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.