For some individuals and families signing up for ObamaCare, a little fudging can make a big difference in their bank accounts.
In California, for example, a childless married couple stating income of $30,000 would face a $1,000 deductible, $15 per primary care visit and a maximum out-of-pocket cost (after premiums) of $4,500.
But for a couple attesting to $32,000 in income, the deductible would be $3,000, primary care visit $40 and out-of-pocket maximum a hefty $10,400.
Though they are separated by just $2,000 in income, the government might provide the lower-earning family as much as $5,900 more in cost-sharing subsidies to defray deductibles and copays.
For families whose modest incomes put them just on the wrong side of ObamaCare's subsidy cliff at 200% of the poverty level — especially families who expect large medical bills — slightly understating income may be irresistible, and they're pretty certain to get away with it.
Fudging also could enable modest-income families and poor adults who were supposed to be cut off from subsidies to access federal help.
Department of Health and Human Services guidelines imply that any disparities between what a family states as income and what official records show can be ignored if it doesn't exceed 10%. Beyond 10% and the exchanges will provide premium and cost-sharing subsidies on a temporary basis while additional documentation is requested from the applicant.
HHS contracted with Equifax to use its database of 54 million payroll records — out of about 140 million U.S. jobs — for instant verification. When Equifax data aren't available, states will have leeway in ObamaCare's first year to seek further documents from only "a statistically significant sample." For other enrollees, stated income can be taken at face value.
To clarify, the ObamaCare exchanges will only investigate income disparities of more than 10% if income appears to be understated.
Stated income that is higher than tax records show "would generally be accepted without further verification," HHS said.
Officially, households with income below 100% of the poverty level aren't eligible for exchange subsidies. They were supposed to all go to Medicaid — until the Supreme Court ruled that the expansion of Medicaid must be voluntary.
Now in states that declined to expand Medicaid, these individuals — often childless adults — are mostly out of luck. (Arkansas, which got a special HHS waiver Friday, is an exception.) Yet the income-verification procedures mean these poor individuals should be able to sign up and receive exchange subsidies without a hitch.
Won't Have To Repay
If the IRS subsequently finds out that households understated income, any excess premium subsidies can be taken out of federal income tax refunds. On the other hand, any excess subsidies paid out to reduce cost-sharing (deductibles and copays) would be water under the bridge. Households that overstate income would likely be in the clear for both premium and cost-sharing subsidies.
As Boston University health economist Austin Frakt wrote, "It is hard to imagine the IRS auditing lots of poor people because they are claiming their incomes are too high.
Families Get 1-Year Break
Another group expected to be left in the lurch despite the coverage expansion also could get a big ObamaCare break this year — if they shade the truth.
ObamaCare's family penalty — some call it the law's family glitch — is among its most criticized features.
If one spouse is offered individual coverage by an employer that meets the law's affordability test of 9.5% of household income, then the other spouse and their children are ineligible for ObamaCare subsidies.
Lacking such support, families could be forced to spend an un tenable share of income on health coverage (though the children might be eligible for CHIP).
But for now, because the White House delayed employer reporting requirements for a year, the exchanges may be clueless as to whether a worker is offered affordable coverage on the job.
And once coverage is approved, there is no prospect of an audit that would require repayment of premium subsidies, much less cost-sharing support.