Improper Payments:

Improvements Needed in CMS and IRS Controls over Health Insurance Premium Tax Credit

GAO-17-467: Published: Jul 13, 2017. Publicly Released: Jul 13, 2017.

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What GAO Found

In fiscal year 2016, the Department of Health and Human Services' (HHS) Centers for Medicare & Medicaid Services (CMS) assessed its advance premium tax credit (PTC) program as susceptible to significant improper payments. CMS instituted a qualitative method for assessing the susceptibility of its program that was consistent with requirements, including assessing each of the nine required qualitative risk factors. However, CMS stated that it may not report improper payment estimates for the PTC program as required until at least fiscal year 2022 because of the complexity and timing of the process for developing such estimates. As a result, HHS's overall improper payments estimate will continue to be understated, and Congress and others will continue to lack key payment integrity information for monitoring HHS's improper payments. The fiscal year 2016 Internal Revenue Service (IRS) assessment for its PTC program was not consistent with requirements nor did it demonstrate whether the program met applicable thresholds for susceptibility to significant improper payments. Until IRS conducts an appropriate assessment, it will remain uncertain whether IRS should estimate the amount of improper payments for its PTC program.

Although CMS properly designed and implemented control activities related to the accuracy of advance PTC payments, it did not properly design control activities related to preventing and detecting improper payments of advance PTC, such as verifying individuals' eligibility. As a result, CMS is at increased risk of making improper payments of advance PTC to issuers on behalf of individuals.

CMS Key Control Activities Related to Preventing and Detecting Improper Payments of Advance PTC

CMS Key Control Activities Related to Preventing and Detecting Improper Payments of Advance PTC

aGAO did not evaluate whether control activities that were not properly designed were operating as designed.

IRS did not design and implement certain key control activities related to preventing and detecting PTC improper payments, including recovering excess advance PTC overpayments. For example, IRS did not properly design procedures to routinely check for duplicate employer- or government-sponsored coverage. In addition, in 2015 and 2016, IRS used an ad hoc process for notifying nonfilers of the requirement to file tax returns; however, IRS did not establish procedures for sending these notices regularly during each filing season to facilitate compliance. Without properly designed control activities related to PTC, IRS is at increased risk of making improper payments to individuals.

IRS faces challenges that affect its ability to design and implement procedures related to preventing and detecting PTC improper payments, including recovering advance PTC overpayments and reimbursing advance PTC underpayments. For example, IRS maintains that reduced resources have impaired its ability to implement needed controls. Further, statutory limitations contributed to IRS's inability to fully collect excess advance PTC overpayments and reimburse PTC underpayments and to automatically correct errors in tax returns. GAO previously suggested that IRS seek legislative authority to correct tax returns at filing based on marketplace data. The Department of the Treasury, on behalf of IRS, has submitted proposals for congressional consideration to permit IRS to correct such errors where individuals' information on tax returns does not match corresponding information provided in government databases. Congress has not yet granted this broad authority.

IRS Key Control Activities for Preventing and Detecting Improper Payments of PTC

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aExcept for control activities related to IRS's review of tax returns that contain errors, GAO did not evaluate whether other control activities that were not properly designed were operating as designed.

Why GAO Did This Study 

The Patient Protection and Affordable Care Act (PPACA) aims to expand health insurance coverage and affordability. PPACA provides eligible individuals with PTC to help cover the cost of premiums for health plans purchased through a marketplace. CMS maintains the federally facilitated marketplace known as HealthCare.gov. IRS is responsible for processing PTC-related amounts on tax returns. The estimated fiscal year 2016 net outlay for PTC that was refunded to taxpayers was about $24 billion, while the estimated revenue effect from PTC that taxpayers used to reduce their tax liabilities was about $2 billion. 

GAO was asked to examine improper payments related to PTC. This report assesses the extent to which (1) CMS and IRS assessed the susceptibility of their PTC programs to significant improper payments; (2) CMS properly designed and implemented key control activities related to preventing and detecting improper payments of advance PTC; and (3) IRS properly designed and implemented key control activities related to preventing and detecting improper payments of PTC, including recovering overpayments and reimbursing underpayments of PTC. 

GAO reviewed the improper payment susceptibility assessments completed by CMS and IRS; interviewed agency officials; reviewed policies and procedures; and tested statistical samples of (1) CMS applications with advance PTC transactions during the 2016 open enrollment period and (2) income tax returns with PTC transactions processed during the first 9 months of fiscal year 2016. 

What GAO Recommends

GAO is making 10 recommendations to HHS. Of these, 2 recommendations are related to complying with annual reporting of advance PTC improper payments estimates, including assuring that CMS expedites the process for reporting such estimates. The 8 remaining recommendations address improving control activities related to eligibility determinations and calculations of advance PTC based on incomes and family sizes. HHS concurred with 7 of the recommendations and neither agreed nor disagreed with the remaining 3 recommendations, which related to improving control activities for verifying identities of individuals, preventing duplicate coverage of individuals receiving minimum essential coverage through their employers, and verifying household incomes and family sizes. GAO continues to believe that actions to implement these 3 recommendations are needed as discussed in the report.

GAO is also making 5 recommendations to IRS. Of these, 1 recommendation focuses on properly assessing the susceptibility of the PTC program to significant improper payments. The remaining 4 recommendations address improving control activities related to processing PTC information on tax returns, such as recovering advance PTC made for individuals who do not meet the eligibility requirements for citizenship or lawful presence. IRS agreed with 2 recommendations, partially agreed with 2 other recommendations, and disagreed with the remaining recommendation. For the 2 partial concurrences, GAO continues to believe that actions to fully implement these recommendations are needed as discussed in the report. Although IRS disagreed with the 1 recommendation related to reviewing tax returns to those who are not reporting shared responsibility payments, the actions IRS described in its comments, if implemented effectively, would address the recommendation.

For more information, contact Beryl H. Davis at (202) 512-2623 or davisbh@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to annually report improper payment estimates and error rates for the advance PTC program.

    Agency Affected: Department of Health and Human Services

  2. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, and until annual reporting of improper payment estimates and error rates for the advance PTC program is performed, the Secretary of Health and Human Services should direct the Administrator of CMS to disclose significant matters relating to the Improper Payments Information Act (IPIA) estimation, compliance, and reporting objectives for the advance PTC program in the agency financial report, including CMS's progress and timeline for expediting the achievement of those objectives and the basis for any delays in meeting IPIA requirements.

    Agency Affected: Department of Health and Human Services

  3. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to design and implement procedures for verifying the identities of phone and mail applicants to reasonably assure that ineligible individuals are not enrolled in qualified health plans in the marketplaces or provided advance PTC.

    Agency Affected: Department of Health and Human Services

  4. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to assess and document the feasibility and availability of obtaining sufficiently reliable data to verify individuals' residencies and lack of minimum essential coverage from nonfederal employers and, if appropriate, design and implement procedures for using such data in its verification processes.

    Agency Affected: Department of Health and Human Services

  5. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to design and implement procedures for sending notices to nonfederal employers routinely and terminating advance PTC for individuals who have access to minimum essential coverage from their employers.

    Agency Affected: Department of Health and Human Services

  6. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to assess and document the feasibility of approaches for (1) identifying duplicate government-sponsored coverage for individuals receiving Medicaid and Children's Health Insurance Program coverage in federally facilitated marketplace states outside of the states where they attest to residing and (2) periodically verifying individuals' continued eligibility by working with other government agencies to identify changes in life circumstances that affect advance PTC9 eligibility--such as commencement of duplicate coverage or deaths-- that may occur during the plan year and, if appropriate, design and implement these verification processes.

    Agency Affected: Department of Health and Human Services

  7. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to assess and document the feasibility of approaches for terminating advance PTC on a timelier basis and, as appropriate, design and implement procedures for improving the timeliness of terminations.

    Agency Affected: Department of Health and Human Services

  8. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to design and implement procedures for verifying compliance with applicable tax filing requirements--including the filing of the federal tax return and the Form 8962, Premium Tax Credit--necessary for individuals to continue to be eligible for advance PTC.

    Agency Affected: Department of Health and Human Services

  9. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to design and implement procedures for verifying major life changes using documentation submitted by applicants enrolling during special enrollment periods.

    Agency Affected: Department of Health and Human Services

  10. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to design and implement procedures for verifying with IRS (1) household incomes, when attested income amounts significantly exceed income amounts reported by IRS or other third-party sources, and (2) family sizes.

    Agency Affected: Department of Health and Human Services

  11. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To comply with improper payments reporting requirements and improve procedures related to processing PTC information on tax returns, the Commissioner of Internal Revenue should direct the appropriate officials to assess the program against applicable IPIA-defined thresholds and conclude on its susceptibility to significant improper payments, and revise the scope of its improper payments susceptibility assessment for the PTC program to include instances in which advance PTC is greater than or equal to the amount of PTC claimed on the tax return. If the program meets the IPIA definition for being susceptible to significant improper payments based on this assessment, estimate and report improper payments associated with the PTC program consistent with IPIA requirements.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  12. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To comply with improper payments reporting requirements and improve procedures related to processing PTC information on tax returns, the Commissioner of Internal Revenue should direct the appropriate officials to assess and document the feasibility of approaches for incorporating information from the marketplaces on individuals who did not demonstrate that they met the eligibility requirements for citizenship or lawful presence in the tax compliance process. If determined feasible, IRS should work with Treasury to require marketplaces to periodically provide such information on individuals and use such information to recover advance PTC made for those individuals.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  13. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To comply with improper payments reporting requirements and improve procedures related to processing PTC information on tax returns, the Commissioner of Internal Revenue should direct the appropriate officials to assess whether IRS should require its examiners to verify health care coverage of individuals to determine eligibility for PTC. To do this, IRS should complete its evaluation of the level of noncompliance related to duplicate health insurance coverage. Based on this evaluation and if cost effective, IRS should design and implement formal policies and procedures to routinely identify individuals inappropriately receiving PTC because of their eligibility for or enrollment in health care programs outside of the marketplaces and notify such individuals of their ineligibility for PTC.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  14. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To comply with improper payments reporting requirements and improve procedures related to processing PTC information on tax returns, the Commissioner of Internal Revenue should direct the appropriate officials to design and implement procedures in the Internal Revenue Manual (IRM) for examiners in the post-filing compliance units to review tax returns for health insurance coverage for the entire year, and to identify and assess individual shared responsibility payments (SRP) from those who are not appropriately reporting SRPs on their tax returns.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  15. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To comply with improper payments reporting requirements and improve procedures related to processing PTC information on tax returns, the Commissioner of Internal Revenue should direct the appropriate officials to design and implement procedures in the IRM to regularly notify nonfilers of the requirement to file tax returns in order to continue to receive advance PTC in the future.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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