Scamming Obamacare harder than you think
The way some people have interpreted the latest Obamacare rule change, you'd think the administration was inviting people to steal from the government.
Officials announced on July 5 that insurance exchanges could relax how they verify the income of people who apply for federal financial help in the first year.
But experts say the temporary change won't necessarily make it easier to scam the system.
The subsidies at issue are meant to help people who can't afford to pay full freight for health insurance. Generally speaking, the less you make, the bigger the subsidy you get.
The purpose of the change is to ease the initial administrative burden on the exchanges, which roll out in October.
The new rule doesn't fully excuse exchanges from having to verify income, said Judy Solomon, vice president for health policy at the Center on Budget and Policy Priorities.
Exchanges must still check the applicant's income against a federal database, which will include information from his federal tax returns and a record of Social Security benefits.
The exchanges will be looking for disparities between what the applicant says and what's in the database.
If it looks like someone is understating his income by more than 10%, and the exchange doesn't have other sources to quickly check against, the exchange may choose to rely on what the applicant says.
But in those cases, the exchange must also conduct a random sample of similar applicants to make sure the verification process is working.
In the end, if someone slips through the cracks -- and gets more of a subsidy than he is entitled to -- he still could be found out.
That's because the exchanges are only approving estimated tax credits that a person can use to help pay their insurance, said Larry Levitt, a senior vice president of the Kaiser Family Foundation.
The final calculation of a subsidy's size will be done after the fact by the IRS.
"Your actual tax credit will be calculated based on your actual income that next April [when you file your federal tax return]," Levitt explained.
Bottom line: Anyone who might get a bigger subsidy than they're eligible for will have to pay back the difference to the IRS.
And they may owe a penalty, too, since they must attest when applying for subsidies that they are not filing false information.
"If you report your income incorrectly, it will catch up with you because there's a reconciliation of these tax subsidies on your tax return. Come tax time you could see an enormous bill," said Linda Blumberg, a senior fellow at the Urban Institute's Health Policy Center.
Of course, it's also possible to unintentionally understate your income when applying for credits.
Changing jobs, losing one, getting a raise or simply increasing or decreasing work hours means your year-end income could be very different than what you initially reported.
That's why, Blumberg said, it will be important for consumers to alert the exchange within a month of their income changing so their subsidy can be adjusted accordingly for the rest of that year.
Efforts to educate the public about how the exchanges will work is getting under way, with less than 80 days to go before the exchanges open for enrollment on Oct. 1.