Federal subsidies for health insurance might be wrong for more than 1 million

Government stuck over discrepancies

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WASHINGTON -- The government may be paying incorrect subsidies to more than 1 million Americans for their health plans in the new federal insurance marketplace and has been unable so far to fix the errors, according to internal documents and three people familiar with the situation.

The problem means that potentially hundreds of thousands of people are receiving bigger subsidies than they deserve. They are part of a large group of Americans who listed incomes on their insurance applications that differ significantly -- either too low or too high -- from those on file with the Internal Revenue Service, documents show.

The government has identified these discrepancies but is stuck at the moment. Under federal rules, consumers are notified if there is a problem with their application and asked to upload or mail in pay stubs or other proof of their income. Only a fraction have done so, according to the documents. And, even when they have, the federal computer system at the heart of insurance marketplace cannot match this proof with the application because that capability has yet to be built, according to the three individuals.

So piles of unprocessed "proof" documents are sitting in a federal contractor's Kentucky office, and the government continues to pay insurance subsidies that may be too generous or too meager. Administration officials do not yet know what proportion are overpayments or underpayments. Under current rules, people receiving unwarranted subsidies will be required to return the excess next year.

The inability to make certain the government is paying correct subsidies is a legacy of computer troubles that crippled last fall's launch of HealthCare.gov and the initial months of the first sign-up period for insurance under the Affordable Care Act. Federal officials and contractors raced to correct most of the technical problems hindering consumers' ability to choose a health plan. But behind the scenes, important aspects of the website remain defective -- or simply unfinished.

White House officials recently have begun to focus on the magnitude of income discrepancies. Beyond their concerns regarding overpayments, members of the Obama administration are sensitive because they promised congressional Republicans during budget negotiations last year that a thorough income-verification system would be in place.

Under White House pressure, federal health officials and the contractor, Serco, are this weekend beginning to step up efforts at resolving a variety of inconsistencies that have appeared in applications, including income discrepancies. One White House official, speaking on the condition of anonymity about internal discussions, said that White House and federal health officials are "all on the same page that the issue needs to be resolved as soon as possible."

Because the computer capability does not yet exist, the work will start by hand, according to two people familiar with the plans. It will focus at first not on income questions, but on another roughly 1 million cases in which people enrolled -- or tried to enroll -- in health plans and ran into questions about their citizenship status. Throughout the sign-up period that ended last month, flaws in HealthCare.gov blocked many naturalized citizens or permanent legal residents, requiring them to submit immigration documents that are, like the income information, caught in a backlog.

The work of sorting out inaccurate incomes -- and inaccurate subsidies, as a result -- will likely begin sometime this summer, two individuals familiar with the plans said.

Of the various technical problems that remain with HealthCare.gov, the difficulty in straightening out discrepancies affects an especially large number of consumers. Of the roughly 8 million Americans who signed up for coverage this year under the health care law, about 5.5 million are in the federal insurance exchange. And according to the internal documents, more than half of them -- about 3 million people -- have an application containing at least one kind of inconsistency. These inconsistencies have arisen as the information listed on their applications has been cross-checked, via a newly built federal data hub, with the Social Security Administration and other federal agencies, as well as incarceration, IRS and immigration records.

The income information is significant because the government is for the first time providing subsidies to help working-class and middle-class Americans buy private health plans. Under the federal rules, an application is "flagged" for special checking if the income someone says that they expect this year is at least 10 percent above or below the most recent income in their IRS tax returns.

According to various recent internal documents, income discrepancies are the most frequent kind of inconsistencies among insurance applicants, and they exist on 1.1 million to 1.5 million out of nearly 4 million inconsistencies overall. Of the total inconsistencies, the documents show, consumers have uploaded or mailed in about 650,000 pieces of "proof" -- or for about 1 inconsistency in 6.


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