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Blunt Wrong on Income Verification

Sen. Roy Blunt falsely claimed the Obama administration had “waived the income verification requirement” of the federal health care law. Blunt said that applicants can lie about their income — “with no way to verify that” — when seeking federal subsidies to help buy health insurance. However, all applicants’ income claims in 2014 will be checked against federal data, and “a statistically significant sample” of suspect applications will be subject to further income verification.

At a July 10 news conference hosted by Senate Republicans critical of the health care law, Blunt claimed there would be no verification — and possibly no penalty — for lying to the government in an attempt to get tax credits to buy insurance on the soon-to-launched exchanges:

Blunt, July 10 (9:20 and 20:39 marks): And you know, the other thing, besides waiving the employer requirement, is they waived the income verification requirement. You all remember that up to 400 percent of poverty [level], you get some assistance in buying your individual insurance, but now you self-verify what your income is. There’s no way that’s a reasonable way to ask people to qualify for a new benefit, that you say what you think your income’s going to be with no way to verify that. …

There’s no IRS check. There’s no — I don’t even know if there are any penalties if you verify wrong. You just say, “Well, I made $80,000 last year as a family,” which is about the cap, is around $80,000 or $90,000 for a family of four. You still get assistance at that level.

The Missouri Republican goes way beyond the facts here. It’s simply not true that there’s “no way to verify” what applicants list as their income on tax credit applications. The insurance exchanges will compare all income figures with federal information, such as tax filings, and will ask for additional information if an applicant doesn’t have a previous tax filing.

Marilyn Tavenner, administrator of the Centers for Medicare and Medicaid Services, which issued the rules on this, explained the process in a “myth vs. fact” post on July 9:

Tavenner, July 9: No matter which type of Marketplace is operating in a state, the Marketplace will always check the income information submitted by individuals against electronic income data sources such as tax filings, Social Security data, and current wage information. In most circumstances, we will request additional documentation from all affected individuals, such as when an individual does not have a tax return on file and attests to an income significantly below current wage data.

A CMS spokesperson told us that applicants would have to submit additional documentation if the IRS had no data on the individual and current income data wasn’t available either.

The new rules (see pages 346-347) state that the “temporarily expanded discretion” for 2014 that’s being given to the exchanges will pertain when an applicants’ “attested annual household income is more than 10 percent below” what is shown by government data, and data on modified adjusted gross income is unavailable, and the explanation from an applicant is “insufficient.”

The rules used to require that the exchanges then seek further verification for all of the suspect applications. Now, the exchanges only have to check “a statistically significant sample of the population that would otherwise be subject to such procedures.”

The language of the rules can be a bit cumbersome, but they match Tavenner’s explanation, which skips the legislative-ese.

Tavenner, July 9: We will request additional documentation from a random sampling of individuals only in the specific circumstance when:

  • Current income information is not available;
  • There is a significant discrepancy between the income reported on an available tax return and the income provided by the individual; and
  • The individual cannot provide an acceptable explanation for this discrepancy.

We asked Blunt’s office how he could claim that the income verification requirement had been “waived” and that there was “no way to verify” what people listed as their income. Spokeswoman Amber Marchand said that checking only a sample of suspect applications gives people the opportunity to potentially get away with lying about their income. Marchand wrote in an email: “Senator Blunt was providing a simple illustration regarding how this massive law could open the door to greater fraud and abuse. As you noted, the new rules mean that the exchanges will now only verify a ‘statistically significant sample’ of those who report more than 10 percent less income than they did before. That’s not everyone. For those who report less than 10 percent, there’s absolutely no check.”

It’s true that if folks want to take the gamble with their fraudulent applications, there’s less of a chance of getting caught — at least right away. But that’s not what Blunt said. Instead, he unequivocally stated that “you say what you think your income’s going to be with no way to verify that.” That’s simply not true. Applications first will be checked against available income data. And applicants committing fraud can be subject to stiff penalties.

The senator went on to claim, “There’s no IRS check,” which is also wrong. The IRS will check what these applications say with 2014 tax returns filed later.

CMS final rule, July 2013: We note that we believe this exercise of enforcement discretion concerning the Exchange’s obligations to verify income information in these specific circumstances is made in the context of all information – including the actual household income amounts for 2014 – being available at the end of the year for the reconciliation performed under section 36B(f) of the Code.

Section 36B(f) of the IRS Code spells out the reconciliation procedure of advance tax credits. It says that “[i]f the advance payments to a taxpayer … exceed the credit allowed … the tax imposed by this chapter for the taxable year shall be increased by the amount of such excess.”

There are limits, however, on how much the IRS can recoup if the individual or family earned more than estimated but still made under 400 percent of the federal poverty level (the threshold for receiving insurance tax credits). That same section of the IRS code goes on to say that an individual earning between 300 percent and 400 percent of the federal poverty level could be liable for up to $1,250 in advance tax credit over-payments, with $2,500 as the limit for families in 2014.

Blunt also said, “I don’t even know if there are any penalties if you verify wrong.” Indeed, there are penalties. Tavenner wrote that violators face “existing penalties for perjury.” Plus, “the health care law applies penalties when an individual provides false or fraudulent information,” she said.

IRS perjury penalties include monetary fines and/or imprisonment. The Affordable Care Act calls for “a civil penalty of not more than $25,000” for providing false or fraudulent information due to “negligence or disregard of any rules or regulations” of the secretary of Health and Human Services. The law goes further for “any person who knowingly and willfully provides false or fraudulent information.” That civil penalty can be as high as $250,000. (See page 286 here.)

Timothy S. Jost, a professor at Washington and Lee University School of Law, who writes a blog about the health care law for the journal Health Affairs, told us: “It is true that they have for the first year somewhat reduced the verification requirements, but it’s in a context of a pretty thorough system of verification and a pretty serious system of penalties.”

— Lori Robertson

Update, Oct. 15: On August 5, CMS said that all suspect applications for the federally run marketplace – not just a “statistically significant” sample of the suspect applications — will face further verification. The state-based exchanges, however, still may impose such requirements on a “statistically significant” sample for 2014. Suspect applications are those in which IRS data is available, the applicant says income is more than 10 percent below IRS and Social Security Administration data, information from Equifax is unavailable, and the applicant doesn’t give a “reasonable explanation” for the difference between federal data and stated income on the application. CMS said of the federal exchange: “Since publication of the final rule, we have ascertained that there are sufficient resources to ask every individual in this circumstance for such documentation with no exceptions.” There are 18 state-based exchanges, though one of those – Utah – will serve only small businesses, using federal help for the individual marketplace.