(CNNMoney) — After taking the country to the edge of default, Republicans won virtually no concessions on the law they hate most: Obamacare.
Concerned that Affordable Care Act enrollees will scam the system to get federal subsidies to pay for insurance, the GOP demanded tighter income verification procedures for applicants.
What did they get? Two additional reports from the Department of Health and Human Services.
One will come from the Health Secretary detailing the income checks the insurance exchanges will use. The other will come from the department’s Inspector General reviewing the effectiveness of the verification procedures.
It’s a far cry from the initial demand made by House Republicans — that the Inspector General certify that the system “successfully and consistently verifies” applicants’ income before issuing the subsidies.
Nor did Obamacare foes secure the repeal of the medical device tax. And they got nowhere on banning the federal government from subsidizing health insurance costs of lawmakers, their staff and certain administration officials.
Even with the new verification reports, confirming someone’s income will never be an easy or precise task. That’s because the subsidies are based on the following year’s income, and few people know exactly what they will earn in the future.
The rules, however, are pretty tight, experts say.
Step 1: When signing up for an Obamacare plan on the exchanges, applicants must enter their estimated earnings for the next year. So they apply for federal assistance now by estimating the income they’ll receive in 2014. If they qualify, the subsidies are applied in advance to reduce the cost of their monthly premiums throughout 2014.
Step 2: The estimates are then checked against Internal Revenue Service and Social Security records, looking for large discrepancies. If the amount supplied can’t be confirmed through federal records, it will be checked against wage information employers send to Equifax, a credit reporting agency.
Step 3: If the estimate still can’t be verified, the exchange will request additional documentation from the applicant.
Step 4: Applicants won’t know their exact income until they file their taxes the following year — 2015, in this case. The IRS must then confirm their actual income at that time. If enrollees underestimated their earnings and ended up getting a larger subsidy than they were ultimately eligible for, they’ll have to return part or all of the overpayment.
But last summer, as pressure was mounting to get the exchanges up and running by the October 1 deadline, the Obama administration relaxed the verification rules somewhat.
While applicants in the 36 states using the federal exchange still have to verify all income claims, the states that have built their own exchanges don’t have to check every applicant for 2014, said Timothy Jost, professor of law at Washington and Lee University. Instead, they can choose to only verify a sample of participants.
“Our tax system is largely an honor system,” Jost said. “For most Americans, there’s no way you can verify in advance what your income will be in a year. All you can do is make your best guess.”
In the end, the system won’t guarantee that everyone who receives a subsidy is eligible for one. Some people genuinely won’t know what their future earnings will be, while others will try to game the system.
But they will be caught at tax time, when the IRS reconciles their tax returns with their Obamacare applications, said Jost, noting that applicants can face fines and criminal charges for providing false information.
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