The final deal to avert a breach of the debt limit and end the government shutdown included what has been described as a “small concession” to Republicans: tightening the income verification measures for customers on the Obamacare insurance exchanges to qualify for subsidies. But considering the hurdles associated with this step – and the enormous IT problems we’ve already seen with the exchanges – the concession may not be small at all.
As one prominent health care expert tells Salon, the impact could contribute to an attempted sabotage of the law by those who want to see it repealed. Rather than letting the health care law survive “unscathed,” the income verification piece could trigger a new round of headaches for Obamacare, and this time, Republicans – and the country – will be paying attention.
Conservatives have been grumbling for months that Obamacare invites fraud, by using an “honor system” to verify the income levels that determine subsidy amounts on the exchanges. Just last month, House Republicans passed the No Subsidies Without Verification Act 235-191, with all of their members voting in favor. The bill prohibits any subsidies from being distributed until the Inspector General of the Department of Health and Human Services (HHS) certifies that a system of income verification is operational.
HHS did say back in July that they would rely on “self-attestation” to determine the initial subsidy level, with sample audits to verify information. But later, HHS announced the sample size would equal 100% of the population, and that they would test self-reporting against sources like past tax filings and Social Security data. While they haven’t officially changed the regulation, income verification tests are included in the exchange’s data hubs. So you can say that the Republican measure just forces compliance with spelling out the regulations for a full verification regime.
However, there’s another part to this, the simplest and easiest way to ensure that everyone receives the proper subsidy level. It’s called the Internal Revenue Service. Every American sends in a tax return annually showing their exact income level, subject to routine verification by a large government agency. Under Obamacare, the IRS can claw back excess subsidies after the fact, something frequent conservative critic Avik Roy acknowledged in July. He added that “the IRS’ record of impartiality is, shall we say, contested,” and that people in poverty who don’t file tax returns “would probably not be subject” to clawbacks (weasel word alert!). Roy is relying on the discredited IRS scandal here to suggest that the agency wouldn’t do their job when Obamacare recipients (read: Democrats) are involved. But he also takes a very curious stance for a conservative: that the IRS, far from being a group of jack-booted thugs who will stop at nothing to take your money at the barrel of a gun, is simply too lazy to do its job!
“You have to wonder, why isn’t clawback enough,” Paul Starr, Princeton professor and author of Remedy and Reaction, about the legislative fight over Obamacare, told Salon. “This seems to me another form of sabotage.”
Starr’s perspective is borne by the early experience of the exchanges. The federal exchange, which is the Obamacare portal for customers in 34 states, has performed very badly in the opening weeks. Even supporters of the law like the Washington Post’s Ezra Klein has called the rollout a disaster. Not only have potential customers been unable to register for the program after 20 or 30 attempts, those few who have been successful aren’t having their data transferred to insurance companies properly.
“Things are worse behind the curtain than in front of it,” according to health care writer Bob Laszlewski, describing how the system is enrolling and unenrolling customers seemingly at random. If HHS can’t approve subsidies until the Inspector General decides income verification is operational, that would definitely delay subsidies – nothing is operational about the federal exchanges right now. (Subsequent reports about the deal suggest that Health and Human Services Secretary Kathleen Sebelius, and not the Inspector General, would do the certification. But it’s not clear what would have to be tweaked in the process.)
And you have to question whether income verification would ever be operational, and if that’s contributing to the major delays on the exchange website. Accurate, real-time income verification has been a cherished goal for members of the financial services industry for many years; they use this data to determine eligibility for loans of all types. Needless to say, big banks and financial services firms have massive resources relative to the federal government. And they haven’t been able to nail electronic income verification yet; they mostly ask people to mail or fax in forms proving income, rather than submit them through the Web (which leads to losing forms and multiple queries for data and all the rest).
Most of the information you can scrape from payroll or Social Security data would be 6-18 months out of date, especially for the types of part-time workers, freelancers, “unbanked” individuals and self-employed persons who comprise the primary group signing up for Obamacare. Demanding real-time income verification would require technology that doesn’t even exist for the financial sector, and to get it right would add significantly to the already burdensome delays in acquiring insurance coverage on the exchanges. It would also expand costs for IT development exponentially, achieving the neat trick of making Obamacare more costly and more ineffective at the same time.
As noted before, there’s an already existing method of income verification, through the IRS, that stands ready to handle any potential misreporting through clawbacks. In fact, the IRS will have to verify income anyway; people simply don’t have perfect information about their future income, especially part-timers and freelancers and the self-employed. This is how many means-tested programs like Medicare and Medicaid work, and despite the cries of conservatives, fraud in those programs mostly come from health care providers bilking the government rather than individual subscribers.
Instead of using a time-tested process that works (and would work better if Republicans weren’t so dedicated to defunding the IRS), the GOP wants to add this kludgey extra step to an already strained online exchange. The clear goal here is to make it harder to enroll or collapse the insurance exchanges entirely, along with creating the impression that Obamacare customers are automatically freeloaders and cheats, which aligns with conservative demonization of other government programs.
So far, the woes of the insurance exchanges have played in the background of the news, far behind the government shutdown and possible debt limit breach. By embarking on a white-whale quest to defund Obamacare, Tea Party Republicans have ignored the huge PR value of the exchange disaster. Indeed, many people logically assume that the problems with the exchanges are due to the shutdown (they aren’t). The Administration has basically gotten a lifeline on the bad rollout, thanks to the GOP focusing attention elsewhere. That could change with this deal, and the added hurdle of income verification.
Obviously, verifying the income of applicants to determine their proper level of subsidy is critical to Obamacare running smoothly. But there are plenty of ways to do this, particularly through the agency best equipped to verify income. Asking the federal government to perform an impossible technical feat through a shaky online portal is a recipe for further disaster. Senate Democrats made this concession to Republicans in their fiscal deal; House conservatives are well-positioned to exploit it.