IRS Inspector General Says Obamacare Subsidies Susceptible to Fraud


credit: elhombredenegro / Foter.com / CC BY

The Internal Revenue Service (IRS) doesn't have a strategy to address fraud related to Obamacare's subsidies, according to a report by the tax agency's Inspector General (IG). 

Under the law, individuals with incomes between 133 and 400 percent of the poverty line, or roughly $90,000 a year for a family of four, are eligible for tax credits and subsidies to offset the cost of private health insurance. Between 2012 and 2022, those subsidies are expected to cost taxpayers a total of about $808 billion, according to a March 2012 projection by the Congressional Budget Office.

But according to the IG report, dated September 2013 but released in a partially redacted version to the public this week, the IRS hasn't put in place the necessary checks to ensure that the the information technology systems that calculate and manage the subsidies aren't subject to fraud. "A fraud mitigation strategy is not in place to guide Affordable Care Act systems development, testing, initial deployment, and long-term operations," the report says. The tax agency's current protocols "do not address management's responsibility for managing, monitoring, and mitigating fraud risk with the development of new information systems for the ACA. Further, the ACA Program has not yet completed a fraud mitigation strategy to guide ongoing systems development." 

"With the healthcare exchanges open for business, it is imperative that the IRS ensure the accuracy and completeness of Premium Tax Credit and Advanced Premium Tax Credit calculations," said Russell George, the tax administration inspector general, according to The Hill, "and ensure the security of information provided by taxpayers to the IRS and subsequently transmitted to other government entities." 

If other high-cost government-run health programs are any indication, there's a significant risk of large-scale fraud, abuse, and waste.

Medicare's payment system is rife with bad payments, some of which are billing errors and some of which are outright fraud. A 2011 review by the Government Accountability Office (GAO), for example, estimated that the system made some $48 billion in improper payments each year. That's about 10 percent of Medicare's budget. The problem has always been that there are very few checks on who can bill the system. As I noted in a 2011 story on fraud in government health systems, a 2008 GAO report found that it's possible to set up shop billing Medicare with little more than a few forged documents and a dummy phone number—one that went to an empty desk at GAO's office. Medicaid, the health program for the low-income and disabled, has been similarly plagued by abuse and outright fraud.

This has been going on for years, and yet relatively little has been done to stop it. Under the Obama administraiton, Medicare's managers have taken some steps to address fraud and abuse in the system, but at best these efforts have succeeded only at marginally reducing the problem, cutting out a few billion dollars in wasteful or fraudulent spending each year. The magnitude of the problem is still pretty enormous, and what the IRS IG report suggests is that it may soon grow to encompass Obamacare as well. 

NEXT: Detroit Art Sale Could Raise More Than $800 Million

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. By 2022, those subsidies are expected to cost taxpayers about $808 billion…

    Is that 2022 dollars? Because, if so, it might not be that much. Hey, by then, it might not even be worth it to defraud the system.

    1. That’s total of all the years up to 2022. Not $808b in 2022 alone. I’m going to update the post to make this more clear.

      1. You said by instead of in, so it’s my comprehension error.

  2. If other high-cost government-run health programs are any indication, there’s a significant risk of large-scale fraud, abuse, and waste.

    Can I put my shocked face away now?

  3. IRS Inspector General Says Obamacare Subsidies Susceptible to Fraud

    Whoa whoa whoa, slow down there, Cowboy. Are you trying to tell me that piles of free money attract fraudsters? I’ll come back with a response to this wild speculation as soon as I gather my thoughts.

    1. As long as they still vote Democrat it’s all good.

    2. Obamacare Subsidies Susceptible to Fraud

      Uh Duuuuuuh!

  4. $808 billion dollars. Could we at least spend it on something cool, like a giant catapult that flings politicians into the sun?

  5. Wow, the hits just keep coming over this turd.

  6. It’s also going to be susceptible to huge errors that aren’t even fraud. Lots of people that buy health insurance in the individual market are freelancers, independent contractors, and the like. Their income fluctuates a ton during the year and from year to year. They have to estimate their income, then if it comes in differently, apply for refunds or for a larger subsidy. It’s a recipe for disaster, much worse than quarterly estimated payments (where people can at least pay only 4 times a year, and can overpay by paying as much as last year, and then get a once a year refund.)

    It’s more like the Earned Income Tax Credit, which overall is better than pure welfare or higher minimum wages (pay people to work, not paying people to not work), but has 20% of people getting more money than they should, and 20% of people who could get the money don’t.

    1. I belong to the camp that believes that Obamacare’s rollout is getting a little bit worse (more realistic) press now simply because it screws over freelance journalists so much.

      People that take second jobs or work overtime unpredictably are also affected.

      The provisions were all written by bureaucrats that have an entirely predictable income.

      1. Even the bribes are predictable?

  7. Wow, its almost as if when the government grants a special loophole for special people that suddenly many people claim to be special to get the benifits of that loophole.

  8. I’m surprised that nobody yet has said “a feature, not a bug”.

    1. Medicaid fraud is basically a feature. Medicaid reimbursement rates are really low. Doctors either can refuse Medicaid patients entirely, go broke, or bill for extra services in order to charge an insurance company with fraud detection what they’d charge for the service that they actually did.

      You can’t make a living off Medicaid patients at Medicaid rates.

  9. Who would defraud the government?

    1. It seems fair, really, given how much the government defrauds all of us.

    2. It’s only fair. The government defrauds the people every moment of every day.

  10. Damn your fast hands, Pro!

  11. I love pointing out to lefties that all the profits of the health insurance industry are about one quarter of the money lost to Medicare (and Medicaid?) fraud.

    1. I’m increasingly convinced that they don’t give a crap about welfare fraud. I mean, not even in principle. Why not buy votes by whatever means necessary?

      Profits, of course, are evil.

      1. I did have a lefty friend say it wasn’t a problem that welfare recipients in NYC were packing barrels with food bought with EBT cards and sending them to their families back in Haiti or wherever to be sold, because they were poor, too, so what’s wrong with the taxpayers of NY feeding them?

  12. Susceptible to fraud? I am shocked, shocked!

    Round up the usual suspects.

Please to post comments

Comments are closed.