By requiring consumers submit their incomes when applying for a plan sold on the health insurance exchanges, the federal government may be overpaying billions of dollars in premium subsidies.
Some lawmakers have estimated inaccurate incomes, provided intentionally or not, could lead to the U.S. Department of Health and Human Services making $44 billion in improper payments over the next 10 years. Other industry experts claim the overpayments could reach as high as $152 billion, according to a blog post in Health Affairs.
A recent Office of Inspector General report found HHS has been struggling to verify whether consumers who signed up for coverage through HealthCare.gov are actually eligible for the subsidies they received, FierceHealthPayer previously reported. What's more, hundreds of thousands of people may have received larger subsidies than they deserve, due to inaccurate income information.
Premium tax credits are based on consumers' ability to predict their annual incomes, which means an individual must know what he or she will make for all of 2015 when applying for an exchange plan this November. But, for example, many self-employed entrepreneurs don't know how much they'll make in any given year, Timothy Jost, a law professor at Washington & Lee University, wrote in the post.
What's more, if consumers underestimate their income or don't report major life changes like marriage or the birth of a baby, they will have to repay the federal government as part of their income taxes. So some low-income consumers could owe money but have no way to repay it, making collection of overpayments "a major headache" for the Internal Revenue Service, Jost said.
Some Republican lawmakers have proposed solutions to these potential problems. First, the government could repeal employer coverage tax subsidies and replace them with a uniform tax credit available to all consumers regardless of employment status. Under this proposal, the tax credit wouldn't rise with the consumer's income like it does under the current subsidy eligibility process.
Jost suggested that with this option, the tax credit should be set above each market's lowest-cost plan to ensure choice, but not too much above that level to ensure competition. He added that individuals could choose to use their tax credit either to buy coverage in the individual market or through their employer's insured or self-insured plans.
To learn more:
- read the Health Affairs blog post