Shutdown Deal Won't Affect Health Reform Subsidies

Let’s clear up any confusion:  yesterday’s deal to reopen the government and raise the debt limit doesn’t change the procedures for verifying applicants’ eligibility for new federal health insurance subsidies under health reform.  That’s appropriate, since these procedures are perfectly adequate as they now stand.

Instead, a provision in yesterday’s deal requires the Health and Human Services (HHS) Secretary to certify that the new health insurance marketplaces (formerly called exchanges) are verifying eligibility in a manner that’s consistent with the requirements of health reform (i.e., the Affordable Care Act); at that point, the subsidies can start.  The Secretary must also provide a report to Congress by January 1 that describes the procedures used to verify eligibility.

The provision also requires HHS’ Inspector General (IG) to report to Congress on the effectiveness of those procedures, but that report isn’t due until July 1, giving the IG the time to make a fair assessment.

Here’s how the verification procedures work:

Under health reform, people who buy private coverage through the new marketplaces may qualify for subsidies to help make coverage affordable.  Contrary to critics’ claims that marketplaces will rely on the “honor system” to determine applicants’ eligibility for the subsidies, all marketplaces — both state- and federally run — will rigorously verify applicants’ income and require applicants to provide information on any coverage that employers offer.

All marketplaces must first check the applicant’s reported income against a federal database that contains data on the applicant’s federal income tax returns, as well as information on any Social Security benefits that the applicant claims.  Marketplaces also will compare the applicant’s information with employers’ wage information provided by Equifax, a major credit reporting agency.  If the information that the applicant provides conflicts with the electronic data, the applicant must explain the discrepancy, provide additional documentation, or both.

Complaints about gaps in the income verification process surfaced in July, when HHS simplified the verification process for the small number of cases in which (1) an applicant’s reported income is much lower than the income reported on his or her last tax return, (2) information from electronic data sources isn’t available, and (3) the applicant doesn’t provide a reasonable explanation for the inconsistency.  HHS gave state-run marketplaces the option for 2014 only of accepting the applicant’s “attestation” and requesting further documentation in some rather than all of these cases.  (HHS issued guidance in August explaining that the federal marketplace, which will operate in 34 states, will request followup documentation in all cases.)

For any inaccuracies for a small share of subsidy recipients that could result, a back-up system will come into play in virtually all such cases.  The marketplaces only determine the amount of advance payments of the premium tax credits. The final amount of an individual’s premium credit is determined based on an individual’s actual income for the year that the person reported on his or her tax return, which the person files after the year is over.  Individuals who underreport their income will have to pay back excess advance payments of premium credits when they file their taxes.

Some Republicans sought to include in the budget deal a House-passed bill to bar the federal government from providing any subsidies until HHS’ IG certifies to Congress that “there is in place a program that successfully and consistently verifies” applicants’ information.  But as we have explained, the IG told Congress that it can’t evaluate whether the marketplaces are “successfully and consistently” verifying this information until they’re up and running and there are real cases to audit.