IRS Unable To Recoup Nearly $1 Billion In Obamacare Subsidies

The IRS overpaid nearly $4 billion to Obamacare customers through tax credits last year, and because of the way the law is written it can't even try to collect on a quarter of that, the Treasury Department's inspector general reported this week.

All told, the Treasury Department paid out roughly $27 billion in Obamacare subsidies in the 2018 tax-filing season, with overages accounting for $3.7 billion of that. Only $2.7 billion was recaptured.

The $1 billion left over is small compared to the overall federal budget, but it is 20 percent of the president's border wall funding request that's spurred the current government shutdown.

Overpayments were built into Obamacare, with most people who buy insurance on the Affordable Care Act's exchanges collecting subsidies through the IRS to help them afford their plan premiums.

The amount they get during the year is based on their expected earnings.

At the end of the year they're supposed to square what they expected to earn with what they actually got, and since some of them saw higher incomes — through raises, promotions or better jobs — they have to repay the IRS.

Yet the authors of the 2010 law were afraid if people faced the threat of a big tax bill they would shirk Obamacare coverage altogether, so the law set limits on how much the government could claw back.

In 2017 the government paid $5.8 billion in overages and had to leave $3.5 billion on the table.

The 2018 season was better on both counts.

Timothy Jost, a Washington and Lee University law professor who tracks the law, said most of Obamacare exchange's customers at this point have likely been through the process before and have learned the ropes.

"I think with people getting more experienced and renewing instead of submitting new applications, people have a better chance [of estimating] what their income will be over time," he said.

He also said insurers might be more proactive about encouraging enrollees to report changes in their income during the year.

Douglas Holtz-Eakin, a former director of the Congressional Budget Office, also said the IRS is "presumably is getting better at running the system as a whole, and as more of the population is employed fewer are having a radical change in their incomes that would lead them to hit the cap."

Republicans are particularly chagrined by the overpayments, pointing to it as evidence that the 2010 law's subsidy structure is flawed.

Yet a House GOP bill in 2017 that would have recaptured all of the overages, as part of a multiyear transition to a new health care system, was discarded by the Senate.

Democrats, poised to take the majority in the House next year, have vowed to defend Obamacare against any major changes, leaving GOP lawmakers to complain about ongoing hiccups.

"As we've known from its inception, Obamacare is incredibly complex and has created unprecedented burdens for patients and providers," said Jesse Solis, a spokesman for GOP members of the House Ways and Means Committee. "House Republicans have worked on a bipartisan basis multiple times to improve the recoupment of improper overpayments. We hope Democrats choose to work with us in the next Congress to ensure taxpayers' money is spent properly."

The parties probably won't see eye to eye on Obamacare any time soon, however.

House Democrats plan to push bills that would increase the law's subsidies or expand other government insurance programs, as Republicans continue to insist on free-market reforms.

The main wild card is a lawsuit that argues Congress' decision to gut the "individual mandate" penalty rendered the rest of the law unconstitutional.

A federal judge in Texas sided with state Republicans trying to take the law down. If upheld on appeal, it would force Capitol Hill to revisit the sweeping 2010 health law.