IRS Awards Obamacare Premium Tax Credits Without Verifying Citizenship or Lawfully Present Status

IRS also overpaid premium tax credits by $800 million and cannot recover the overpayments

The IRS Building in Washington, DC / Getty Images
July 17, 2017

The Internal Revenue Service awards Obamacare premium tax credits to individuals without verifying that they are legally present in the United States or checking their citizenship status, according to a Government Accountability Office report.

When individuals purchase health insurance in the Obamacare marketplace, they may be eligible to receive a refundable credit that helps them cover their premium. In order to qualify, an individual must be a citizen of the United States or lawfully present.

"IRS officials told us that IRS does not perform compliance checks to verify eligibility based on individuals' citizenship or lawful presence status," the auditors said.

The IRS said that instead of performing the check themselves, they rely on the state and federal marketplaces.

"While information that IRS receives from state and federal marketplaces may be effective in determining whether individuals met citizenship and lawful presence requirements for [premium tax credits], it does not address situations when state or federal marketplaces conditionally provided advance [premium tax credits] on behalf of individuals but subsequently terminated advance [premium tax credits] payments because of failure to prove citizenship or lawful presence," the auditors explained.

Further, if the IRS gives an individual a premium tax credit that is higher than they are supposed to receive, the IRS does not have the ability to recover that overpayment.

In 2016, the IRS paid $800 million more in advance premium tax credits than they were supposed to.

"Federal law limits the amount of excess advance [premium tax credit] overpayments that individuals must repay, based on their household incomes as a percentage of the federal poverty level and filing status," the auditors explain. "As a result, IRS is prohibited from recovering the full amount of excess advance [premium tax credit] payments that may otherwise be due from individuals."

Sometimes the Centers for Medicare and Medicaid Services do not accurately verify the income requirements to ensure that individuals qualify. The auditors note that some individuals may adjust their income to qualify for the tax credit and that the agency does not check for this.

"By not checking potentially overstated income amounts, CMS may be improperly providing advance [premium tax credits] to issuers on behalf of individuals not eligible for the benefit," the auditors explain.

Even though the agency knows that the premium tax credit program is vulnerable to improper payments, the agency said it would not report improper payment estimates until 2022.

"CMS stated that it may not report improper payment estimates for the [premium tax credit] program as required until at least fiscal year 2022 because of the complexity and timing of the process for developing such estimates," the auditors said. "As a result, HHS's overall improper payments estimate will continue to be understated, and Congress and others will continue to lack key payment integrity information for monitoring HHS's improper payments."

The agency says they plan to implement procedures to improve program integrity.

"HHS has expertise in preventing and detecting fraud, waste, and abuse from its other programs and is applying program integrity best practices to the Exchange," said Barbara Clark, the department's Acting Assistant Secretary for Legislation. "As recommended by the GAO, HHS is conducting an Exchange Fraud Risk Assessment."

"HHS has also begun work toward reporting advance payments of premium tax credit improper payment estimates and as part of that process, conducted a risk assessment," she said.

The IRS said they are attempting to use every tool they have to verify eligibility.

"The IRS faces significant challenges administering refundable tax credits given their complex structural design and the difficulty in validating eligibility criteria," said IRS Commissioner John Koskinen."The IRS continues to use every tax administration tool and technique available to verify eligibility for the amount of the credit claimed."