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Regulation and Compliance > Federal Regulation > IRS

3 PPACA premium tax credit program weak points

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Federal agencies have had to put together a regulatory structure they can use to run the Patient Protection and Affordable Care Act (PPACA) premium tax credit system.

PPACA clearly authorizes the U.S. Department of Health and Human Services (HHS) to work with the U.S. Treasury Department to develop the tax credit system, using a tax refund appropriation, but “the law was not as specific about the transfer of funding authority from this refund appropriation,” according to officials at the HHS Office of Inspector General (HHS OIG) and the Treasury Inspector General for Tax Administration (TIGTA).

See also: 3 possible weaknesses in IRS PPACA planning

HHS OIG monitors HHS and HHS agencies, including the Centers for Medicare & Medicaid & Services, and the CMS Center for Consumer Information and Insurance Oversight (CCIIO). CCIIO manages the HHS commercial health insurance programs created by PPACA.

TIGTA monitors the Internal Revenue Service (IRS).

PPACA drafters created the tax credit to give the government a way to help consumers with incomes from 100 percent to 400 percent of the federal poverty level pay for private health coverage purchased through the new PPACA public health insurance exchange system. Drafters also created a separate, related cost-sharing reduction (CSR) subsidy that helps consumers with incomes of 100 percent to 400 percent of the federal poverty level cover the cost of private health insurance deductibles, coinsurance amounts and co-payments.

Consumers can choose whether to get the tax credit in advance, to pay for coverage while the tax year is still under way, or wait until they file the income tax return for the tax year to get the credit.

The program paid a total of $15.5 billion in tax credit money to 291 exchange qualified health plan (QHP) issuers in 2014, and about $3 billion in CSR subsidy money, according to IRS figures.

HHS and the Treasury Department considered a number of different structures for running the premium tax credit program. They eventually decided to have CMS and the IRS work together to administer the program, with the IRS using a permanent appropriation to fund an allocation account and CMS certifying the payments.

The departments decided to structure the program that way because CMS has a direct relationship with the exchanges and is in the best position to certify the tax credit amounts, and, if the IRS were certifying the amounts, it would really just be using de facto certification information from CMS, according to HHS OIG and TIGTA officials.

See also: Audit: PPACA tax credits vulnerable to fraud

The Office of Management and Budget (OMB) — an Obama administration agency that was previously led by Sylvia Mathews Burwell, who is now the HHS secretary — agreed that having the IRS create an allocation account for CMS was the most logical and efficient way to run the tax credit program, watchdog agency officials say.

For a look at some of the concerns watchdog agency officials expressed it their report, read on.

Blank stares

1. The CMS and IRS have to share the tax credit administration job.

The watchdog agency officials note that each agency is responsible for conducting and documenting internal controls review for its own PPACA tax credit accounting process.

Coordinating the activities of CMS and the IRS may be challenging.

Steve Brill reported in his book about the birth of the exchange system, America’s Bitter Pill, that inter-agency communication can be so difficult in Washington that officials at HHS often had only a vague understanding of what the CMS exchange construction was doing while exchange construction was under way. 

Scared green piggy bank

2. CMS has used allocation accounts before, but the IRS has not.

Originally, watchdog agency officials say, the IRS was not sure whether the allocation account approach was legally. It had to get assurances from OMB that the approach was legally permissible.

See also: Investigators: OMB shares blame for woes 

Crystal ball reader

3. CMS and IRS officials have to guess how much tax credit money CMS will have to pay insurers.

The IRS is supposed to allocate money from a refund appropriation for the premium tax credit program. For fiscal year 2014, for example, the IRS allocated $30 billion, and the amount of tax credit money paid during fiscal year 2014 — from Oct. 1, 2013, through Sept. 30, 2014 — amounted to just $11 billion.

For fiscal year 2015, the IRS has allocated $18.9 billion. CMS has paid only $5.8 billion in tax credit money for the period from Oct. 1, 2014, through Jan. 31, 2015, but officials have noted that, because the program may be different this year than it was a year ago, CMS is not sure how much it can use historical data to predict future funding requirements.

See also: CBO: PPACA will cost 20 percent less than projected


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