind the scenes, important aspects of the Web site remain defective — or simply unfinished.
White House officials recently have begun to focus on the magnitude of income discrepancies. Beyond their concerns regarding overpayments, members of the Obama administration are sensitive because they promised congressional Republicans during budget negotiations last year that a thorough income-verification system would be in place.
Under White House pressure, federal health officials and the contractor, Serco, are this weekend beginning to step up efforts at resolving a variety of inconsistencies that have appeared in applications, including income discrepancies. One White House official, speaking on the condition of anonymity about internal discussions, said that White House and federal health officials are “all on the same page that the issue needs to be resolved as soon as possible.”
In light of this information I call to your attention this statement from CMS that is full of lies from beginning to end:
Julie Bataille, communications director for the Centers for Medicare and Medicaid Services, the agency overseeing the federal insurance exchange, said: “The marketplace has successfully processed tens of millions of pieces of data — everything from Social Security numbers to tribal status to annual income. While most data matched up right away during the application process, we take seriously the cases that require more work and have a system in place to expeditiously resolve these data inconsistencies.”
Bataille also added that “an inconsistency does not mean there is a problem with a consumer’s enrollment” but that the consumer must send in additional documentation to verify whether their application information is accurate. “We’re working every day,” she said, “to make sure individuals and families get the tax credits they deserve and that no one is receiving a tax credit they shouldn’t.”
So, the website has processed a lot of information — except the correct subsidy amount for more than a million people. And there will be nothing “expeditious” about resolving the inconsistencies. CMS won’t even start addressing this problem until the summer.
In fact, at the time the subsidy was determined (late last year), it didn't know what your 2013 income was either. What they're doing is assuming that your 2014 income will be the same as for 2012. So if you declare an income that's very different from two years ago, you will be required to provide "proof" and "pay stubs".
These people live in a world where everyone gets all their income from a steady, salaried job that doesn't vary year to year except for a step increase, and doesn't vary at all month to month. If you change jobs, if you moonlight, if a spouse joins or leaves the work force, if you get a bonus, that changes your household income. If you're a wage worker and your hours are cut, or you work some overtime, that also changes your income. God help you if you're self-employed; you could easily have your income swing by a factor of two or three from month to month, and there's usually no way to predict it a year ahead. These people have no notion of such things.
So the subsidy situation is doomed to be screwed up for most people regardless of what is done on the website. Website or no website, they have no reliable way of "verifying" how much you're going to earn a year ahead. That's the basic problem, and that's written into the law. The technical problems are only providing an excuse that has helped mask this fundamental conceptual screwup.
(In other news, most small business owners and those working on commission have a lot of difficulty projecting our income from year to year. You never know when you're going to land a windfall contract or have a long standing client go belly up - guess no one thought of that.)
In fact, at the time the subsidy was determined (late last year), it didn't know what your 2013 income was either. What they're doing is assuming that your 2014 income will be the same as for 2012. So if you declare an income that's very different from two years ago, you will be required to provide "proof" and "pay stubs".
These people live in a world where everyone gets all their income from a steady, salaried job that doesn't vary year to year except for a step increase, and doesn't vary at all month to month. If you change jobs, if you moonlight, if a spouse joins or leaves the work force, if you get a bonus, that changes your household income. If you're a wage worker and your hours are cut, or you work some overtime, that also changes your income. God help you if you're self-employed; you could easily have your income swing by a factor of two or three from month to month, and there's usually no way to predict it a year ahead. These people have no notion of such things.
So the subsidy situation is doomed to be screwed up for most people regardless of what is done on the website. Website or no website, they have no reliable way of "verifying" how much you're going to earn a year ahead. That's the basic problem, and that's written into the law. The technical problems are only providing an excuse that has helped mask this fundamental conceptual screwup.
The problem is if your income turns out to be higher than you guessed it would be. For example, if you get a raise, if you improve your small business, or if a family member starts working, or you work OT or get a year-end bonus you weren't expecting. Your income goes up, so when you add things up at the end of the year, you are not entitled to the subsidy you thought you'd be entitled to.
In this case, the law has a "clawback" provision: when you do your tax return in April 2015, if it turns out your subsidy was too high, the subsidy amount is added to your 2014 taxes. So you may be out thousands of dollars that you hadn't planned on. (No, this doesn't work in reverse: if your income is less than you thought it would be, the IRS doesn't credit you the added subsidy amount.)
What's worse is that you can end up losing more subsidy money than you gained in additional income, depending on where you live and how much the second-cheapest silver plan available to you costs. For example, you could make $1000 more and lose $6000 in subsidies. (This happens because there is a threshold for each subsidy level, so if you were just under the threshold and your additional income put you just over it, you lose the whole subsidy.)
I personally think the administration will ignore the clawback provision, the same as they've done for other politically unpopular parts of the law.
(In other news, most small business owners and those working on commission have a lot of difficulty projecting our income from year to year. You never know when you're going to land a windfall contract or have a long standing client go belly up - guess no one thought of that.)