Joint Hearing on the Verification of Income and Insurance Information Under the Affordable Care ActJoint Hearing on the Verification of Income and Insurance Information Under the Affordable Care Act
_______________________________ CONTENTS _____________________ Advisory of June 10, 2014 announcing the hearing
WITNESSES Douglas Holtz-Eakin President, American Action Forum Testimony Ryan Ellis Tax Policy Director, Americans for Tax Reform, IRS Registered Tax Return Preparer Testimony Katie W. Mahoney Executive Director of Health Policy, U.S. Chamber of Commerce Testimony Bryan C. Skarlatos Partner, Kostelanetz & Fink, LLP Testimony Ron Pollack Executive Director, Families USA Testimony ________________________________ Joint Hearing on the Verification of Income and Insurance Information Under the Affordable Care Act Tuesday, June 10, 2014 U.S. House of Representatives, Committee on Ways and Means, Washington, D.C. ____________________
_________________________________________________________________ Chairman Brady. Good morning, everyone. This hearing will come to order. Before we start, I would like to recognize the ranking member, Dr. McDermott, for a statement. Mr. McDermott. Thank you, Mr. Chairman. Before we start today, I want to acknowledge the service of Jennifer Friedman. Jennifer has been with the Ways and Means Committee for 7 years and has handled Medicare things on a variety of levels, and this is her last week of service. She is on her way to Japan. Her husband is in the State Department, and she going to take a Council of Foreign Relations fellowship there, and we want to thank her for her service. Jennifer, please stand up. Chairman Brady. Jennifer, you will be missed, and best wishes. As we begin this hearing, you may remember then Speaker Nancy Pelosi famously warned Congress and the American people about the Affordable Care Act: We have to pass the bill so we can find out what is in it. Over 4 years later, the American people continue to learn and continue to be surprised. Today the Health and Oversight Subcommittees will hear testimony about yet another surprise. Today, 8 months after the start of open enrollment and well over a month after the extended open enrollment ended, the income and eligibility verification system is not yet completed and the burden and the cost of that failure will fall on the American people. That is simply unfair and unacceptable. What we will hear today from our distinguished panel is trouble. Potentially millions of Americans are currently receiving the wrong tax credits and cost‑sharing subsidies, including some people that are completely ineligible to receive any at all. As required by the Affordable Care Act, individuals who receive subsidy overpayments must repay the government. Americans who tried to do the right thing could be hit with unexpected tax bills from the IRS next April. For many, this could mean thousands of dollars and while the cost of the loss failures fall on the individual, the blame for this mess falls squarely on the White House. Time after time Republicans on this committee raised concerns with the administration witnesses sitting in these chairs, including cabinet officers and IRS commissioners, and we said the website, the exchanges, the eligibility verification systems, were not ready to go, but the White House pushed ahead, focusing on the advertising campaign, launching healthcare.gov instead of the steps to make the system actually work. As a result, according to the Washington Post, piles of unprocessed proof documents are sitting in the Federal contractor's Kentucky office while incorrect subsidies continue to be paid. Because the system isn't ready, these inconsistencies have to be resolved manually one by one, and there are over 1 million related to income alone, and the contractors haven't even started. As we will hear, for the verification system to work as designed, a massive amount of reporting data is required from employers, data the Government has never collected before. The amount of data is so massive, that around this time last year, the White House gave up and delayed reporting requirements for 2014, after legitimate complaints from businesses about the cost of compliance. We are not here to revisit the controversy that decision set off, but it is important to understand that decision meant very plainly and very clearly that for 2014, there is not a working verification system. In order to effectively manage the Affordable Care Act, the administration either needs to employ a reporting information. Why else would you impose such a high cost on employers? The information is needed to enforce the so‑called firewall, that prohibits an individual with an offer of affordable employer insurance from receiving tax credits, and yet it does not exist for 2014. All that is left is for the American people to verify their eligibility for themselves. They need to understand the rules around the offer of affordable health insurance. They need to know it is on them to notify the Government if they have received a raise or had a child or lost a loved one. If they don't understand this, they could be hit with a tax bill for thousands of dollars, and that is not fair. Democrats and Republicans came together and passed a law last October that stated very clearly that before any tax credit went out, the secretary of HHS had to certify to Congress that the verification system was working. Clearly Secretary Sebelius erred in sending that certification. It wasn't working then and it isn't working today, and the burden and cost of that failure will fall on the American people. It isn't fair and it isn't right. Before I recognize Health Subcommittee Ranking Member Dr. McDermott for the purposes of an opening statement, I ask unanimous consent that all members' written statements be included in the record. Without objection, so ordered. I now recognize Dr. McDermott for his opening statement. Mr. McDermott. Thank you, Mr. Chairman. Our Republican colleagues have called us here this morning once again to try to tear down the Affordable Care Act, to find all the defects they possibly can before the election. They have staged this political event, really, to blow another implementation issue out of proportion. What is more, they have decided that one subcommittee isn't enough. They needed to put together two subcommittees to prove a purely partisan political point. It really is a disappointing choice on my Republican colleagues' part, because they should accept that the ACA is working. Seven million people have joined. Many states have accepted Medicare expansions. Access to quality health care coverage has expanded dramatically since we enacted the law. Eight million people have bought insurance through the exchanges. Six million middle class people have saved money through tax ‑‑ [Audible alarm.] Mr. McDermott. There is a flash flood warning. Mr. Thompson. Roll up your pants. Chairman Brady. Republicans did not make that announcement. Mr. McDermott. They did not. The success of this act, though, is really unquestionable and you can see it in the New York Times yesterday where they had the story about Texarkana, Texas, on the border with Arkansas, and people on one side of the street had health care, and on the other side, they don't. You can see that this information is seeping out across the country. But access isn't everything, and we still have plenty to do with the ACA even today. We must control the cost. I am hand in hand with the chairman on that issue. That is why I have been working to combat the fraud, the waste and the abuse in the system and to promote shared savings programs that save providers, taxpayers and patients money. Reforms such as these will reform the ACA and provide better health security to American families, but instead of working on that issue and building on the success of the ACA, we are called here today to talk about a distorted view of the premium tax credit verification system. Virtually none of the criticisms are sincere and there is little or no facts to support their claims. Everybody knew that when you tried to enroll 30 million people, you would have errors. We might even look to ourselves in the mirror and remember how many times we have filled out something wrong and it was not considered fraud or abuse or waste, just human error. When my Republican colleagues talk about inconsistencies, they are not telling the full story. Although there have been inconsistencies, only a fraction actually impact anyone's tax credits. In fact, many inconsistencies relate to applications that were never even completed. Now, just think about what the solution to the issue is. A letter was written to Secretary Lew to stop all tax credits. Now, you have got seven million people out there enrolled, and suddenly we are going to put a blanket stop on everything. That is trying to kill the law. If my colleagues on the other side had their way, no middle class families, even those without inconsistencies, would benefit from the tax credits for the foreseeable future. And when we hear the other side pretend that these inconsistencies are unprecedented, let's look at the facts. Medicaid, CHIP and other highly successful programs have handled similar data inconsistencies before. We saw this morning when we wrote the ACA ‑‑ we saw this coming when we wrote the ACA, which is why we included provisions to correct the inaccuracies. It is important to get this right, and designed the system to make sure that we did. The more data that comes out, the more stories we hear of people getting coverage, the more we can ensure the ACA is working. Just this past Thursday, a new Gallup Poll showed that the uninsured rate in America is at its lowest point since Gallup began selecting such data. That is not political spin or fuzzy math to say that the ACA has been a success. The Republicans should join Democrats in discussing how to make it even better and for that reason, I am glad we are having the hearing, but it ought to be about how we control costs, not about inconsistencies, which ultimately we will have a hearing on this. A year from now, if we haven't got a better system than we have got today, that would be one thing, but when you take 3 months in and say you are going to have everything perfect, you simply have never tried to do anything, whether it is build a car, build a missile. How many failures do we have in the missile system? Did we have them in every week to say, how many failures have you had? That is what we are doing here. We are jumping before it really needs to be done. I yield back the balance of my time. Chairman Brady. I now recognize the Oversight and Subcommittee Ranking Member, Mr. Lewis, for his opening statement. Mr. Lewis. Thank you very much. Thank you very much, Mr. Chairman, Mr. McDermott. In my heart of hearts, I believe that health insurance or health care is a right. When President Obama signed the Affordable Care Act into law, a new day began, one that was free of worry about what would happen if someone in their family got sick. The Affordable Care Act has opened the door for millions of Americans to access this sacred right for the first time in our country's history. Let us take a moment to review the many accomplishments of the Affordable Care Act. Eight million people now have health insurance coverage; 3.1 million young people are able to stay on their parents' health plan instead of being uninsured; and 129 million Americans, including 17 million children, with pre‑existing conditions are no longer denied coverage or charged high premiums. Sometimes I think we forget what it is like to get sick and not be able to go to the hospital or see a doctor. We forget or maybe we do not know what it is like to look at the face of your sick son or your sick daughter and know that you cannot afford the treatment they need. The Affordable Care Act changed that reality for millions of people. Today women can now no longer be charged high premiums just because they are women and 105 million Americans no longer face a dollar limit on their coverage. This means that if faced with an expensive disease like cancer, they know their treatment will be covered and their family will not go bankrupt. The Affordable Care Act did that. This is a law that has literally saved people's lives by giving them health insurance for the first time. We will not and must not return to the dark days when many of our fellow citizens could not afford health care and the Federal Government did nothing. Republicans have voted 52 times to repeal the Affordable Care Act. Whenever a topic about the ACA is on the table, it seems to be a code for one thing: repeal, destroy, go back. We have come too far, we have made too much progress, and we are not going back. After 52 votes to nowhere, I think it is very clear that we will not go back. Instead of focusing on repeal, we should encourage improvement. For the good of all of our citizens, we need to look forward and put an end to the political games. Realizing the dream of health care has meant a new challenge for the Federal Government. It has not been easy, it is not a light task. We must ensure that the agencies have the resources, the staff, training and technology that they need to help our citizens, our people to get the health care services they need and deserve. I hope that we can put our differences aside and come together to make the transition smoother for our citizens, for the most vulnerable people in our society and for those trying to serve them. Thank you, and I yield back, Mr. Chairman. Chairman Brady. Thank you. Chairman Brady. I now recognize the chairman of the Oversight Subcommittee, Dr. Boustany. Chairman Boustany. Thank you, Chairman Brady, for convening this really important hearing. In recent years, the Ways and Means Subcommittees on Oversight and Health have held numerous hearings on the implementation of the Affordable Care Act, including the new tax burdens under the law, the improper administration of tax credits, and taxpayer rights. This morning's hearing will explore the Affordable Care Act's income and eligibility verification system, which lies at the nexus of all three of these concerns. What is increasingly clear is that even if this system works as intended, there is a potential nightmare scenario developing for the 2015 tax filing season. Under the Affordable Care Act, the Internal Revenue Service will distribute over $1 trillion in new premium subsidies over the next decade, $1 trillion. To administer these subsidies accurately, the Federal Government requires precise and timely information about income, family status, the availability of employer‑sponsored insurance, and other eligibility information. Yet after implementation delays, failures of healthcare.gov, and other poor administration, the Federal Government lacks this information, but has nonetheless begun to pay out billions of dollars in potentially incorrect premium subsidies. We know from experience where this story leads, and it does not end well for the American taxpayers. The rate of improper payments across the Federal Government is 4.35 percent. The rate of improper payments for the earned income tax credit, which like premium subsidies is paid based on income calculations, is approximately 22 percent, the worst error rate in Government. If this new subsidy is implemented with the average degree of improper payment, the low end for the IRS, the Federal Government will pay out over $44 billion in improper payments. If premium subsidies are administered with the same degree of accuracy as the earned income tax credit, the Federal Government will pay out a whopping $220 billion in improper payments over 10 years. We have to get a handle on this and we haven't gotten a handle on the EITC, and yet we have this whole new area of implementation. Although these subsidies are going correctly to insurers next year, the IRS will be in the position of recouping overpayments directly from individuals. Many of these individuals will end up with unexpected tax debt through no fault of their own, but from simply not understanding the quirks and complexities of the President's health law. The rules regarding employer‑sponsored insurance, for example, can leave a taxpayer owing the IRS the entirety of their subsidy payments. These are not hypothetical problems in the distant future. These are problems developing now and ones that will haunt taxpayers and businesses during the next filing season. I hope today's hearing will cast new light on these issues. And I want to thank our guests for joining us in this very important discussion. I yield back. Chairman Brady. Thank you. Chairman Brady. Today we will hear from five distinguished witnesses: Douglas Holtz‑Eakin, president of the American Action Forum; Ryan Ellis, tax policy director for the Americans For Tax Reform, an IRS registered tax return preparer; Katie Mahoney, executive director of health policy for the U.S. Chamber of Commerce; Bryan Skarlatos, a partner of Kostelanetz & Fink law firm; and Ron Pollack, executive director of Families USA. Welcome to all of you. I look forward to your testimony. Mr. Holtz‑Eakin, we will begin with you. As usual, we have preserved 5 minutes for the statement and questions as well and because we are holding a joint hearing, we are going to stay close to the limits today. Mr. Holtz‑Eakin. Mr. Holtz‑Eakin. Well, thank you, Chairman Brady, Chairman Boustany, Ranking Member McDermott, Ranking Member Lewis. It is a privilege to be here today to talk about the income and subsidy verification systems in the Affordable Care Act. I want to make three basic points in my testimony. Point number one is that the system itself is very complex in its best circumstances, if it worked exactly as designed, and that the series of waivers and delays that have been implemented over the past several years have made the system essentially unworkable, in my view, and we will see more about that. The second is that it complicates an already far too complicated tax system. The Ways and Means Committee has spent a considerable amount of time on tax implication and reforms. Many of the features of the Affordable Care Act verification system make things much, much worse. And then the third is that the combination of the complexity really does expose the taxpayer to additional unwarranted burdens and the likelihood of spending above what would be anticipated from the Affordable Care Act itself. The first point is that it is just very complicated. There is a graphic which we had hoped to show which my staff put together, which shows the verification system. It is in my written testimony. Yeah. That is a good faith effort to replicate the sequence of decisions and rulings that would take place in trying to verify the income and subsidies as the system stands at the moment. Just a glance at that tells you this is a system that is going to overwhelm taxpayers. In particular, this is a tax filing population that may not in fact be used to file tax returns at all and will have to begin to do so only because of the Affordable Care Act and to satisfy they verification. So it is a very, very complex system. It adds new information requirements, it adds new forms to reconcile to the actual subsidies in the tax code, they are required to report quarterly changes in their family status, changes in custodial relationships with children, kids who graduate from college and move out of the house, divorces. An enormous amount of personal information must be reported quarterly and on a timely basis to get the reconciliation right. This is all going to prove to be quite complicated for this population to comply with. It will complicate the tax code. We do not yet know for sure how the IRS will do a lot of the implementation, but there is a very real chance that many of these taxpayers will no longer be able to file a 1040EZ form, for example, be forced into a more complicated filing status, something with which they are completely unfamiliar and will probably have to appeal to paid tax preparers for low income individuals. It doesn't make a lot of sense. And the recapture itself will be very complicated. Many people have finally begun to understand how the child tax credit works or how the EITC works, and the recapture will interfere with their receipt of their normal refunds and they will find the system harder to manage. And my concern is the one that Chairman Boustany mentioned in his opening remarks, is that in the end, we have a system which will have individual eligibility requirements that look very much like the EITC, and these are layered ‑‑ layered on top of this are employer requirements for affordable insurance, where the reporting is not yet in place but which in principle they would have to provide. That complicated system is likely to lead to error rates in payments and as you mentioned, if we have a 20 percent error rate, we are looking at $150 to $200 billion in inappropriate payments over the next decade. It is not a trivial problem, it is a serious budget problem at a time when the U.S. faces chronic budget deficits and long‑run spending problems, so I am concerned about that. If you step back, I think it would be important for the committee to focus on two different things. The first is there are a set of issues which really are about the startup and what will a filing season look like next year, what will a population that is not used to receiving a, you know, a form 1095A which says, this is what your subsidies were, they may just throw those in the trash, will the error reconciliation process work effectively, we have no idea, but a bunch of startup problems. And then there is the longer‑run problem, which is that this system is like the EITC, it is like Medicare. This is a pay‑and‑chase policy: pay people and then go find inappropriate payments. We have not proven capable of doing that in a very efficient fashion. We worry about the $60 to $80 billion a year in inappropriate payments to Medicare, we worry about the 20 percent error rate in the EITC. This is another program that has the same fundamental character, and I worry about whether it will be effective in the long‑run. But I am pleased to have the opportunity to be here today and I would look forward to answering your questions. Chairman Brady. Great. Thank you. [The statement of Mr. Holtz‑Eakin follows:] Chairman Brady. Mr. Ellis, you are recognized. STATEMENT OF RYAN ELLIS, TAX POLICY DIRECTOR, AMERICANS FOR TAX REFORM, IRS REGISTERED TAX RETURN PREPARER, WASHINGTON, D.C. Mr. Ellis. Chairman Brady, Chairman Boustany, Mr. McDermott, Mr. Lewis, members of the committee, thank you for inviting me to testify today. My name is Ryan Ellis. I come here today as a small business owner of a tax preparation firm, in the Commonwealth of Virginia and also as an IRS enrolled agent. I am also tax policy director at Americans For Tax Reform, which is a non‑profit here in Washington, D.C. Now I am here today to tell you that the upcoming tax filing season has the potential to be one of the most chaotic in years. One of the key elements of the Affordable Care Act, popularly known as Obamacare, is the creation of advanceable tax credits for the purchase of exchange health insurance plans. Taxpayers applying for credit assistance must be evaluated by government entities ranging from the SSA, to CMS, to the IRS. The goal is to have an educated estimate based on the most immediately available government documentation, e.g., prior year tax returns, et cetera, of the taxpayer's probable income for the year, which in turn determines the size of the tax credit. In an effort to get this tax benefit out quickly, the estimated credit is advanced to the insurance company by the IRS, which applies it to customer premiums. This is an important point. The money has left the IRS's hands up to over a year before the taxpayer actually calculates his final credit amount. The insurance companies have collected it, and they are not required to give it back. Press reports this month indicated that the Government was having a hard time doing all this, with 1.2 million of the 6 million Federal exchange applicants having to be asked for additional income verification information from CMS. That is not surprising. Applicants are asked to complete a detailed, confusing 12‑page application, which asks for income, family size, et cetera. It is rather like trying to fill out a 1040 on the fly. Added to this is the lack of employer reporting requirements and the failure to complete the back end of the website properly. Inconsistencies, some of which are the results of failures of the healthcare.gov system, some of which are poor records from the government, and some of which are mistakes from the individual are not surprising, but they are a problem. Here it is the middle of June, and many people have now been receiving inaccurate subsidies for 6 months. To the public's knowledge, not a single advanced tax credit has been adjusted this year. So what happens if the flawed, confusing process results in a tax credit larger than what the law calls for? A hypothetical example might help illustrate. A health exchange customer selects an Obamacare exchange plan, the Government estimates that this taxpayer will earn $30,000 this year, which makes her eligible for a $2,000 tax credit. This $2,000 is paid to the taxpayer's insurance company to help with premiums. The next spring, our customer slash taxpayer is filling out her tax return. Unfortunately, the Government estimated the taxpayer earned too little and paid out too large a credit. She actually earned $40,000 and so only had a $1,500 credit coming to her. Depending on the taxpayer's income level and availability of verified affordable workplace insurance, she will have to pay back much or all of the $500 overage to the IRS. This means skinnier refunds and maybe even a tax liability, and it won't be the taxpayer's fault, it will be the Government's fault. It is also inevitable that many people are receiving tax credits which they are completely ineligible. The firewall of the offer of employer‑sponsored insurance is a new concept. Tax preparers will have difficulty figuring out how it works in operation. There is virtually no way to catch it on the front end, but come tax filing season, many people will end up owing thousands of dollars and it will be a complete surprise to them and to their tax preparer. The burden of explaining why the Government allowed individuals to accept too large a subsidy will fall on the tax preparer community. It is in the interest of the Congress to make sure that the entirety of the Obamacare sign‑up system is fully functional; not just the front‑end website, which got all the headlines, but the really important back end, where this complex income verification system must be able to work. Thank you for allowing me to testify today, and I look forward to your questions. Chairman Brady. Thank you. [The statement of Mr. Ellis follows:] Chairman Brady. Ms. Mahoney, you are now recognized. STATEMENT OF KATIE W. MAHONEY, EXECUTIVE DIRECTOR OF HEALTH POLICY, U.S. CHAMBER OF COMMERCE, WASHINGTON, D.C. Ms. Mahoney. Thank you, Chairman Boustany and Brady. Ranking Members Lewis and McDermott, and other members of the subcommittees for the opportunity to participate in today's hearing. We appreciate this hearing's focus on the challenges in verifying income and insurance information, given the delay of the reporting requirements under the health reform law, hopefully by examining the law's interrelated provisions and how they were intended to work, we may be able to identify and advance solutions to alleviate the challenges that remain. My name is Katie Mahoney. I am the executive director at the U.S. Chamber of Commerce. While the Chamber opposed the health reform law during the legislative debate, we are moving forward to do whatever we can to help our member companies understand and comply with the law. We continue to work with the regulators to mitigate the burdens and challenges of implementation and with members of Congress to provide relief to business. We have made some progress, but much more work needs to be done on both fronts. Since the law was enacted, the Chamber has filed 77 comment letters, many of which were in response to items issued to implement the employer mandate. While today's hearing is on the verification of income and insurance information, I have been asked to testify specifically on the two reporting requirements contained in Sections 6055 and 6056. These sections were designed to provide the IRS with the data and information necessary to implement at least three other major provisions in the law: the employer mandate provision, the premium tax credit provision and the individual mandate provision. 6056 requires employers subject to the employer mandate to report information to the IRS and to their employees to demonstrate compliance with the employer mandate. This information is necessary to determine which employers may be penalized and which individuals may be eligible for a premium tax credit. 6055 requires those entities that insure individuals with minimum essential coverage to report to the IRS and those individuals the information necessary to demonstrate which individuals are covered and what that coverage looks like. This information is necessary for the IRS to know which individuals have met the requirement to obtain minimum essential coverage under the individual mandate and which individuals may be subject to a penalty. Even when described as simply as possible, the complexities are striking. Clearly the challenge of drafting regulations to implement these provisions is immense, but it is one that we have found the Treasury officials to take very seriously and approach very carefully. Efforts to promulgate regulations to implement 6056 and 65 specifically began in 2012 in conjunction with other efforts to promulgate regulations on the employer mandate, which began in 2011. At least ten regulatory items were issued in nearly 2 years between May of 2011 and April of 2013. We had many exchanges with Treasury during this process and filed numerous comments. In addition to responding to Treasury's specific proposals, we repeatedly asked for transition relief, safe harbors and compliance assistance rather than strict enforcement of the provisions. As I shared with the House Energy and Commerce Subcommittee nearly a year ago, businesses needed more time. On July 2nd of 2013, Treasury announced that the reporting requirement regulations were not ready. As a result, transition relief for 2014 was provided to allow additional time to comply with the reporting requirements and the employer mandate, delaying compliance with these provisions. It would not have been possible to enforce the employer mandate provision without the information that the reporting requirements would collect. Following that announcement, Treasury continued its work, soliciting feedback and issuing eight more items in roughly 9 months, including the NPRM's on 6055 and 6056. We have worked with Treasury officials for the past 4 years as they labored to implement these requirements. We found their commitment to minimize the cost and burden to business while implementing the law as intended to be commendable. Many of the concerns and recommendations that we raised were explored and incorporated into the final rule, including several simplified reporting methods that will help ease the burden for some business and reduce reporting of statutorily specified but unnecessary data points. We applaud the officials at Treasury for their efforts, however, the extensive costs and time necessary to comply with these reporting requirements continues to be daunting. Many companies offer exceptional benefits, for which employees pay only a small portion of the premium. These businesses, like many others, are committed to improving the health of their employees and offering coverage that is highly valued. It is unfortunate that because of the way the statute is written, these businesses must direct resources to report on the coverage they offer rather than use those resources to pay for a greater portion of the cost of that coverage. Even more unfortunate is the extreme expense of these reporting requirements and the challenges in identifying precisely which month's coverage is offered to which employees may incent employers to stop offering coverage all together. Clearly this is not what was intended and it is not what is best for employers or employees. In conclusion, what is to be done? Well, enacting the legislation passed by the House earlier this year to restore the long‑standing definition of full‑time employment to 40 hours would be helpful. We urge you to consider legislation to permit businesses greater flexibility and protection, and work with stakeholders to identify possible ways to provide further relief. Thank you. Chairman Brady. Thank you. [The statement of Ms. Mahoney follows:] Chairman Brady. Mr. Skarlatos. STATEMENT OF BRYAN C. SKARLATOS, PARTNER, KOSTELANETZ & FINK, LLP, NEW YORK, N.Y. Mr. Skarlatos. Good morning, Chairman Boustany, Chairman Brady, members of the committee. Thank you for inviting me here this morning. My name is Bryan Skarlatos. I am an attorney in New York, and my practice focuses in large part on tax procedure issues. I am here to talk to you today about how the IRS collects taxes, and you may find that relevant to how the IRS may collect overpayments of credits. When we talk about how the IRS collects taxes, it is important to remember the IRS is not an ordinary creditor like you or me. If somebody owes me money, I have to go to court, start an action to invoke the authority of the court to give me a judgment that I can use to collect the property to pay the debt. I can't just take somebody's car or take somebody's bank account. It is different for the IRS. Because the IRS has a need to collect taxes, Congress has given the IRS super creditor powers. The IRS doesn't need to go to court. It can act unilaterally, using its powers of lien and levy to collect taxes. Those are the two main tools it has. A lien is the first and most important concept. It is an intangible concept. It is not something the IRS does; it is a thing that arises by operation of law and the lien is what gives the IRS the right to collect somebody's property, or to take somebody's property. It is sort of like a string that the IRS can pull to take property from someone. A levy, is distinct from a lien. The levy is the actual procedure it uses to take the property. It can go in and take things that the taxpayer has an interest in, like a bank account, a car, wages or something like that. Now, the IRS can't just do this without first having an assessment. It needs an assessment of taxes. Most taxes get assessed on the tax return and taxpayers themselves say, I owe a thousand dollars. That is a self‑assessment and we indeed have a self‑assessment system. If the taxpayer doesn't pay the taxes that they say they owe, then the IRS has these collection powers, or if the IRS later comes in and says, you owe more money, you owe $2,000, not a thousand dollars, then the IRS has these collection powers, because the assessment arises. Once the assessment arises automatically, it doesn't arise automatically. Excuse me. What happens first is that the IRS has to say, hey, you owe money, there is an assessment, and demand payment. If the taxpayer then fails to pay the tax, the assessment arises automatically and then the lien arises automatically upon the assessment, giving the IRS rights to the property. The lien is the important concept, as I mentioned, because it is very broad. It affects anything that the taxpayer owns or anything that the taxpayer could have an interest in. It also includes things like after‑acquired property. So if the taxpayer buys a car or receives an inheritance after the assessment, the lien will attach to that after‑acquired property. The IRS can also file a notice of tax lien. It does this in order to give itself priority over other creditors. It files the notice in the local county clerk's office or in the local court office. That notice of tax lien by mere filing can have an impact on the taxpayer's credit standing and it can affect certain agreements it has, credit agreements, mortgages, it can trigger events of default simply by filing the notice of lien. But the lien itself, as I said, is not the thing that takes the property. The thing that takes the property is the levy. The levy and the seizure, and levy and seizure are basically the same words for, similar words for two same concepts, is when the IRS goes in and takes things. It can go to the taxpayer or it can go to third parties like a bank or like an employer or a customer who owes the taxpayer money. The levy, though, unlike the lien, does not attach to after‑acquired property, so if a levy hits on a certain day and somebody deposits money into a bank account the next day, the levy does not attach to that. There is one exception, however, and that is for a levy on wages. A levy on wages continues, and continues on the taxpayer like a vacuum cleaner, continuing to take the wages as they are earned. The IRS has to give the taxpayer notice, 30‑days' notice before it is going to levy and take the property and at that time the taxpayer has the right to request a collection due process hearing to contest the levy or the underlying assessment of taxes. Now, the IRS doesn't just take things without giving some notice and demand, and there are a series of notices that come out in the usual case and in that case, the taxpayer can try to negotiate an installment agreement or an offer in compromise where they pay less than the full amount due, depending on the taxpayer's current assets and ability to pay. One other factor you should consider is that if there is an overpayment of tax in another year, the IRS can offset an underpayment simply by reducing the overpayment in another year. So those are some of the tools that the IRS has at its disposal to collect taxes. Thank you. Chairman Brady. Thank you. [The statement of Mr. Skarlatos follows:] Chairman Brady. Mr. Pollack, you are recognized. STATEMENT OF RON POLLACK, EXECUTIVE DIRECTOR, FAMILIES USA, WASHINGTON D.C. Mr. Pollack. Thank you, Chairman Brady and Boustany, Ranking Members McDermott and Lewis, members of the committee. Today's hearing is important, because it is essential that tax credit premium subsidies be provided based on good and accurate information. This is needed to ensure that there are neither underpayments or overpayments of such subsidies. In undertaking today's examination, it is crucial to single out two important words, both with very separate meanings. These words are "inconsistencies" and "inaccuracies." The two words should not be confused with one another, because they are not synonymous, and conflating those two words, like some in this Congress have done, does an enormous disservice to today's inquiry. For example, two sets of data may be inconsistent, one depicting a situation 2 years ago and another depicting the situation today, and they both may be accurate. It is crucial, therefore, to underscore the differences between inconsistencies and inaccuracies as we examine the discrepancies that appear to exist in application submissions versus Government data files among 2.1 million people enrolled in affordable care‑related coverage. Of the 2.1 million discrepancies, over half concern discrepancies about applicants' income. This should not be surprising, because applicants are supposed to provide information about their current 2014 income, while the Government's data reflects such households' income based on their 2012 tax returns. Many significant changes occur in income status over those 2 years. Many people change jobs, resulting in gains or losses of income; many people receive differences in compensation, again, up or down; many people experience differences in real or expected overtime. Changes in family composition significantly impact income, and some families move from jobs to becoming students, and vice versa. And many other factors cause incomes to change over the course of 2 years. These 2‑year differences should be reviewed, but there is little reason to surmise that these differences are inaccuracies in applications that should cause reductions in premium subsidies. The same is true with the almost 1 million discrepancies with respect to immigration and citizen‑related information. Keep in mind, people eligible for marketplace coverage include citizens and nationals and others lawfully in the United States. The only persons disqualified for coverage are those who are not lawfully in the country, and those individuals are hardly likely to contact an exchange or other governmental entity. The kinds of discrepancies that do exist in this area involve matters that are innocuous and do not affect eligibility for or the size of premium subsidies. They include the precise Social Security Number, whether a person does or does not have a hyphenated name, whether the person has a permanent resident card or a green card, whether they are missing a digit in an address. There are other reasons to believe that the number of inaccuracies are small, and when we see verification, that they would be rectified, four reasons: one, similar verification systems exist in programs like Medicaid and CHIP, and the vast majority of instances consumers' information is found to be accurate; second, Serco, which is the contractor responsible for obtaining information from beneficiaries to address ACA enrollment inconsistencies, briefed the House Energy and Commerce Committee last week, and what they said, they indicated that upwards of 99 percent of the inconsistencies would be in, quote, "innocuous", end quote, or benign, and easily resolved without impact on beneficiaries' costs or coverage; third, consumers attest in their application form under penalty of perjury, and that is not taken lightly; and lastly, if a review shows a household's initial subsidy is inaccurate, the marketplace will adjust it for the remainder of the year, and places like the District of Columbia have actually suggested to people that they only take 85 percent of their subsidy so that they are on the conservative side of this, and, of course, then there is true up and reconciliation. The bottom line in all this is that it makes sense to complete the examination of discrepancies as soon as possible, but with respect to the number of inaccuracies, to borrow from William Shakespeare, this is much about very little. Chairman Brady. Thank you. [The statement of Mr. Pollack follows:] Chairman Brady. While some today try to dismiss this, this as no big deal, the truth is Republicans and Democrats have been concerned about this for some time, with the risk to taxpayers by inadvertently committing taxpayer funded fraud, unfortunately, if this is not fixed. Mr. Holtz‑Eakin, on the screen, in barely readable type, is the income verification system of the Continuing Appropriations Act 2014. This was passed Republicans and Democrats, signed by the President, includes language principally by Representative Black of Tennessee, an important section reads this way: Prior to making such credits and reductions available, the Secretary shall certify to the Congress that the exchanges verify such eligibilities consistent with the requirements of such act. And Secretary Sebelius made that certification January 1. One, was that certification in error, and two, as of today as it currently stands, does this system meet the requirements of the law? Mr. Holtz‑Eakin. In my opinion, it does not meet that requirement and the Secretary clearly made the certification for reasons that she can defend, but by delaying for 1 to 2 years depending on the size of the firm any collection other than voluntary of information from the employer side, you cannot know if someone has an offer of affordable insurance. That is a key piece of the eligibility requirement. Second, there are essentially different rules for Federal exchanges and state exchanges, and my understanding is that the administration is going to treat differently those states that did and did not expand Medicaid. You cannot make a sweeping statement that there is an overall certification system in those circumstances. Chairman Brady. As of today, Mr. Holtz‑Eakin. Yes. Chairman Brady. As of today. Here we are June 10th, we have not even begun to resolve, even begun to resolve income‑related inconsistencies. CMS acknowledges there is well over a million of these. They hope to get through them by the end of the summer; not yet known if that will happen or not. Obviously everyone acknowledges there is a long way to go in this. Some will say this is all working out, no problem, this will work itself out, but even if they fix all the technical items, will HHS and the IRS really ever have a working income verification system? Doesn't the law, based on a very poor design, really prevent any agency from verifying income information before sending out the tax subsidy? Mr. Holtz‑Eakin. There is no existing program that does what you described effectively. My concern is from experience with the earned income tax credit, from experience with the Medicare payment programs that this is yet another program that will, in fact, place a premium on getting money out the door, it will then make a good faith effort to identify errors in payment and recapture, but we have as a Government never done that particularly successfully. And so, I understand the folks who point to particular details that can be fixed and done better, but as an overall track record, these kinds of programs have large errors in payment, and those are large taxpayer sums of money. Chairman Brady. So the problems that we will see won't merely fix themselves. The design of the system really makes it, as you indicated in your testimony, creates that pay‑and‑chase process, again, where we will always be paying out incorrect subsidies, chasing them down with some degree of success or not. Mr. Holtz‑Eakin. Absolutely. And indeed, this law, in fact, exacerbates that slightly by making it the case that the recapture comes from taking money out of refunds. If there is no refund from which to take the overpayment, the taxpayer has ‑‑ the recipient of the payment has no obligation to repay the Federal Government and thus the taxpayers. So, you know, you have designed it so as to not get back all the overpayments. There is no doubt about that. It is going to be in particular, people like Mr. Ellis in a bad position. If you are a tax preparer, you can have an individual sitting in front of you saying, I am not going to pay what I owe, and will he sign off on that as a tax return? I won't answer for him, but I wouldn't want to be in that position. This is really a poorly designed system from that perspective. Chairman Brady. And in your testimony, you made the case that many of these individuals may not be as familiar with the tax preparation system. You are asking them to follow a very complex set of rules that they may have really no experience in dealing with? Mr. Holtz‑Eakin. Yes. I mean, there are two people on this panel that can speak to this better than I can, but I worry about what happens next February. There are going to be people who have not traditionally filed returns who are going to get an information form in the mail, it is a 1095A, and my guess is half of them will toss it, they will have no idea what that is. They will then have an obligation to file a return and reconcile the information on that form through another form, an 860 ‑‑ 890 ‑‑ 8962 form, and if they don't put that form in, the IRS will reject the filing and send it back to them. They won't get their earned income tax credit, they won't get their child care, they won't get anything. I think there is going to be enormous amount of confusion. This population is not used to this process, the forms are new. The way error checking and reconciliation is going to happen is, in fact, not clear. You know ‑‑ Chairman Brady. And if I understand it correctly, because of the way Ms. Maloney talked about, if taxpayers don't catch it this next tax season, with the reporting requirements put in place in 2015, they will be caught in the 2016 tax system, which means they could be on the hook for 2 years of either overpayments or ineligible subsidies; is that correct? Mr. Holtz‑Eakin. That would be my reading of the law and the practice. I would encourage you, you know, to have the IRS commissioner come up and explain how they do in fact plan to do that. I think there is some uncertainty about that at the moment. Chairman Brady. Thank you very much. Mr. Ellis, to sort of follow up, there is really a second group of taxpayers we are concerned about, and you identified them in your testimony. And so if an individual, if I go to my employer and ask, is the insurance you offer me affordable according to the Affordable Care Act, will that employer necessarily know what that means? Mr. Ellis. No, because the employer doesn't have all the information that it needs in order to make that judgment. The definition of affordable insurance from the workplace is nine and a half percent of someone's adjusted gross income, of an individual's adjusted gross income, but, of course, individuals if they are part of a family unit don't file taxes as individuals. That only happens if they are single. If you are married or if you have dependent children and all these other things that come into a more complicated tax return situation, the employer is not necessarily going to have all that information. That is why the employer community was so insistent upon having this waiver of reporting, I think, for 2014, because they knew that they didn't want to make an attestation to the Government based on information that was incomplete. Chairman Brady. So if I have asked that question of my employer, they may not necessarily know what that means. So Serco, the Government contractor hired to process all the paper applications, resolve the conflicts of data, contact taxpayers and all, if they ask an employer today, is the insurance you offer John Q employee affordable, is the employer going to know that answer? Mr. Ellis. Probably not, because that employer probably doesn't have any more information than he did at any point this year. Chairman Brady. So, the Government can supposedly check, and they are doing this manually, so doubt they are doing much checking right now, but can they check and get the wrong answer? Mr. Ellis. Absolutely, they can get the wrong answer, and they will. Chairman Brady. And then, who pays that back if the answer is wrong? Is it the individual? Mr. Ellis. Ultimately the final liability lies with the taxpayer himself or herself that has received this advanced credit. Chairman Brady. Okay. Final point. Mr. Ellis, in his testimony, Mr. Pollack stated the Affordable Care Act envisioned a modern, streamlined application system for health insurance and premium tax credits that would avoid the need for people to bring shoeboxes full of documents into Government offices. The Washington Post reports, piles of unprocessed proof documents are sitting in a Federal contractor's Kentucky office. Quite literally there are millions of documents, much of which presumably came from someone's shoebox. As the tax preparer, does the Affordable Care Act meet the goal envisioned by Mr. Pollack, and do you expect it to be overwhelmed by the contents of these shoeboxes next April? Mr. Ellis. I expect it to be overwhelming, in that taxpayers will not know what they don't know when they walk into a tax preparation meeting. I think tax preparers are going to have to learn themselves what it is taxpayers are going to need to bring. We are probably going to have to send them back home, send them back to the Government agencies that maybe they threw away forms from and come back and do follow‑up meetings. So it is going to be burdensome on the entire process next filing season. Chairman Brady. The purpose of the hearing is not to minimize the problem, it is to shine line on it. So both individuals, employers, others who could be caught up in this can take action now to try to prevent it, and the Federal Government can actually do the job it was supposed to do under this law. So I now recognize the Health Subcommittee ranking member, Dr. McDermott, for 5 minutes. Mr. McDermott. Thank you, Mr. Chairman. God, it sounds like the game is over, it is all ‑‑ it is hopeless. Mr. Pollack, the ACA ‑‑ doesn't the IRS have a process at the end of the year that will take the income that you report that year and match it up with what you said you were going to have? Mr. Pollack. Yes, of course they do and, you know, what is really important in this inquiry is not to confuse two different sets of things. One is verification of information that looks retrospectively, which is really the issue that is currently being considered when they say there are a couple million inconsistencies. The other is prospectively. When people provide the best information which is accurate at the time they provide that information, you and I don't know, they don't know whether in the middle of the tax year their employer is going to give them a bonus, whether their employer is going to increase their salary, whether there is going to be a difference in overtime pay. Those are the kinds of things that will be checked later on at the end of the tax year. That does not mean that the application that has been filed has current inaccuracies. I am concerned that the retrospective effort ‑‑ I am sorry, that the effort at trying to adjust tax credits in the following year, which may have to look at things that nobody predicted and that are not contrary to what the information that was provided in good faith could result in a tax liability, but that is very different than saying that there are current inaccuracies. Mr. McDermott. It sounds to me like the testimony of some of the other witnesses is fear mongering to make people afraid to say, I think my income this year is going to be $30,000, and therefore I would be eligible for X amount of subsidy, and to take it, because it may turn out that something changes during the year and suddenly they are faced then with, it was $40,000 you made, you owe $500 back. Is that a fair statement of what the ‑‑ Mr. Pollack. Yeah. There is no question that those who have opposed the Affordable Care Act have tried to deflate the number of people who apply for coverage and seek subsidies. Thankfully, the Affordable Care Act did better than anyone predicted. Over 8 million people actually enrolled in private coverage, about 5 million people enrolled in Medicaid coverage, another 1 million enrolled in Medicaid coverage in April after the first enrollment period expired, but thankfully people, when they get counseling ‑‑ and they are receiving counselors. There are navigators and assisters that are providing information to people so that those who are unfamiliar with the form and have difficulties with the form can fill it out accurately. Mr. McDermott. And was there anything in that process when they were filing that said, give us your income for 2 years ago so we can match what you tell us with what you received 2 years ago? Was that the earliest ‑‑ the best data available to the IRS? Mr. Pollack. Yeah. Well, of course when we move away from this shoebox mentality that we have had with social welfare programs where people have to come in with W‑2's and 1099's and a host of other data, now we are doing it digitally, and what we then do is verification digitally. What we can only do with the best data that we have, and the best data that we have with respect to income is income in the tax files of a couple years ago. Mr. McDermott. So if I am making $30,000 now, maybe I was making 27 when I ‑‑ the last time, in 2012. So when I report $30,000 as my income today, it will be matched against that 27 of 2012, and it will look like an inconsistency, right? Mr. Pollack. Yes and especially any inconsistency that exceeds 10 percent, and that ‑‑ from $2,700 to ‑‑ $27,000 to $30,000, that is an increase a little above 10 percent, that will appear to be an inconsistency, but it doesn't mean that the $30,000 response was inaccurate. Mr. McDermott. So what is being created here is the impression that there are thousands of people sitting out there saying, I think I will put my income down real low so I can get a big subsidy and see how far I could get with it. Is that a fair way to characterize? Mr. Pollack. Well, I don't think people ‑‑ Mr. McDermott. And I yield back the balance of my time. Mr. Pollack. I don't think people are looking at it that way. Chairman Brady. If you would like to answer in a later question or submit it in writing, that would be perfect. Mr. Pollack. I would be happy to do so. Chairman Brady. Chairman Boustany. Chairman Boustany. Thank you, Chairman Brady. The Oversight Subcommittee of Ways and Means has had multiple hearings looking at improper payments in various areas of the Tax Code, and we have tried to focus on this nexus of complexity in the Code and how it leads to improper payments, what is the IRS trying to do to deal with all this, and the compliance burden. We know that improper payments come about from identity theft, honest miscalculation, or the government's inability to administer credits properly. We know that refundable credits are very difficult from an administration standpoint, and that is based on multiple conversations I have had with the IRS Commissioner, privately as well as in hearings. And I referenced government‑wide, just under 5 percent improper payment rate. EITC is more problematic, and we still have not gotten a full handle on this. But Mr. Holtz‑Eakin and Mr. Ellis, comment on the vulnerability that this premium tax credit is going to pose in terms of creating significant improper payment, and what can the Federal Government do better, if we are going to have this system, and I would submit, I think, the policy prescription is pretty flawed, and we are seeing the implementation flawed as a result; but given that scenario, what can we do? Mr. Holtz‑Eakin. I guess the thing I would like to emphasize is that the reason I am concerned is because of the EITC experience, and this committee has looked at it for a number of years I know. There is no income attestation in the EITC. This is not about inaccuracies in attestations. It is about correctly delivering the right amount of a refundable credit to a deserving individual, and we get that wrong at alarmingly high rates, 1 in 5, hundreds of billions of dollars. And that track record is the focus of my concern. It can be improved by effective electronic information sharing, and there is, you know, great efforts by the IRS to do that. I think at the startup of the ACA, there is going to be big problems there. We know that, in fact, the States have simply not been asked to do that. If you are on a Federal exchange, there was an attempt to check the records a few years ago; but I think for a number of years, until the employers are fully in the system and the matching and error checking is done effectively, it is going to be impossible, regardless of attestation, to simply line up the records and give the right amount of money out, and that is my concern. Chairman Boustany. This level of complexity, especially with the problems they are having with the employer mandate and the reporting is significant. Ms. Mahoney laid out a number of major concerns in that regard. And I know we have talked, I think you have testified before about the additional $30 billion in regulatory compliance on taxpayers because of the Affordable Care Act. How does this situation with the subsidy eligibility process, employer reporting as we know the status today, these requirements, how will they really add to the compliance cost, and what is the effect going to be both on tax compliance and economic growth? Mr. Holtz‑Eakin. I have been concerned for quite some time that the Affordable Care Act does not cost you anything like a pro‑growth policy at a time when the U.S. is recovering poorly from a very deep recession. And so as a whole, it goes in the wrong direction. This is not what you would do to stimulate economic growth. The particulars of the compliance costs are quite troubling because the number is high, the paperwork and self‑reported compliance cost ‑‑ these are all figures from the agencies themselves ‑‑ look like $300 billion over a 10‑year horizon. Much of it is going to be visited upon a very low income population, the deserving targets of the exchange subsidies. They are the ones who are going to have to report every change in their personal lives quarterly to these exchanges. They are the ones that are going to have to identify the information statements that come in the mail, file new tax forms that they did not previously have to file, do the reconciliation, perhaps be denied their EITC until a second filing confirms the appropriateness of their subsidy. Those compliance costs are going to visit on that population, and that is not going to improve their economic lives. Chairman Boustany. Mr. Pollack quoted Shakespeare earlier to the tune of much about nothing, but I would submit that $220 billion over 10 years is significant; and this is just one piece in a budget problem that we have. I would like you to comment. I mean, this $220 billion estimate, give us a little more insight into where that figure might have come from? Mr. Holtz‑Eakin. How big is that? I mean, where it came from, if we spend $1 trillion in exchange subsidies over the next 10 years at roughly 20 to 22 percent inappropriate payment rate, that is a $220 billion taxpayer finance mistake. And that is not entirely hypothetical because we have had that experience in the EITC, which is a smaller program. For perspective, right now the gap between payments coming in, payroll taxes and premiums, and spending going out in Medicare is $300 billion. Crucial piece of the social safety net, $300 billion deficit every year, that is the size of the mistake that we are potentially making that could be applied to legitimate taxpayer goals like funding programs they want and reducing taxes they don't think they need. Chairman Boustany. Do you think the error rate, we are basically, for the sake of calculation, using a 20 to 22 percent error rate, do you think it is going to be higher? This strikes me as being actually more complicated than the EITC and suggests to me that the error rate could be higher. Mr. Holtz‑Eakin. Well, the EITC asks you to provide at the individual level, household level, your income, family size, the parameters of qualification for your credit. This is that, plus the employer side on affordable insurance, and it is by definition more complex and leads the situations that Mr. Ellis talked about where you might decide something is unaffordable for an individual, send them off to the exchanges, look at the family unit as a whole, decide it was affordable, they got the subsidies inappropriately. They are now in a very bad position of owing the entire amount back, perhaps with quite large penalties. It is going to be difficult to operate effectively. Chairman Boustany. Ms. Mahoney, do you want to add anything to this? You focused a little bit on the employer reporting requirements and the complexity there. Is there anything that you would like to add? Ms. Mahoney. I think that one thing to consider is that businesses are very different in terms of their population of employees, in terms of the size of their company, in terms of whether they self‑insure or do not self‑insure. And so one of the things that we would like to continue to see is flexibility in terms of what compliance means for the reporting requirements because there are so many different types of businesses and different types of employees with variable hourly employees as opposed to seasonal employees as opposed to a population that you anticipate their hours very clearly. So I think that adds a huge layer for the employer. Chairman Boustany. To put all this back into perspective, some very disturbing trends have already emerged, and as a physician, I know what the impact of this will truly be. We are now seeing more people in the emergency rooms across the country. This means that a lot of people who need medical care are getting their first line care in the emergency room where it is more expensive, typically later in the process, and it is certainly not the best way to establish a high‑quality doctor‑patient relationship. I don't think this was the intent of this law, but this is the consequence of a flawed policy. With that, I will yield back, Mr. Chairman. Chairman Brady. Thank you, Chairman. Ranking Member Lewis. Mr. Lewis. Mr. Pollack. It is good to see you again. Thank you for being here. Thank you for continuing to fight the good fight. Almost 50 years ago you were down in Mississippi in the heart of the Delta trying to help people get registered to vote. Fifty years later you are still fighting, standing up for what is fair. Just thank you for being here. As you travel around the country, what do you see? What do you hear about the Affordable Care Act? What are the American people saying about it? And I want you to take your time, and if you want to respond to anything, I want you to use my 5 minutes to say what you want to say. Mr. Pollack. Thank you. Thank you, Mr. Lewis. You know, the last Census Bureau report tells us something that is truly extraordinary. What the Census Bureau reports said was that there were 48 million people in our Nation who are uninsured. You know, it is hard to put your arms around that number, 48 million. So think about it this way: Take the entire population of Oregon, and then Oklahoma, and then Iowa, and New Mexico, and Mississippi and Utah, Nebraska, Montana, North Dakota, South Dakota, Connecticut, Arkansas, Kansas, Nevada, West Virginia, Idaho, Hawaii, Maine, New Hampshire, Rhode Island, Delaware, Alaska, Vermont, and Wyoming, 24 States, and you aggregate the population together and throw in the District of Columbia, and you have fewer than 48 million people. What the Affordable Care Act does is it changes that, and we have seen some significant improvements already. For example, we just learned from the Gallup Survey that the number of people who are uninsured has reduced very significantly, and that is very important. But the Affordable Care Act is doing a whole lot more. It is providing peace of mind to people, people who had preexisting health conditions like asthma or diabetes or high blood pressure or history of cancer, they no longer have to worry whether they can get health insurance from an insurance company. Young adults who can't afford insurance are now getting coverage, over 3 million of them, through their parents' policy. And a lot of people who could never afford health insurance before are now receiving significant subsidies that makes premiums affordable and that make out‑of‑pocket costs affordable. And community health centers are receiving more money to serve more people. So the Affordable Care Act has taken some very important steps that are long overdue, and in the process, it is also doing something about health care costs that Mr. McDermott talked about. It is aligning payments so we pay for quality rather than quantity of care. It is improving quality effectiveness research to make sure that the care we get is the best care possible. It is improving coordination of care. Those are all very important steps, so I am really thankful that the Affordable Care Act, which is by no means perfect, but it is an extraordinary step in the right direction. Mr. Lewis. Thank you very much. Mr. Chairman, I yield back. Chairman Brady. Thank you. Mr. Johnson is recognized. Mr. Johnson. Thank you, Mr. Chairman. I can't say what I want to say. You know, defenders of the President's health care law claim the problems we are talking about today are predictable challenges in implementing new programs, the administration is working out the kinks and the problems will go away. I don't think that is true, is it? Mr. Holtz‑Eakin, are the problems of income reconciliation, unexpected tax debt or potential waste, fraud, and abuse issues of implementation, or do they go to the very core of how this law operates? Mr. Holtz‑Eakin. As I said in my opening statement, I think there are lots of issues that will arise in the first filing season due to the deferral and waiving of some of the provisions, but the fundamental issue is much like the EITC and other programs and will not disappear. It is a problem in the design. Mr. Johnson. Well, I guess we have to wait and see. Mr. Ellis, as a tax preparer, what are your biggest concerns about the 2015 tax filing season? Mr. Ellis. My biggest concern is that there is a lack of education that is happening on both the preparer side and on the taxpayer side, that there is going to be a completely different dynamic in the tax interview for many of these clients next spring than we have had up until this point. We are going to have an added dimension of having to deal with this, and really everyone I think is going to be caught flat‑footed in this. Taxpayers are not going to expect it coming. They, frankly, come in with a big pile of paper and have no idea what they are bringing to a tax meeting. That's the honest truth. This will simply be added to that pile. They won't be prepared to answer the type of questions that we are going to have to ask as tax preparers, tax preparers having to deal with a completely new set of forms and a completely new process to interview taxpayers are also ill‑prepared for this. So my biggest concern is that we are going to have a lack of information all around, and then that doesn't even bring into account the agency, the IRS, and their ability to educate both taxpayers and preparers in that regard. Mr. Johnson. Well, and they are going to be unable to fathom all the facets of this law I think ultimately. Thank you, Mr. Chairman. I yield back. Chairman Brady. Thank you. Mr. Davis. Mr. Davis. Thank you. Thank you very much, Mr. Chairman. I want to thank the witnesses. You know, I was in church Sunday, and I was kind of touched with the message that the pastor gave, and he was trying to figure out why it is that sometimes we see things and just refuse to believe it, that he was pushing the fact that what the eyes see, the heart must believe. And so it amazes me that we continue to hear that ACA is not working when we can see, if we put in perspective, more than 8 million people have marketplace health insurance plans, including more than 6 million who are receiving tax credits. Approximately 6 million lower wage individuals have enrolled in Medicaid coverage, 6 million young adults have been able to stay on their parents' health plan; 129 million Americans with preexisting conditions, including 17 million children, can no longer be denied coverage or charged higher premiums because of their conditions; and more than 100 million Americans no longer have a dollar limit on their coverage, providing them and their families with peace of mind that they will not go bankrupt if they are diagnosed with an expensive disease. The bottom line is that the ACA helps people with preexisting conditions, those who are between jobs wanting to become self‑employed, and obviously this is a tremendous amount of improvement. Mr. Pollack, you have indicated that as you have talked to people and get the impressions from them how they see this, if they see it one way, I am wondering, why do so many other people seem to see it another way? Or if their hearts just refuse to believe what their eyes see. How would you respond to that? Mr. Pollack. I think there are three words that really reflect what has happened to people who are gaining coverage through the Affordable Care Act. Those three words are "peace of mind." People now know that when they or a family member need care, they will be able to receive it, and I think that if you take a look at the surveys of those people who have enrolled, you will find that by an extraordinary margin, people are very happy with that. And I think as more people get enrolled, and more people will get enrolled over the course of the next year and the following year, I think you are going to see that the American public understands that the Affordable Care Act provides a very significant contribution to the improvement of America's health care system. It is by no means perfect, and we are still going to have to make some changes to it, but it is a big step in a positive direction. Mr. Davis. Thank you very much, and I just hope that their hearts will catch up to their eyes, and they too will see that the Affordable Care Act is what America needs, and I yield back, Mr. Chairman. Mrs. Black. [Presiding.] Mr. Roskam. Mr. Roskam. Thank you, Madam Chairman. Mr. Holtz‑Eakin, I noticed the first point that you made in your opening remarks I thought was interesting, and you cited the complexity of the Affordable Care Act, and I want to follow up on that. You know, one of the reasons that we have this hearing today is because it is so complicated that the administration is calling upon an honor system that just basically says, you know, you all just report in, and we will attribute, give that the imprimatur of actuality on it. We will just assume that what you say is true because it is so big and it is so complex and it is so difficult that the administration can't deal with it. We know that the Congressional Budget Office recently came out, and they said, in part, that some of these elements of the Affordable Care Act are so complicated and so difficult to discern that the Congressional Budget Office can't get its arms around the totality of this impact, and not to indict the CBO, they are just saying this is the reality, and the footnote in part says that CBO and Joint Committee on Taxation can no longer determine exactly how the provisions of the ACA that are not related to the expansion of health insurance coverage have affected their projections of direct spending and revenues. Then it goes on, isolating the incremental effects of those provisions on previously existing programs and revenues 4 years after enactment of the ACA is not possible. In other words, it is so big and it is so complicated and it is so overwhelming that a few months ago they were able to estimate that the 10‑year cost was $1.3 trillion, and now they have said it is too big, there is no way to get our heads around this. One of the remedies, I believe, and I am interested in your insight in this, is legislation that I have introduced along with 80 Members of the House calling for a Special Inspector General to monitor the Affordable Care Act. The thinking is this incredibly complicated piece of legislation that implicitly is so complicated that the administration can't get its heads around it is implementing the honor system. Explicitly, the Congressional Budget Office says it is so big and complicated, we can't get our heads around this thing, that I think it is time for us to enact similar to what happened with the Troubled Asset Recovery Program, similar to Inspectors General on Iraq and Afghanistan, and an overall Inspector General to get the information to report back and to get our arms around these big questions. Can you give us any insight or thoughts you have, particularly on a large Inspector General and how the need for that? Am I overstating this? Am I overcharacterizing it? How would you think of that. Mr. Holtz‑Eakin. Well, first of all, I would, you know, issue the caveat that I haven't read your bill. Mr. Roskam. It is really good reading. You would love it. Mr. Holtz‑Eakin. I am remiss, I know I should have. The Inspector Generals have been very valuable additions to agencies, they have, and I think the track record of their bringing to light inefficiencies, outright malfeasance, things like that is superb. What is unique about this law is really its breadth, the number of agencies it encompasses. I wouldn't even be able to list them all. You have got DHS, IRS, Treasury, you have got HHS, you have got the Social Security Administration, the list goes on. Each of the IGs in those agencies is probably very good and looking as carefully as they can at the operations, but they are not going to see the big picture, they are not going to ask the question, are we seeing an efficient, good‑faith implementation of the law that the Congress passed and the President signed. It makes sense to me to put someone in that position, particularly for such a very, very large amount of money. This is an extraordinarily important and large program. It makes perfect sense from that perspective. Mr. Roskam. Let me just direct you specifically to three questions that we prepared in advance. Is there any entity today that could give us an accurate report of how taxpayer dollars are being spent for this law across the entire Federal Government, the interactions with State government and the private sector? Mr. Holtz‑Eakin. No. Mr. Roskam. Do you agree that SIGMA would bring, that is this Special Inspector General Monitoring the Affordable Care Act, as you have come to understand it would bring much needed clarity to the law that has been haphazardly implemented, and where there are strong concerns about waste, fraud, and abuse? Mr. Holtz‑Eakin. Yes, because the implementation is now more important than the law. It has been so uneven. Mr. Roskam. And regardless of someone's perspective on the Affordable Care Act, isn't it a rational thing to say more information as it relates to the implementation of the law is a better thing? Mr. Holtz‑Eakin. Absolutely. Mr. Roskam. I yield back. Mrs. Black. The gentleman from Nebraska, Mr. Smith, is recognized. Mr. Smith. Thank you, Madam Chair. Mr. Ellis, can you explain the difference between inconsistencies, that is, the difference between information entered on an application and government records, and then ineligibility based on an offer of affordable employer‑sponsored insurance? Now, in the case of inconsistency the applicant will receive a notice of inconsistency; is that correct? Mr. Ellis. That is correct. Mr. Smith. And then they will have the opportunity to rectify those inconsistencies, would that be accurate? Mr. Ellis. That is accurate. Mr. Smith. So in the case of an applicant, I would say someone acting in good faith who receives a tax credit not realizing or fully understanding they are ineligible because they or a family member were offered employer‑sponsored coverage will receive an inconsistency notice. What will they owe when the error is identified? Mr. Ellis. If the taxpayer in question was eligible for affordable employer‑provided insurance, they would owe the entirety of their advance tax credit back. If they were simply given an overage, they would owe back the extra amount presuming that they make more than a certain amount of income as set in law by statute. Mr. Smith. Now, if they did not have a refund coming, what would happen in that case? In that case they would have a straight liability to the IRS. They would have to do a payment. That payment could potentially have interest, and also if payment does not happen, the liens and levies that were discussed earlier could also come into play. Mr. Smith. Okay. Mr. Pollack, would you agree with that analysis? Mr. Pollack. Yes, I do. Mr. Smith. So that a taxpayer acting in good faith could see a lien coming as a result of the complexities of the Tax Code? Mr. Pollack. Is that a hypothetical potential? Of course there is. But the real issue here is really not the error scenario that we are focusing on right now. The real potential is for liability is not significantly in errors as we talked about errors before. It is because when people honestly, accurately portray their current circumstances, and they receive a tax credit subsidy accordingly, where the potential for liability is significant is that despite the fact that the response was honest and accurate, things change over the course of the year. Someone may have gotten a bonus in terms of their compensation. They may have received an increase in their salary. They may have had more overtime than they had expected. There are a variety of factors like that which mean that the accurate, not error, information provided by an individual changes over the course of that year. And that will result in a potential liability. That is what I think may very well happen in April of 2015. I do not believe that we are going to see liability to any significant degree because of errors as we have been talking about it in this hearing. It is what happens prospectively that was unpredictable, rather what happened retrospectively that was reported inaccurately. Mr. Smith. My concern is that the Tax Code was already very complicated before we added more complications as a result of this healthcare issue, and my concern is that a taxpayer acting in good faith and wishing to do the right thing could see a pretty significant penalty. Thank you. I yield back. Mrs. Black. The gentleman yields back. The lady from California, Ms. Sanchez, is recognized. Ms. Sanchez. Thank you. I want to thank our chairmen and our ranking members for this hearing. I want to begin by pointing out that the Affordable Care Act is working. Gallup recently found that the percentage of uninsured Americans has dropped to 13.4 percent, which is the lowest recorded rate ever. More than 8 million people have signed up for exchange plans, with 6.8 million of those receiving an average tax credit of $4,400 to provide the peace of mind of having health insurance, many for the first time. Another 6 million have enrolled in Medicaid thanks to the ACA's Medicaid expansion, including 1.4 million people enrolling in California's medical system, and I could go on and on with numbers, but the bottom line is that the ACA is helping people, people with preexisting conditions, people between jobs and many, many others. Now is the law perfect? Well, no law is, but a tremendous improvement over the discriminatory, dysfunctional, and irrational market that existed prior to its enactment, it is doing much better. And we can agree that some of the issues that HealthCare.gov have encountered are unacceptable. However, it is not the first time that we have seen a troubled rollout. The implementation of Medicare Part D was riddled with false starts and complaints, but we didn't defund it and we didn't repeal it. We didn't throw our hands up in the air and woe is me because it is complex or it is a little bit difficult or it could change. So let's just all stop kidding ourselves and admit that there will be glitches with the ACA, but if we spend our time working together to ensure that the law worked, maybe we could make it easier for families to buy affordable health insurance. But the hearing today unfortunately does very little to accomplish that goal. It is clear that this hearing is just another attempt to bash the ACA and play politics with Americans' livelihoods. Like most Republican hearings we have had recently, this is meant to produce a lot of noise and some crocodile tears but very few solutions moving forward. The majority is playing up a false sense of populism and claims that they are worried about people owing a huge tax bill to the IRS during the 2015 filing season. Well, I think that is ironic given that the Republicans eliminated improvements made by Democrats, and they want Secretary Lew to halt all tax credits that make health insurance more affordable. I think it is unconscionable, and that kind of demand demonstrates that Republicans are out of touch with everyday American families. Life is complicated, yes. And it is full of surprises. People get new jobs, they get married, they have children, they move from State to State. The verification system known as true‑up ensures that tax credits accurately reflect the changing nature of people's lives, and I am one of those examples. I have a biological son and I have stepchildren. I come from an immigrant family, and I use an accent over my last name. And my life, like so many southern Californians, could be considered complicated, but the ACA will recognize those complexities through the verification process during next year's tax filing season. HHS has been transparent about the process and has tried to be proactive in its outreach. We shouldn't deny Americans the assistance they need to buy affordable health care just weeks after they have received it. So if we spent a little more time really caring about the needs of real people instead of trying to tear down the law and defund it or repeal it, we might be able to work together in a constructive way, in a bipartisan way, to help ensure that Americans receive quality, affordable health insurance, and I am sorry for stepping on my soap box just now, but I felt it was important to point that out through this entire hearing. What I would like to do is I would like to ask Mr. Pollack what happens if we repeal or defund the Affordable Care Act as Republicans have suggested time and time again? What happens? Mr. Pollack. Ms. Sanchez, I don't think we are going to repeal the Affordable Care Act. We are not going to defund the Affordable Care Act. There are 8 million people who are now receiving subsidies, who are receiving coverage. Most of them, 85 percent are receiving subsidies. Five million people are receiving coverage through the Medicaid program, or CHIP. Three million kids are getting coverage through their parents' policies. We are going to see those numbers increase substantially. I don't think that this Congress, I don't think any Congress is going to take away these benefits that are so important that make health coverage affordable for the first time. Ms. Sanchez. Let me ask you what I hope is a constructive question, which is how can we work to improve the application process for immigrant families in particular? Mrs. Black. Mr. Pollack, the lady's time is expired. We will ask that you submit the answer to this question in writing. Thank you. The gentlelady from Kansas, Ms. Jenkins, is recognized. Ms. Jenkins. Thank you, Madam Chairman. Thank you for holding this hearing and thank you all for joining us today. A month ago, our Oversight Subcommittee was able to host IRS Commissioner Koskinen at a hearing on the IRS filing season. At that hearing, I asked Mr. Koskinen about the administration of the Affordable Care Act's premium tax credit reconciliation process. As we have already covered at today's hearing, the ACA's premium tax subsidy will be based on folks' income estimates, and these estimates will often use the prior year's tax returns. Taxpayers will eventually have to reconcile the premium subsidies they received with the amounts they were eligible to receive based on their actual income. In many cases, whether it is due to a salary increase, move across State lines, or other change in situation, they could find themselves owing thousands of dollars back to the IRS. Recently CMS data indicated that 1.2 million enrollees had discrepancies related to income, and this is before we begin to factor in life changes that will occur throughout this year. I have asked Mr. Koskinen if he believes that taxpayers fully understand the risk that comes with failure to report a life change to the exchange and how they will handle the reconciliation process. He responded that the IRS is concerned that taxpayers need to understand the risk, and they are beginning to publicize this so that taxpayers have various modes of outreach, including their Web site and that he hopes that taxpayers will notify the exchange so that they will not be surprised. Mr. Ellis and Mr. Skarlatos, would you be willing to answer a few questions for me? Do you think that taxpayers are at all aware of their obligation to notify the exchange with their good news of getting a raise or marriage throughout the year, and do you believe that taxpayers understand their risk of failing to do so? Mr. Ellis? Mr. Ellis. No. Because if there is one constant in the tax preparation industry, it is that people forget about the IRS as quickly as they can once they file their tax return, and they don't think about it again until the next January. Ms. Jenkins. Mr. Skarlatos. Mr. Skarlatos. I don't think taxpayers are aware. I think that is what tax preparers should be doing with them. They should be educating them as much as they can. Ms. Jenkins. Okay. Thank you. Do you believe the IRS' efforts to publicize this information, either through a YouTube account or their Website, will make taxpayers understand their obligation? Mr. Ellis. That requires taxpayers to have the interest to go to IRS.gov or to be recipients of the information in some other way that they would actually see it. Based on my experience with real world people that actually file their taxes, I think that is incredibly unlikely. Mr. Skarlatos. I agree. I think it is unlikely. I think the burden again should be on the tax return preparers to educate the taxpayers. Ms. Jenkins. And as someone who has prepared tax returns and has had to deliver bad news to taxpayers regarding refunds, are you concerned the tax preparers will be the real frontline of taxpayer education at a time when it is too late. Mr. Ellis. There is a joke inside the tax preparer world that it is always the taxpayer's fault when you are in a meeting with a client, and I think that is probably going to be exacerbated here. I think the tax preparers themselves are going to be very unprepared for this. They are going to be talking to people who make a modest amount of income by definition. The 400 percent of Federal poverty line is not a very high level of income. These are not people that have a lot of liquidity to be able to deal with surprises. So, yes, I think it will be very tense, those conversations between preparers and clients. Mr. Skarlatos. I agree. The Tax Code is very complex. The tax return preparers are the gatekeepers to the system, and it will be difficult for them to educate taxpayers in this way, but it is really the only way it can be done. Ms. Jenkins. Thank you. I yield back. Mrs. Black. Mr. Paulsen from Minnesota, you are recognized. Mr. Paulsen. Thank you, Madam Chair, and thank you also for presiding over the hearing today. Just to recap, when the President's health law was passed back in 2010, the law called for verifying individuals' income in order to determine if they are eligible to receive a subsidy. The administration said we are not going to enforce that provision. So Congress moves in, re-passes legislation, the President signs into law that includes the provision once again that we require income verification. But then today now, we know that there are over 2 million people of the 8 million that are in the exchanges, these applicants, have unresolved inconsistencies. So that means 25 percent of applicants in the exchanges had discrepancies. This isn't a glitch. This is clearly a systemic issue, and so the May 17 Washington Post report showing that as many as 1.5 million people; there are cases of significant inaccurate subsidy payments now due to incorrect income data. In other words, there is no verification resulting in millions of taxpayers, families being on the hook potentially for billions of dollars in waste and fraud, and some of those cases bear out, I think, with Mr. Holtz‑Eakin had mentioned earlier in terms of the EITC. So we are no longer talking about hypothetical problems regarding the new healthcare law. We are talking about real risks that are in place now, and this harm is happening as we speak, and during next year's tax filing season millions of Americans are going to find out that they owe the IRS money because their premium credits were paid incorrectly. And the IRS and the administration in general is going to have to face a choice. One, they can go after innocent taxpayers creating financial hardship and confusion for those millions of families; or two, just and choose to once again ignore the law and force other taxpayers to cover billions of dollars in excess premium credit payments. Those are both very, very bad choices, and it didn't have to be that way. That is what comes when you pass just a one‑sided partisan law without bipartisan buy in. Mr. Ellis, is this really how the law was supposed to operate? Mr. Ellis. Well, if you look at the actual letter of the law, it is operating the way it is supposed to operate. That speaks more to think the process not having been thought through properly when the law was drafted. As you point out, if the IRS implements the law as written, it is going to face that very difficult choice between going after people who have very modest levels of income and savings in order to pay this overage or simply ignoring their mandate to carry out the laws as written by the Congress. Mr. Paulsen. Let me just follow up because as a tax preparer, you know what questions to ask when people seek your services. But what about the people who don't seek your services? Typically how are they going to know? How are they going to know what they are responsible for as a part of verification, and aren't those typically lower income Americans or individuals or families that aren't seeking your services that are going to be trapped in this situation? Mr. Ellis. Well, by definition if you look at the upper band of who is going to be affected by this, people that are receiving premium credits at all, 400 percent of the Federal poverty line is about $44,000 for a single person. It is about $90,000 for a family of four. So it is everybody between that and below all the way down to Medicaid eligibility. So many of those people are not today using tax preparers. They will continue to file their tax returns or not as they have up until the past. When they are going to find out about it is when they are going to get a notice of deficiency from the IRS after they file. Mr. Paulsen. Mr. Holtz‑Eakin, I just want to give you a chance to respond too real quick maybe to that or a couple of those points if you could. Mr. Holtz‑Eakin. I think that's exactly right, and my concern is that for this population, they are going to be in uncharted waters. There is a question about whether some of the State exchanges will be able to get the information statements to the recipients, their subsidy payments. Once people receive it, will they know to hold on to it, this is something they need or it was about that health thing they already did. Do they know to go to a preparer and thus send a reconciliation form? If they don't send in a reconciliation form, my understanding is the IRS is simply going to reject the tax return and tell them to start over. That will be a shocker, particularly if they are used to getting an EITC. It can be a bumpy ride in 2015. Mr. Paulsen. Thank you, Madam Chair. I yield back. Mrs. Black. The gentleman yields back. The gentleman from New York, Mr. Crowley, is recognized. Mr. Crowley. Thank you, Madam Chair. It is really a remarkable hearing today. It is unbelievable in many respects to me that my colleagues are willing to say and do just about anything to tarnish the Affordable Care Act and undermine access to health care in this country. Let me be very clear about a few things: One, the vast majority of what we are talking about when we hear inconsistency isn't fraud. It isn't malicious or a sign of anything bigger. These are expected, anticipated issues that happen with any Federal program checking various items of data. Two, there is, in fact, a verification system. It happens now as we speak and it is clearing the majority of inconsistencies. And three, there was a backup verification process that happens at the next tax filing when we know what a person's actual income was for that filing year. This reconciliation process is necessary and helpful because people's incomes, as has been stated over and over again, and family circumstances change over the course of a year, hopefully for the better. Some people maybe didn't get all the tax credits that they were entitled to, in fact. But what's shocking to me is all the fake outrage from my colleagues on the other side of the aisle about this reconciliation process when they have voted time and again to make this process harder on working families. After passage of the Affordable Care Act, Democrats worked to improve this reconciliation process, so families wouldn't see their income taxes raised if they received even a small end‑of‑the‑year bonus. But opponents of this law in their unending zeal to undermine the Affordable Care Act and to scare away people from accessing health insurance went back to this again and again to undo all the improvements we made and actually made it worse than before. I guess using Speaker Boehner's metric of judging this majority based on what the undo rather than what they do, they consider what they have done a success. And that is not even enough for them. Twice more, they put forward proposals to completely repeal all protections for families to repay tax credits that turned out to be more than they needed. So when you hear them now crying crocodile tears about the burden on people to pay back some or all of their tax credits, remember that they themselves have themselves to thank for increasing this tax burden. Madam Chairlady, I would like to ask unanimous consent to enter into the record each of these Republican attempts to force a tax increase on working families, H.R. 4, H.R. 5652, and H.R. 436. Mrs. Black. Without objection. [The documents follow: Rep. Joseph Crowley 1, Joseph Crowley 2, Joseph Crowley 3] Mr. Crowley. We tried to get our colleagues on the other side of the aisle to see what they were doing. We told them it was a tax on working families. Mr. Ellis, even your boss, Grover Norquist, admitted as much in his letter he sent to Chairman Camp back in 2011, calling this a gross tax increase but then saying never mind. It is okay because it is tucked into a bigger bill. Every time, and they brought it back up repeatedly. We asked them to not put this burden on American families. What did we hear in response? Crickets. We heard nothing. Last summer right around the point that these same colleagues were beginning to change their tune to the so‑called sympathy that is on display today, one of my colleagues on the other side of the aisle said that they had been told, and I quote, in a pretty loud tone that this would be a tax increase. I think that was aimed at me. I, from time to time, use a bellowing Queens accent, and I am proud of it. Because you know what I will say is this; I will speak up in a pretty loud tone when my constituents and hardworking Americans across the country are being targeted for baseless attacks. Mr. Ellis, I see that you are concerned about the, quote, liability the taxpayer will have at the time of tax filing. I share your concern, and that is why each of the numerous times my colleagues on the other side of the aisle tried to scale back or remove altogether protections for working families on how much they would have to pay back, I tried to stop it. Did your organization ever raise this concern to members of the majority? No. In fact, I have a letter here from your boss, as I mentioned earlier, to Mr. Camp reassuring him that your organization was okay with raising taxes on families as long as they also cut taxes and created loopholes for businesses. Your boss may be okay with raising taxes on individuals to cut them for businesses and industry, but my constituents in Queens and in the Bronx are not okay with that. But maybe I am just using too loud a tone, and I yield back, Madam Chair Mrs. Black. The gentleman yields back. The gentleman from New York, Mr. Reed, is recognized. Mr. Reed. Thank you, Madam Chair. And being from New York, I don't share that Queens accent. I am from the real part of New York, the country lawyer section of New York. I thank the gentlemen, Mr. Crowley, from New York. His friendship has always been appreciated. I just want to bring this down to day‑to‑day folks, being that country lawyer from western New York and being an area that is very rural, and I can tell you I remember first getting out of college, getting out of law school, being with my wife, filling out my returns, filling out my tax returns, and, you know, I got a refund check. And like millions of Americans, you know, I got that refund check, and we did a little something with it. My wife and I would go on a trip for the weekend. We would maybe buy something, maybe a new stove or something like that that we needed around the house. Just so I clearly understand what is going to happen here, and I get a lot of Americans aren't going to do this intentionally. It is not going to be done fraudulently. What is going to happen is someone is going to misreport their income, they will go to fill out their return, their 1040EZ just like I did with my wife, and they are going to get a notice saying you know what, that refund check that you thought you were going to be able to rely on that millions of Americans have grown accustomed to getting every year, they are not going to get it. Is that correct, Mr. Ellis? Mr. Ellis. It will at least be smaller because they are going to have to somehow some way, assuming their income is over a certain level, pay back any overage, yeah. Mr. Reed. So they get an excess credit, tax credit, premium support payment, something of that nature, and that is equal to the calculated refund that they would typically get in their tax refund check; they are not going to get that check. Is that fair to say? Mr. Ellis. Yes. Mr. Reed. That is going to happen. And that is where, Mr. Pollack, with all due respect, when you say this is much about nothing, I remember those days. I remember those days. And I know millions of Americans are going to be looking at that saying wait a second. I was going to take my kids on a vacation. I was going to take them maybe to the zoo or something like that and spend a weekend with their families. You say, you know, to us this is much about nothing. Mr. Pollack. That's not what I said. Mr. Reed. That was your testimony. Mr. Pollack. What I said, Mr. Reed ‑‑ let's get it correct. What I said, Mr. Reed, is that the number of inaccuracies are going to be small, and that is much about very little. I didn't say ‑‑ Mr. Reed. Sir, with all due respect, I don't appreciate you pointing at me, and I will tell you, you said much about nothing. Mr. Pollack. But you are misquoting what I was referring to. Mr. Reed. Why aren't we telling them about it? No one wants to talk about this. All my colleagues on the other side, if you want to stand with the law, I stand for the repeal of the law. I disagree with it. Doesn't mean I don't care about Americans. I care about Americans. That is why I ran for this job. That is why I am doing this. If they want to stand with this law, why don't you tell Americans what is coming. Why don't you tell them what is coming down the pipeline. What is coming down the pipeline is Americans don't understand what this is going to do to them. What is going to happen in 2015, when they get that notice from the IRS? Are they going to say, oh, I should have seen that coming? This is what my home State of New York did. The health exchange circulated a notice saying during the following year's tax season you are expected to pay back whatever actual amount you took in the form of health insurance subsidies that you weren't eligible for after your income change. Depending on your situation, this can be a huge amount of money. That is like buried on the health exchange. I can tell you, Americans are working hard, just like me and my wife were. So is this the best that we can do to warn Americans as to what is coming? Mr. Holtz‑Eakin, I have a lot of respect for you. Is this the best we can do? Mr. Holtz‑Eakin. No. I think there is a real place for an IRS taxpayer advocation effort in this regard. I think it has not happened so far and it would be time to get going. Mr. Reed. I have to also make a comment in response to my colleague from New York, that somehow by waiving this overpayment, and that is essentially what he is talking about. He is just saying we are going to just waive it. You don't have to pay it back. What kind of responsible leadership is that? They have developed a system. They have stood by a law that is potentially going to overpay taxpayer dollars to people, and the best solution they can offer is, well, what we are going to say is don't worry about paying it back. Well, someone's got to pay it. That is one of the things I am frustrated in Washington, D.C., about. This is taxpayer dollars. It is not free money. This is their money. Somehow it is their money that they can say wave their magic wand and say we are just not going to pay it back. We are going to waive it. Is that the responsible, sensible solution that you would recommend us to pursue when we deal with this situation in 2015, Mr. Holtz‑Eakin? Mr. Holtz‑Eakin. Absolutely not. Mr. Reed. That is why I am frustrated. I am frustrated, and this isn't much about nothing. This is a real problem. I am interested in solutions, but I am interested in responsible solutions that stand up for the hardworking taxpayer and not just say don't worry about it. We are not going to pay it back because your taxpayers are going pay it back. With that I yield back. Mrs. Black. The gentleman's time is expired. The gentleman from Georgia, Mr. Price, is recognized. Mr. Price. Thank you, Madam Chair. And I want to commend these two subcommittees and the committee for holding this hearing. I want to thank the witnesses, and I apologize for not being here earlier. I had a conflicting hearing. I want to draw attention to what title of this hearing is: Verification System For Income and Eligibility For Tax Credits Under the President's Healthcare Law. We are not talking about the health consequences of the healthcare law. As a physician we can go on and on about that. This is about the financial aspect of the healthcare law to real people. I want to associate myself with Mr. Reed's remarks. This is real stuff for real people. We are going to be harmed in big, big ways. Not just on the healthcare side, but on the financial side personally as well. Mr. Holtz‑Eakin, I had a chance to read part of your testimony, and in your testimony you likened the ACA premium tax credits to the EITC, Earned Income Tax Credit. I wonder if you would explain how the two are the same and how the two are dissimilar? Mr. Holtz‑Eakin. As I mentioned earlier, the EITC is a refundable credit, as are the premium tax credits from the ACA. They are based on family size and earnings in the same way that the ACA has subsidies up to 400 percent of the Federal poverty line, different amount, bigger for lower income individuals. The key difference is that is where the EITC stops. It is based strictly on the household's tax return, and you could do it based on that information. To fully implement the ACA, you need to have employer information as well, particularly the offer of affordable insurance or not, the value of that insurance, and its characteristics. It is a much more complicated system than the EITC for that reason. The matching that will go into multiple employers during a single year, different work hours, all of that complexity will become clear as time passes. Mr. Price. And the error rate in the EITC is, I think, 1 in 5, or about 20 percent? Mr. Holtz‑Eakin. In the ballpark of 20, 23 percent, somewhere in that range. Mr. Price. So you have got a system that is much more complicated than the EITC. We already see how the Federal Government is doing on an error rate for the EITC, which is a simpler system at 20 percent; so what would you estimate the error rate to be for this verification system? Mr. Holtz‑Eakin. We have no track record, so I think it is always important to be conservative. So if you apply the 20‑odd percent to the $700 trillion of insurance subsidies, you are looking at $200 billion, something in that range. Mr. Price. Hundreds of billions of dollars. Mr. Holtz‑Eakin. Yes. Mr. Price. And, of course, the systems are set up already to verify the income eligibility and the like, are they not, or the ACA, the subsidies? Mr. Holtz‑Eakin. No. Mr. Price. The systems aren't set up? Mr. Holtz‑Eakin. No, sir. Mr. Price. So we have already started this program. We have got an error rate on a program that is similar in some ways of 20 percent; and the systems aren't even set up to provide the income and eligibility verification? Mr. Holtz‑Eakin. Again, I think there is going to be two very big sets of problems that are different. One is the fundamental character of the system, which we have talked about. The second is next year, and the startup when information sharing is incomplete, the employers are not yet required to provide information, and the taxpayers are not yet understanding their obligations under the new law. Mr. Price. So let me take it in a little different direction, if I may. I serve on the Budget Committee as well. This appears to be a huge potential liability to the budget itself, does it not? Mr. Holtz‑Eakin. Yes. Mr. Price. So the amount of money that is projected to have been required to be spent by the American taxpayers to fund this program may, in fact, be expanding significantly; is that correct? Mr. Holtz‑Eakin. That is a concern, yes, sir. Mr. Price. And any quantification of that? Any way to know how much that would be? Mr. Holtz‑Eakin. Well, I mean, the 20 percent error rate is the best estimate that we have at the moment. From your time on the Budget Committee you know that in systems of this type, and the two other great examples are the EITC and then in Medicare where we have set up a system of pay and then go find inappropriate payments. Those estimates are on the order of 10 percent, 60, $80 billion a year. So $800 billion over 10 years. You start adding up $800 billion there, $200 billion here, another, you know, $100 billion out of EITC, you can make significant progress on some of our problems. Mr. Price. So at a time when we continue to run significant deficits, at a time when we have an overall debt for the country of over $17.5 trillion, the spending increases in Washington continue, we have got a program in front of us where we don't even have the systems in place that will continue to add to the national debt? Mr. Holtz‑Eakin. The decision has been made to add to the national debt. My hope is that we would run it efficiently enough to keep it as small as possible. Mr. Price. Mr. Ellis and Mr. Skarlatos, I wonder if in my brief seconds remaining, what tools does the IRS have to provide income and eligibility verification set up right now for this, Mr. Ellis? Mr. Ellis. That is still not clear at this point in the middle part of the year. To the extent that they do it retroactively, it is going to have to use the W‑2 system, and that is going to have to be a lag system because as you know that goes to the Social Security Administration first. So that remains to be seen. Mr. Skarlatos. I am not aware of any other tools, sir. Mr. Price. Sounds like a real headache, Madam Chair. Thank you. Mrs. Black. The gentleman's time has expired. Mr. Pascrell from New Jersey is recognized. Mr. Pascrell. Now here is the real headache. Let me tell you what the real headache is. You are sitting over there and talking about taxpayers and liability when you just voted on $600 billion, $600 billion in tax relief which is unpaid for. You got a problem. You got a serious problem, and it is not just inconsistency. So I have heard the term "inconsistency," and I have heard the term "premium tax credits" over and over again. Mr. Pollack, you have some friends here. I have heard that over and over again. Here is the problem. Flashback like they do on television at a sporting event, flashback 10 years ago. The Prescription Drug Bill. Do you remember that, Mr. Pollack? Mr. Pollack. I do. Mr. Pascrell. Do all of you remember that? Mr. Ellis, do you remember it? Mr. Ellis. Absolutely. Mr. Pascrell. Good. Then you will follow what I am saying. Do you remember what happened in the passage of that bill? Democrats, for the most part, did not accept it, voted against it. We were here until 3:00, 4:00 in the morning, if you will remember that. It passed. And what did Democrats do after the passage? Democrats, after the passage, went back to their districts ‑‑ I will speak for myself ‑‑ went to towns which were not Democratic, spoke so the seniors about, yes, I was against this, but now we have to make it work. Here is the equalizer. And you don't understand it. Here is the equalizer, Mr. Ellis. Instead of sour grapes and instead of burying our heads in the sand, we said we only have one country here. We have been talking about helping seniors out with the prescription drug plan, Plan D, for a long time, and while it wasn't the plan that I voted for ‑‑ I voted against it ‑‑ we got to make it work. Here is how it works. Here is how you register for it. Here is how you get involved. In fact, it was so terrible, talk about a rollout. You guys got short memories. You really do. You really do. You got a major problem here. Not only was it a poor rollout, but you had to depend upon the States to bail you out of the plan, to make it work. The States had to come up with the money. Mr. Pascrell. That is only 10 years ago. I am not talking about ancient history. I am talking about the United States of America 10 years ago. Mr. Pollack, let me ask you this question. This is especially interesting. We have twice tried to repeal a provision in the ACA, the Affordable Care Act, that would place limits on the premium tax credit reconciliation, once as a way to pay for the repeal of the medical device tax and another to pay for the Republican plan to replace defense sequestration cuts. Mr. Pollack, can you discuss the impact that repealing this provision, the one we are talking about today, would have on consumers? Mr. Pollack. Well, there really is an irony. I have heard from on both sides of the aisle concern that people may have a liability in April of 2015 and that liability, mind you, is most likely to come not because of an error, it is more likely to occur because there have been changes of circumstances over the course of this calendar year that were unpredictable. Somebody got a raise, somebody got a bonus, somebody had more overtime pay. And I challenge us on both sides of the aisle, let's work to try and ease the difficulties that people will experience, who provided information with no errors, no fraud, but changes occurred. And for those changes that occurred where somebody was conscientious, let's try and ease the burden of reconciliation. Let's go in the opposite direction and I think that makes a great deal of sense. It reflects the concerns that people expressed on both sides of the aisle, and I hope this is something we can do in a bipartisan way. But in response to your question, if we eliminate the protections, particularly for lower income folks, it is going to mean they are going to experience significant hardship. Mr. Pascrell. Mr. Eakin ‑‑ can I have a quick question of Mr. Eakin? Mrs. Black. Your time has expired. Mr. Pascrell. What is time? Mrs. Black. I would like to now ask Ms. Mahoney and Mr. Holtz‑Eakin a question. During the regulatory writing process, the E‑FLEX Coalition, made a specific recommendation to the administration of the tax credits, to make the tax credits more accurate, and this is what they suggested, and I am going to quote, "giving employers the option of prospectively filing information with the IRS about coverage available to employees through an annual certification process." Their letter went on to say that "we believe that this is in the collective best interests of individual Americans, employers and the administration to ensure that the accuracy of such upfront determinations to avoid subjecting individuals to unexpected repayments of tax credits for which exchanges incorrectly deemed them to be eligible." Now, the Treasury rejected this recommendation. Do you believe that was a mistake and should be revisited, and further, would it help employers and would it help more accurately administer the tax credits if this were put into place? Ms. Mahoney? Ms. Mahoney. Thank you. I have very high regard for the members of the E‑FLEX Coalition and their efforts. We are not a member of that coalition, but I would imagine that proposals that they put forth have viability and value to different types of employers. Again, it is a coalition that focuses on a certain segment of types of employers, and we continue to believe that there are a variety of different scenarios that employers are looking at and need a variety of different solutions. Mrs. Black. Mr. Holtz‑Eakin, do you have an opinion on that? Mr. Holtz‑Eakin. I have no great detail of the specifics. It sounds like the kind of approach that says let's give prior approval before you start sending out payments. There is a lot of merit to those kinds of situations. You can always do audits and other checks to make sure that it has been done in good faith on a regular basis and see how that system works. Mrs. Black. Thank you for that. Mr. Holtz‑Eakin, I want to ask you, do you know how much taxpayer funds that we estimate are being issued every month without a verification system in place? Do you have an idea about that? Mr. Holtz‑Eakin. Off the top of my head, no, but I would be happy to get a number for you. Mrs. Black. Okay. Well, on the estimated number that I have seen in some of the reports is $10 billion a month, $10 billion a month and I might say that when this law was initiated, there were two major planks to this law: one is that if someone did not have employer insurance, that they would be eligible for the exchanges and the subsidies, and two, that they would also have to have verification of their income to ensure that whatever those subsidies were accurate. We have now seen, this was the law, that neither one of these really is in place. One, the employer mandate has now been delayed until 2016. So there is really not a way other than attestation to say that someone does not have employer‑sponsored insurance or that what is employer‑sponsored insurance that they are unable to afford; and, two, we see a verification system that is not properly in place, yet we have been told by this administration on several occasions and the attestment of the Secretary of HHS as of the first of last year that there were ‑‑ or first of this year that this verification process was in place. We now see that either they were incompetent in believing that it was, or we see that perhaps that was a malicious statement to convince us to just get off their backs. Regardless, it is clear that the implementation of the President's health care law under this administration is harming Americans, we have heard that today, placing billions of taxpayer dollars at risk as well. Now that we know that 1.2 million applicants have inconsistencies on their basis of income, it is time that we put a temporary halt to the issuance of these taxpayer‑funded subsidies until HHS can get their act together. And I specifically want to say that there is a bill out there, a bill that I have offered, H.R. 4805, the No Subsidies Without Verification. It was passed originally by the House and not taken up in the Senate and I do believe if we were to put a stop on this right now, it would protect taxpayers from getting a tax bill that they did not expect. In addition to that, it would also protect the American taxpayer from subsidies that were inappropriately given to folks either inappropriately because the verification wasn't in place or because there was fraud. I want to just ask one last question of Mr. Holtz‑Eakin, because I know that you have certainly been in the forefront of Government and the monetary piece of what we do here at the government level. What have you seen in other programs where there potentially were fraudulent dollars given out, and in specific in programs like the EITC? Can you tell us what you have seen in the past about when those dollars are fraudulently given out, how much of that money is ever brought back into the Treasury? Mr. Holtz‑Eakin. It is very difficult to recapture funds once they have been inappropriately paid, and the things that have happened with EITC, for example, is it is a refundable credit but there were also efforts to make it advanceable, arrive on a monthly basis. Those proved to be fraught with even more in the way of payment errors and the potential for fraud. Again, if you look at the Affordable Care Act, its basic intent is to identify, out of 310 million Americans, those who are eligible for subsidies, calculate the subsidy correctly, deliver it in advance each month to the exchange in the state of the residence and the insurance company that has the plan of their choice. It is an extraordinarily difficult task in the best of circumstances, and it will be difficult to do well. Mrs. Black. Thank you very much. I also want to thank all of our witnesses for their testimony today, and I appreciate their continued assistance in getting answers to the questions that were asked here at committee that you may not have had time to answer. As a reminder, any member wishing to submit a question for the record will have 14 days to do so. If any questions are submitted, I ask that the witness respond in a timely manner. Mrs. Black. With that, this subcommittee is adjourned. [Whereupon, at 12:43 p.m., the subcommittees were adjourned.] |
||||||||||||||||||||||||