On Sunday, the New York Times reported that hundreds of thousands of individuals who signed onto health care plans through exchanges established by the Affordable Care Act (ACA) are being contacted to clarify issues regarding eligibility requirements included in the application. Because of these data discrepancies, many beneficiaries, whose income, immigration status, or citizenship status don’t match up with government records, are receiving incorrect federal subsidies that will possibly have to be repaid when 2014 tax returns are filed next year.
These application complications, which are still being ironed out by the Congressional Budget Office and Serco (the federal ObamaCare contractor), are partly driven by one of the many perverse incentives that exist under ACA.
Because federal subsidies operate on a sliding scale – meaning those who earn more annually receive less government assistance than those who earn less – people now have a motivation to report a lower income on their application than they may actually earn. President Obama’s administration neglected to establish a sound verification system to validate income details and ensure the correct payment of subsidies, which ultimately resulted in over one million Americans who qualified for subsidies having income discrepancies. Without a means to confirm qualifications, tax credits could have been doled out to anyone – including an average, middle class individual capable of purchasing health insurance independently without the assistance of the government.
Additionally, sliding scale subsidies, along with other mandates implemented under ACA, have created counterproductive incentives that extend beyond the scope of applications. According to the research of the Wall Street Journal’s David Gamage in 2012, a family of four deciding whether to maintain a part-time job paying $32,000 a year or accept a raise of $12,000 a year to work full-time would be motivated to turn down the raise as they run the risk of losing over $10,000 a year in federal subsidies. Furthermore, employers could save over $3,000 a year avoiding ObamaCare’s mandate penalties by switching low-income employees to part-time positions instead of providing them with company health insurance.
These perverse incentives are creating unnecessary administrative headaches for the federal government and adding to the growing stigma surrounding exchanges that has only been exacerbated by higher premium rates (further explored by TPPF here). If left unattended, these complications could result in taxpayers unnecessarily paying more and more money to a government operating under a faulty and financially draining health care system. As aptly put by Republican Representative Fred Upton from Michigan, “ObamaCare is a seriously flawed law that makes health care coverage less affordable, costs taxpayers more than advertised, and fails to deliver on most of its other grand promises.”
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