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A blistering report this week by the Department of Health and Human Service’s (HHS) Office of the Inspector General found shockingly poor accountability efforts by the Centers for Medicare and Medicaid Services (CMS) related to its payment of Affordable Care Act (ACA) health insurance subsidies to insurance companies. The report found that “CMS did not have systems in place to ensure that [subsidy] payments were made on behalf of confirmed enrollees and in the correct amounts.” Equally shocking, the report found that CMS does not plan to perform a timely reconciliation of these subsidy payments.

iStock_000007993554_SmallThe report found that CMS’s lax (and in some cases, non-existent) approach to verifying the accuracy and legitimacy of subsidy payments to insurers put $2.8 billion of taxpayer-provided funds at risk over just a four-month period beginning in January 2014. Assuming CMS’s troubles continued through the same period this year, the agency is basically unable to verify the legitimacy of more than $11 billion in subsidy payments to insurers.

Subsidies under the ACA come in two basic forms: advance tax credits that help individuals pay their premiums for individual market coverage (the premium subsidies are paid directly by CMS to the insurer selected by the subsidy recipient) and payments to insurers to shrink the insureds’ deductibles and other cost-sharing requirements under their policies. Eligibility for these subsidies depends on a number of factors, including whether the individuals were offered or enrolled in employment-based coverage. The amount of the subsidies depends on the individual’s household income (basically, adjusted gross income).

This isn’t going to get any better any time soon. Employer and insurer reporting of health plan enrollments, and employer reporting of coverage offers to full-time employees and dependents, commence early next year (for the 2015 calendar year). This reporting should allow the IRS and HHS to begin to connect some of the many dots that today cannot be connected. For example, once the IRS is able to determine whether an employer offered minimum value and affordable coverage to a full-time employee, it can conclude the employee (and in many cases, his or her dependents) were ineligible for subsidy payments, even if they declined the employer’s offer.

But even then, the IRS will merely be in the position to try to chase down the illegitimate subsidy recipients…the front door to those subsidies remains largely unlocked and unattended. And the IRS is not even asking employers to report on coverage offers made to part-time employees, even though certain coverage offers made to them would disqualify them from subsidy eligibility.

The Inspector General Report

The Inspector General (IG) report determined that CMS’s internal controls for calculating and authorizing financial assistance payments were not effective. Specifically, the IG found that:

  • CMS’s reliance on insurance company attestations did not ensure that advance cost-sharing reduction payment rates were appropriate.
  • CMS did not have systems in place to ensure that financial assistance payments were made on behalf of confirmed enrollees, and in the correct amounts.
  • CMS did not have systems in place for state marketplaces to submit enrollee eligibility data for financial assistance payments.
  • CMS did not always follow its own guidance for calculating advance cost-sharing reduction payments and does not plan to perform a timely reconciliation of these payments.

The IG found that these internal control deficiencies limited CMS’s ability to make accurate payments to insurers selling policies through one or more of the health insurance marketplaces. On the basis of sample results, the IG concluded that CMS’s system of internal controls could not ensure that CMS correctly made financial assistance payments during the period January through April 2014. The report noted that “without effective internal controls for ensuring that financial assistance payments are calculated and applied correctly, a significant amount of Federal funds are at risk.”

The IG made five recommendations to CMS to improve its processes. CMS apparently concurred with three of the five recommendations, and generally agreed with the two others but indicated that the two other recommendations are no longer applicable because of regulatory action. The IG, however, maintains that its findings and recommendations remain valid.