3 PPACA premium tax credit program weak points

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