Obamacare’s Growing Pains

Chait downplays the importance of delaying various Obamacare components:

The entire Republican case against the law is grounded in erasing the distinction between essential and nonessential pieces of the law. Yuval Levin, in a post titled “Delaying Obamacare” — as if Obama was delaying the entire law — gloats: “The administration’s brazen disregard for and denial of plainly evident problems with Obamacare has been absolutely central to sustaining the morale and dedication of the law’s defenders.” Right, so apparently the only basis for supporting the law was the belief that every single piece of it was perfect! Even though its supporters all argued repeatedly and extensively to the contrary.

But, in an e-mail to McArdle, Yuval Levin argues that the delay of Obamacare’s health status and income verification mechanisms is a major problem. He writes that “system doesn’t make sense without some meaningful prior verification”:

The Obamacare statute really limits the ability of the IRS to sort it out and recover [health insurance subsidy] overpayments at tax time. And this is not only because it can only recover payments by reducing people’s income-tax refunds (which not all people have of course). There’s a more explicit barrier: In section 1401, the statute limits the amount of excess tax credit that any person with an income under 400% of poverty would have to pay back. (That begins at the very bottom of page 116 and into 117 in this final text of the law, under the section “Excess Advance Payments). The original statute limited the amount that could be clawed back to just $400. Then in the Medicare extenders bill they passed at the end of 2010 (see the table at the very end of the statute), Congress increased that amount and made it a graduated amount based on income, so it now ranges from $600 to a maximum of $3,500 for a family (half that for an individual).

CBO projects that the AVERAGE subsidy in the exchange would be worth $5,290. So the amount they’re able to claw back from people who have incomes below 400% of poverty but receive subsidies they shouldn’t (because they report a lower income than they have, falsely claim not to have been offered qualifying coverage by an employer, or report a higher income than they actually have in order to receive subsidies instead of Medicaid coverage) is likely in most cases to be significantly lower than the amount of excess payments.

“Delaying” employer reporting and income verification means more people are likely to do this and the IRS is less likely to know about it (they won’t know about people falsely claiming they don’t have an employer offer, for instance), so that even if the IRS collects back everything it possibly can at tax time, which is unlikely, there would be a major gap, and the risks people take by filing fraudulent applications are fairly limited (as you have noted before, the tools permitted to the IRS to go after excess payments are very limited).

The potential for massively expensive fraud, or even massively expensive confusion, is just enormous.

McArdle adds:

Obviously, the preference of the law’s supporters is to hemorrhage cash.  Just go ahead and hand out subsidies indiscriminately, the better to build political support to block repeal.  But this seems . . . well, I’m struggling for kinder words, but I can’t find any.  It seems wildly irresponsible. Not to mention a fundamental betrayal of the promises that were made to get the law passed in the first place.