Bloomberg News

Health Law Means IRS Quagmire, Former Commissioner Says

September 11, 2012

The U.S. health care law’s process for providing insurance subsidies to middle-income families will produce a “burdensome, costly and frustrating quagmire,” a former Internal Revenue Service commissioner told a congressional committee.

The subsidies, structured as tax credits, are the main method in the 2010 law of helping Americans obtain health insurance. They will be delivered through exchanges -- government-run markets that will connect people with insurance and cover part of the cost through federal payments to insurers. Such exchanges will be operated by states and the Department of Health and Human Services.

The exchanges, which will use income and household data to determine eligibility, will be performing a function that the IRS should be doing instead, former IRS Commissioner Fred Goldberg told a panel of the House Ways and Means Committee today.

“There is no chance the exchanges will get it anywhere near right,” he said.

Goldberg was IRS commissioner in President George H.W. Bush’s administration from 1989 through 1991 and was the Treasury Department’s top tax policy official in 1992. He is now a partner at Skadden, Arps, Slate, Meagher & Flom LLP in Washington.

Affordable Care

The insurance subsidies are a core piece of the Patient Protection and Affordable Care Act that will take effect in 2014. At today’s hearing, Steven Miller, an IRS deputy commissioner, described the subsidies as the agency’s “most substantial” implementation effort and said the process is going well so far.

“We have the processes and structures in place to succeed,” Miller said.

Representative Charles Boustany, a Louisiana Republican, said the IRS’s duties under the health care law are requiring the agency to do much more than its core tax collection function.

In many cases, taxpayers will qualify for subsidies in 2014 based on income they report on their tax returns for 2012, which will be the most recent full year of income data.

Poverty Level

Insurance subsidies will be available for people making up to four times the federal poverty level, or $92,200 for a family of four under this year’s standard. The subsidies, in the form of tax credits, will be paid directly to insurance companies.

On 2014 returns filed in early 2015, taxpayers will reconcile their actual income against the 2012 income they used to determine eligibility.

Goldberg’s written testimony described a number of situations that would cause taxpayers to have different circumstances in 2014 than in 2012 -- such as forming a business, losing a job, becoming disabled or getting a promotion.

“Life’s changes do not follow the bookkeepers’ calendar,” he said.

Taxpayers who receive bigger subsidies than they should have will repay at least some of the money to the government. Republicans want them to pay back all of the extra subsidy.

Taxpayers who would qualify for larger subsidies under their actual 2014 income will receive the extra benefit as a tax cut. Goldberg said in his written testimony he expects taxpayers to claim credits that are too large, either through fraud or because there are economic incentives to do so.

Given his concern about the exchanges run by HHS and the states, he contended the IRS should have more authority, more enforcement tools and should charge interest and penalties for overstating tax credits.

“Decades of IRS experience make clear that the citizens will want our questions answered and our issues resolved promptly, properly and” in clear ways, he said.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


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