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Health reform skepticism, Part 2

There are policy wonks -- and then there's Eugene Steuerle of Washington's Urban Institute. A former Treasury Department official, Steuerle not only has a preternatural understanding of federal tax, budget and welfare policy, but he can communicate his knowledge in terms the non-wonks among us easily understand. He's also non-ideological. So when Eugene Steuerle starts wondering about the feasibility of the current health care legislation, it's worth listening to what he has to say.

Eugene isn't sweating "death panels" or even the budget deficit. What worries him is the sheer practicality of enlisting the already overburdened Internal Revenue Service to operate a system of insurance-exchange subsidies for families earning up to four times the poverty line.

Eugene writes that the bill "almost defies what we have learned about what can be administered."

The IRS is supposed to peg your subsidy to your income, as well as verify your claimed income to the exchanges -- but income is constantly in flux, whereas the IRS only gets a snapshot when you file a tax return each year. What to do? Let Eugene take it from here:

To determine your subsidy in 2016 on the basis of your 2016 income, however, is pretty hard since you haven't yet earned it. The idea is to rely on your tax returns—not some onerous welfare-type application. But your 2015 returns often aren't filed until April 2016. So Congress has decided that your 2014 income tax return is the go-to source for info on your income- and family-status eligibility in 2016.

The IRS is supposed to verify your income claims to insurance exchanges, but the details still have to be worked out on what to do when claims are off by a little or a lot, how tax audits or amended returns would lead to later collections or payments, how confidentiality is protected, and how the insurance exchanges and the IRS would trade data as people switch policies and exchanges, and switch from an exchange with a subsidy to employer-provided insurance that doesn't qualify for the new subsidy, and back again.

Optimistically, let's assume that this tortuous process goes smoothly. We still have a problem! Over the course of a year, well over a third of workers suffer a bout of unemployment, leave the workforce, enter it, partially retire, move to part-time employment, get married, get divorced, have a child, or have a child leave home. Congress is worried about the $90,000/year family that doesn't get a subsidy and that suddenly becomes a $50,000/year family that deserves $10,000 in subsidies. Thus, it's allowing people to "reapply" when their family circumstances change significantly—when, say, household income drops by 20 percent.

Who's going to investigate claims of a drop in income or a change in family status to determine eligibility? And what standard will be used? What documents will be provided, and who will audit the millions eligible to reapply?...

For some reason, health reformers think they can do better than the welfare and tax systems and set up what is essentially a whole new transfer and tax system based on past annual rather than current income and then adjusted for changes during the current year. Is this a real possibility or just a dream?

I hope there are good answers to Eugene's questions. We should all be glad he's asking them.

By Charles Lane  | January 6, 2010; 9:00 AM ET
Categories:  Lane  | Tags:  Charles Lane  
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Social security already does this to set the rate for medicare part B for high earners who pay an extra premium. Premiums for 2010 are based on your 2008 tax return. There is also an appeal avenue if your income in 2010 is far below what it was in 2008.

So why should the IRS be the ones to do the same for another health insurance program? Why not let the Social Security Administration do it given that they already have mechanisms in place to do a similar task?

Posted by: sscritic | January 6, 2010 4:24 PM | Report abuse

Doesn't the Massachusetts health care system subsidize according to income? What kind of administrative system are they using?

What about other income based benefits like SCHIP?

Posted by: ideallydc | January 7, 2010 10:25 AM | Report abuse

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