VERIFICATION OF INCOME AND 

INSURANCE INFORMATION UNDER 

THE AFFORDABLE CARE ACT 

JOINT HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT 

AND 

SUBCOMMITTEE ON HEALTH 

OF THE

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U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

JUNE 10, 2014

Serial No. 113-OS9/HL13 

Printed for the use of the Committee on Ways and Means 

( 


ralbany on LAP520R082 with HEARINGS
VERIFICATION OF INCOME AND INSURANCE INFORMATION 

UNDER THE AFFORDABLE CARE ACT 


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AND 

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OF THE

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ralbany on LAP520R082 with HEARINGS
ii 

COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

TIM GRIFFIN, Arkansas 

JIM RENACCI, Ohio 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

ALLYSON SCHWARTZ, Pennsylvania 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

JENNIFER M. SAFAVIAN, Staff Director and General Counsel 

JANICE MAYS, Minority Chief Counsel 

SUBCOMMITTEE ON OVERSIGHT 

CHARLES W. BOUSTANY, JR., Louisiana, Chairman 

DIANE BLACK, Tennessee 

LYNN JENKINS, Kansas 

KENNY MARCHANT, Texas 

TOM REED, New York 

ERIK PAULSEN, Minnesota 

MIKE KELLY, Pennsylvania 

JOHN LEWIS, Georgia 

JOSEPH CROWLEY, New York 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

SUBCOMMITTEE ON HEALTH 

KEVIN BRADY, Texas, Chairman 

SAM JOHNSON, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

JIM MCDERMOTT, Washington 

MIKE THOMPSON, California 

RON KIND, Wisconsin 

EARL BLUMENAUER, Oregon 

BILL PASCRELL, JR., New Jersey 


ralbany on LAP520R082 with HEARINGS
iii 

C O N T E N T S 

Page 

Advisory of June 10, 2014 announcing the hearing .............................................. 2 

WITNESSES 

Douglas Holtz-Eakin, President, American Action Forum, Testimony ............... 9 

Ryan Ellis, Tax Policy Director, Americans for Tax Reform, IRS Registered 

Tax Return Preparer, Testimony ........................................................................ 20 

Katie W. Mahoney, Executive Director of Health Policy, U.S. Chamber of 

Commerce, Testimony .......................................................................................... 24 

Bryan C. Skarlatos, Partner, Kostelanetz & Fink, LLP, Testimony ................... 40 

Ron Pollack, Executive Director, Families USA, Testimony ................................ 49 


ralbany on LAP520R082 with HEARINGS

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(1) 

VERIFICATION OF INCOME AND INSURANCE 

INFORMATION UNDER THE AFFORDABLE 

CARE ACT 

TUESDAY, JUNE 10, 2014 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON OVERSIGHT, SUBCOMMITTEE ON HEALTH, Washington, DC. 

The subcommittees met, pursuant to call, at 10:33 a.m., in Room 

1100, Longworth House Office Building, the Honorable Kevin 

Brady [Chairman of the Subcommittee on Health] presiding. 

[The advisory of the hearing follows:] 


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2 

HEARING ADVISORY 

Boustany and Brady Announce Hearing on the 

Verification of Income and Insurance Information Under the Affordable Care Act 

1100 Longworth House Office Building at 10:30 AM 

Washington, June 3, 2014 

House Ways and Means Oversight Subcommittee Chairman Charles Boustany, 

Jr., M.D, (R–L(A) and Health Subcommittee Chairman Kevin Brady (R–T(X) today 

announced that the subcommittees will hold a joint hearing on the verification system for income and eligibility for tax credits under the President’s health care law. 

The hearing will take place on Tuesday, June 10, 2014, in 1100 Longworth House 

Office Building, beginning at 10:30 A.M 

In view of the limited time available to hear from witnesses, oral testimony at 

this hearing will be from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for 

consideration by the Committee and for inclusion in the printed record of the hearing. A list of invited witnesses will follow. 

BACKGROUND: 

The Affordable Care Act (ACA) created an income-based premium tax credit for 

certain individuals who purchase health insurance through the new Exchanges. The 

accuracy of these tax credits, which began this year, depends on multiple pieces of 

data, including an individual’s income and eligibility for affordable employer-sponsored insurance. The Administration’s 2013 decision to delay employer-reporting requirements has further complicated the government’s ability to verify an offer of ‘‘affordable employer-sponsored insurance.’’ 

Without accurate income and insurance information, the government is unable to 

guarantee the accuracy of the tax credits, which are paid directly to insurance companies. The consequences of this failure may result in overpayments, which the ACA 

requires the IRS to recoup directly from individuals during the 2015 tax-filing season. 

The Continuing Appropriations Act, 2014 required that ‘‘prior to making such 

credits and reductions available, the Secretary shall certify to the Congress that the 

Exchanges verify such eligibility consistent with the requirements of such Act.’’ Despite the difficulties in the launch of the Exchanges and healthcare.gov, on January 

1, 2014, Health and Human Services Secretary Kathleen Sebelius provided Congress with such certification. Subsequently, reports have indicated that the Department of Health and Human Services and the Exchanges are in fact having difficulty 

verifying income. For example, on May 17, The Washington Post reported, ‘‘The government may be paying incorrect subsidies to more than 1 million Americans for 

their health plans in the new federal insurance marketplace and has been unable 

so far to fix the errors.’’ 

The hearing will explore the sufficiency of government’s procedures to verify income and insurance information and ensure the accuracy of premium tax credits. 

The hearing will also examine the challenges employers and individuals are likely 

to face in the 2015 tax-filing year due to new employer-reporting requirements and 

unexpected tax debt for individuals because of subsidy recapture. 

In announcing the hearing, Chairman Boustany stated, ‘‘As with many other 

problems - from stimulus to healthcare.gov—the Administration prefers to 

spend taxpayer dollars first and ask questions later. The White House took 

a poorly written law and implemented it incompetently. At the end of the 

day, employers and individual taxpayers will pay the price. The Committee 

has been warning about this problem for some time, and has an obligation 

to continue holding the Administration accountable.’’ 


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In announcing the hearing, Chairman Brady stated, ‘‘It’s clear the ACA income 

and eligibility verification system is not ready and not complete. I’m deeply 

concerned about the fairness of imposing the risk and burden onto individual taxpayers for the disastrous implementation of this poorly designed 

law. Millions of Americans could be hit with a large and surprising tax bill 

on April 15th, and the White House doesn’t appear to be doing much to fix 

the problems.’’ 

FOCUS OF THE HEARING: 

The hearing will focus on the government’s ability to verify income and insurance 

information, ensure accuracy of premium tax credits, and the likely effect of these 

challenges on the 2015 tax-filing season. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit written comments for the hearing record must follow the appropriate link on the hearing page 

of the Committee website and complete the informational forms. From the Committee homepage, http://waysandmeans.house.gov, select ‘‘Hearings.’’ Select the hearing for which you would like to submit, and click on the link entitled, ‘‘Click here 

to provide a submission for the record.’’ Once you have followed the online instructions, submit all requested information. ATTACH your submission as a Word document, in compliance with the formatting requirements listed below, by the close 

of business on June 24, 2014. Finally, please note that due to the change in 

House mail policy, the U.S. Capitol Police will refuse sealed-package deliveries to 

all House Office Buildings. For questions, or if you encounter technical problems, 

please call (202) 225–3625 or (202) 225–5522. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, 

but we reserve the right to format it according to our guidelines. Any submission 

provided to the Committee by a witness, any supplementary materials submitted for 

the printed record, and any written comments in response to a request for written 

comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will 

be maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word format and MUST 

NOT exceed a total of 10 pages, including attachments.Witnesses and submitters are advised 

that the Committee relies on electronic submissions for printing the official hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone, and fax numbers of each witness. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202-225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://www.waysandmeans.house.gov

f 

/. 


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Chairman BRADY. Good morning, everyone. This hearing will 

come to order. 

Before we start, I would like to recognize the ranking member, 

Dr. McDermott, for a statement. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. 

Before we start today, I want to acknowledge the service of Jennifer Friedman. 

Jennifer has been with the Ways and Means Committee for 7 

years and has handled Medicare things on a variety of levels, and 

this is her last week of service. She is on her way to Japan. Her 

husband is in the State Department, and she going to take a Council of Foreign Relations fellowship there, and we want to thank her 

for her service. Jennifer, please stand up. 

Chairman BRADY. Jennifer, you will be missed, and best wishes. 

As we begin this hearing, you may remember then Speaker 

Nancy Pelosi famously warned Congress and the American people 

about the Affordable Care Act: We have to pass the bill so we can 

find out what is in it. Over 4 years later, the American people continue to learn and continue to be surprised. 

Today the Health and Oversight Subcommittees will hear testimony about yet another surprise. Today, 8 months after the start 

of open enrollment and well over a month after the extended open 

enrollment ended, the income and eligibility verification system is 

not yet completed and the burden and the cost of that failure will 

fall on the American people. That is simply unfair and unacceptable. 

What we will hear today from our distinguished panel is trouble. 

Potentially millions of Americans are currently receiving the wrong 

tax credits and cost-sharing subsidies, including some people that 

are completely ineligible to receive any at all. As required by the 

Affordable Care Act, individuals who receive subsidy overpayments 

must repay the government. Americans who tried to do the right 

thing could be hit with unexpected tax bills from the IRS next 

April. 

For many, this could mean thousands of dollars and while the 

cost of the loss failures fall on the individual, the blame for this 

mess falls squarely on the White House. Time after time Republicans on this committee raised concerns with the administration 

witnesses sitting in these chairs, including cabinet officers and IRS 

commissioners, and we said the website, the exchanges, the eligibility verification systems, were not ready to go, but the White 

House pushed ahead, focusing on the advertising campaign, 

launching healthcare.gov instead of the steps to make the system 

actually work. 

As a result, according to the Washington Post, piles of unprocessed proof documents are sitting in the Federal contractor’s Kentucky office while incorrect subsidies continue to be paid. Because 

the system isn’t ready, these inconsistencies have to be resolved 

manually one by one, and there are over 1 million related to income alone, and the contractors haven’t even started. 

As we will hear, for the verification system to work as designed, 

a massive amount of reporting data is required from employers, 

data the Government has never collected before. The amount of 

data is so massive, that around this time last year, the White 


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5 

House gave up and delayed reporting requirements for 2014, after 

legitimate complaints from businesses about the cost of compliance. 

We are not here to revisit the controversy that decision set off, 

but it is important to understand that decision meant very plainly 

and very clearly that for 2014, there is not a working verification 

system. 

In order to effectively manage the Affordable Care Act, the administration either needs to employ a reporting information. Why 

else would you impose such a high cost on employers? The information is needed to enforce the so-called firewall, that prohibits an individual with an offer of affordable employer insurance from receiving tax credits, and yet it does not exist for 2014. 

All that is left is for the American people to verify their eligibility 

for themselves. They need to understand the rules around the offer 

of affordable health insurance. They need to know it is on them to 

notify the Government if they have received a raise or had a child 

or lost a loved one. If they don’t understand this, they could be hit 

with a tax bill for thousands of dollars, and that is not fair. 

Democrats and Republicans came together and passed a law last 

October that stated very clearly that before any tax credit went 

out, the secretary of HHS had to certify to Congress that the 

verification system was working. Clearly Secretary Sebelius erred 

in sending that certification. It wasn’t working then and it isn’t 

working today, and the burden and cost of that failure will fall on 

the American people. It isn’t fair and it isn’t right. 

Before I recognize Health Subcommittee Ranking Member Dr. 

McDermott for the purposes of an opening statement, I ask unanimous consent that all members’ written statements be included in 

the record. Without objection, so ordered. 

I now recognize Mr. McDermott for his opening statement. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. 

Our Republican colleagues have called us here this morning once 

again to try to tear down the Affordable Care Act, to find all the 

defects they possibly can before the election. They have staged this 

political event, really, to blow another implementation issue out of 

proportion. What is more, they have decided that one subcommittee 

isn’t enough. They needed to put together two subcommittees to 

prove a purely partisan political point. 

It really is a disappointing choice on my Republican colleagues’ 

part, because they should accept that the ACA is working. Seven 

million people have joined. Many states have accepted Medicare expansions. Access to quality health care coverage has expanded dramatically since we enacted the law. Eight million people have 

bought insurance through the exchanges. Six million middle class 

people have saved money through tax—— 

[Audible alarm.] 

Mr. MCDERMOTT. There is a flash flood warning. 

Mr. THOMPSON. Roll up your pants. 

Chairman BRADY. Republicans did not make that announcement. 

Mr. MCDERMOTT. They did not. 

The success of this act, though, is really unquestionable and you 

can see it in the New York Times yesterday where they had the 

story about Texarkana, Texas, on the border with Arkansas, and 


ralbany on LAP520R082 with HEARINGS
6 

people on one side of the street had health care, and on the other 

side, they don’t. You can see that this information is seeping out 

across the country. 

But access isn’t everything, and we still have plenty to do with 

the ACA even today. We must control the cost. I am hand in hand 

with the chairman on that issue. That is why I have been working 

to combat the fraud, the waste and the abuse in the system and 

to promote shared savings programs that save providers, taxpayers 

and patients money. 

Reforms such as these will reform the ACA and provide better 

health security to American families, but instead of working on 

that issue and building on the success of the ACA, we are called 

here today to talk about a distorted view of the premium tax credit 

verification system. 

Virtually none of the criticisms are sincere and there is little or 

no facts to support their claims. Everybody knew that when you 

tried to enroll 30 million people, you would have errors. We might 

even look to ourselves in the mirror and remember how many 

times we have filled out something wrong and it was not considered fraud or abuse or waste, just human error. 

When my Republican colleagues talk about inconsistencies, they 

are not telling the full story. Although there have been inconsistencies, only a fraction actually impact anyone’s tax credits. In fact, 

many inconsistencies relate to applications that were never even 

completed. 

Now, just think about what the solution to the issue is. A letter 

was written to Secretary Lew to stop all tax credits. Now, you have 

got seven million people out there enrolled, and suddenly we are 

going to put a blanket stop on everything. That is trying to kill the 

law. If my colleagues on the other side had their way, no middle 

class families, even those without inconsistencies, would benefit 

from the tax credits for the foreseeable future. 

And when we hear the other side pretend that these inconsistencies are unprecedented, let’s look at the facts. Medicaid, CHIP 

and other highly successful programs have handled similar data inconsistencies before. We saw this morning when we wrote the 

ACA—we saw this coming when we wrote the ACA, which is why 

we included provisions to correct the inaccuracies. It is important 

to get this right, and designed the system to make sure that we 

did. 

The more data that comes out, the more stories we hear of people 

getting coverage, the more we can ensure the ACA is working. Just 

this past Thursday, a new Gallup Poll showed that the uninsured 

rate in America is at its lowest point since Gallup began selecting 

such data. That is not political spin or fuzzy math to say that the 

ACA has been a success. The Republicans should join Democrats 

in discussing how to make it even better and for that reason, I am 

glad we are having the hearing, but it ought to be about how we 

control costs, not about inconsistencies, which ultimately we will 

have a hearing on this. 

A year from now, if we haven’t got a better system than we have 

got today, that would be one thing, but when you take 3 months 

in and say you are going to have everything perfect, you simply 

have never tried to do anything, whether it is build a car, build a 


ralbany on LAP520R082 with HEARINGS
7 

missile. How many failures do we have in the missile system? Did 

we have them in every week to say, how many failures have you 

had? That is what we are doing here. We are jumping before it 

really needs to be done. 

I yield back the balance of my time. 

Chairman BRADY. I now recognize the Oversight and Subcommittee Ranking Member, Mr. Lewis, for his opening statement. 

Mr. LEWIS. Thank you very much. 

Thank you very much, Mr. Chairman, Mr. McDermott. 

In my heart of hearts, I believe that health insurance or health 

care is a right. When President Obama signed the Affordable Care 

Act into law, a new day began, one that was free of worry about 

what would happen if someone in their family got sick. The Affordable Care Act has opened the door for millions of Americans to access this sacred right for the first time in our country’s history. 

Let us take a moment to review the many accomplishments of 

the Affordable Care Act. Eight million people now have health insurance coverage; 3.1 million young people are able to stay on their 

parents’ health plan instead of being uninsured; and 129 million 

Americans, including 17 million children, with pre-existing conditions are no longer denied coverage or charged high premiums. 

Sometimes I think we forget what it is like to get sick and not 

be able to go to the hospital or see a doctor. We forget or maybe 

we do not know what it is like to look at the face of your sick son 

or your sick daughter and know that you cannot afford the treatment they need. The Affordable Care Act changed that reality for 

millions of people. 

Today women can now no longer be charged high premiums just 

because they are women and 105 million Americans no longer face 

a dollar limit on their coverage. This means that if faced with an 

expensive disease like cancer, they know their treatment will be 

covered and their family will not go bankrupt. 

The Affordable Care Act did that. This is a law that has literally 

saved people’s lives by giving them health insurance for the first 

time. We will not and must not return to the dark days when many 

of our fellow citizens could not afford health care and the Federal 

Government did nothing. 

Republicans have voted 52 times to repeal the Affordable Care 

Act. Whenever a topic about the ACA is on the table, it seems to 

be a code for one thing: repeal, destroy, go back. We have come too 

far, we have made too much progress, and we are not going back. 

After 52 votes to nowhere, I think it is very clear that we will not 

go back. Instead of focusing on repeal, we should encourage improvement. For the good of all of our citizens, we need to look forward and put an end to the political games. 

Realizing the dream of health care has meant a new challenge 

for the Federal Government. It has not been easy, it is not a light 

task. We must ensure that the agencies have the resources, the 

staff, training and technology that they need to help our citizens, 

our people to get the health care services they need and deserve. 

I hope that we can put our differences aside and come together 

to make the transition smoother for our citizens, for the most vulnerable people in our society and for those trying to serve them. 

Thank you, and I yield back, Mr. Chairman. 


ralbany on LAP520R082 with HEARINGS
8 

Chairman BRADY. Thank you. 

I now recognize the Chairman of the Oversight Subcommittee, 

Mr. Boustany. 

Chairman BOUSTANY. Thank you, Chairman Brady, for convening this really important hearing. 

In recent years, the Ways and Means Subcommittees on Oversight and Health have held numerous hearings on the implementation of the Affordable Care Act, including the new tax burdens 

under the law, the improper administration of tax credits, and taxpayer rights. 

This morning’s hearing will explore the Affordable Care Act’s income and eligibility verification system, which lies at the nexus of 

all three of these concerns. What is increasingly clear is that even 

if this system works as intended, there is a potential nightmare 

scenario developing for the 2015 tax filing season. 

Under the Affordable Care Act, the Internal Revenue Service will 

distribute over $1 trillion in new premium subsidies over the next 

decade, $1 trillion. To administer these subsidies accurately, the 

Federal Government requires precise and timely information about 

income, family status, the availability of employer-sponsored insurance, and other eligibility information. Yet after implementation 

delays, failures of healthcare.gov, and other poor administration, 

the Federal Government lacks this information, but has nonetheless begun to pay out billions of dollars in potentially incorrect premium subsidies. We know from experience where this story leads, 

and it does not end well for the American taxpayers. 

The rate of improper payments across the Federal Government 

is 4.35 percent. The rate of improper payments for the earned income tax credit, which like premium subsidies is paid based on income calculations, is approximately 22 percent, the worst error rate 

in Government. If this new subsidy is implemented with the average degree of improper payment, the low end for the IRS, the Federal Government will pay out over $44 billion in improper payments. 

If premium subsidies are administered with the same degree of 

accuracy as the earned income tax credit, the Federal Government 

will pay out a whopping $220 billion in improper payments over 10 

years. We have to get a handle on this and we haven’t gotten a 

handle on the EITC, and yet we have this whole new area of implementation. 

Although these subsidies are going correctly to insurers next 

year, the IRS will be in the position of recouping overpayments directly from individuals. Many of these individuals will end up with 

unexpected tax debt through no fault of their own, but from simply 

not understanding the quirks and complexities of the President’s 

health law. 

The rules regarding employer-sponsored insurance, for example, 

can leave a taxpayer owing the IRS the entirety of their subsidy 

payments. These are not hypothetical problems in the distant future. These are problems developing now and ones that will haunt 

taxpayers and businesses during the next filing season. I hope today’s hearing will cast new light on these issues. 

And I want to thank our guests for joining us in this very important discussion. 


ralbany on LAP520R082 with HEARINGS
9 

I yield back. 

Chairman BRADY. Thank you. 

Today we will hear from five distinguished witnesses: Douglas 

Holtz-Eakin, president of the American Action Forum; Ryan Ellis, 

tax policy director for the Americans For Tax Reform, an IRS registered tax return preparer; Katie Mahoney, executive director of 

health policy for the U.S. Chamber of Commerce; Bryan Skarlatos, 

a partner of Kostelanetz & Fink law firm; and Ron Pollack, executive director of Families USA. 

Welcome to all of you. I look forward to your testimony. 

Mr. Holtz-Eakin, we will begin with you. As usual, we have preserved 5 minutes for the statement and questions as well and because we are holding a joint hearing, we are going to stay close to 

the limits today. Mr. Holtz-Eakin. 

STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, 

AMERICAN ACTION FORUM, WASHINGTON, D.C. 

Mr. HOLTZ-EAKIN. Well, thank you, Chairman Brady, Chairman Boustany, Ranking Member McDermott, Ranking Member 

Lewis. It is a privilege to be here today to talk about the income 

and subsidy verification systems in the Affordable Care Act. 

I want to make three basic points in my testimony. Point number 

one is that the system itself is very complex in its best circumstances, if it worked exactly as designed, and that the series 

of waivers and delays that have been implemented over the past 

several years have made the system essentially unworkable, in my 

view, and we will see more about that. 

The second is that it complicates an already far too complicated 

tax system. The Ways and Means Committee has spent a considerable amount of time on tax implication and reforms. Many of the 

features of the Affordable Care Act verification system make things 

much, much worse. 

And then the third is that the combination of the complexity 

really does expose the taxpayer to additional unwarranted burdens 

and the likelihood of spending above what would be anticipated 

from the Affordable Care Act itself. 

The first point is that it is just very complicated. There is a 

graphic which we had hoped to show which my staff put together, 

which shows the verification system. It is in my written testimony. 

Yeah. That is a good faith effort to replicate the sequence of decisions and rulings that would take place in trying to verify the income and subsidies as the system stands at the moment. 

Just a glance at that tells you this is a system that is going to 

overwhelm taxpayers. In particular, this is a tax filing population 

that may not in fact be used to file tax returns at all and will have 

to begin to do so only because of the Affordable Care Act and to 

satisfy they verification. So it is a very, very complex system. It 

adds new information requirements, it adds new forms to reconcile 

to the actual subsidies in the Tax Code, they are required to report 

quarterly changes in their family status, changes in custodial relationships with children, kids who graduate from college and move 

out of the house, divorces. An enormous amount of personal information must be reported quarterly and on a timely basis to get the 


ralbany on LAP520R082 with HEARINGS
10 

reconciliation right. This is all going to prove to be quite complicated for this population to comply with. 

It will complicate the Tax Code. We do not yet know for sure how 

the IRS will do a lot of the implementation, but there is a very real 

chance that many of these taxpayers will no longer be able to file 

a 1040EZ form, for example, be forced into a more complicated filing status, something with which they are completely unfamiliar 

and will probably have to appeal to paid tax preparers for low income individuals. It doesn’t make a lot of sense. 

And the recapture itself will be very complicated. Many people 

have finally begun to understand how the child tax credit works or 

how the EITC works, and the recapture will interfere with their receipt of their normal refunds and they will find the system harder 

to manage. 

And my concern is the one that Chairman Boustany mentioned 

in his opening remarks, is that in the end, we have a system which 

will have individual eligibility requirements that look very much 

like the EITC, and these are layered—layered on top of this are 

employer requirements for affordable insurance, where the reporting is not yet in place but which in principle they would have to 

provide. 

That complicated system is likely to lead to error rates in payments and as you mentioned, if we have a 20 percent error rate, 

we are looking at $150 to $200 billion in inappropriate payments 

over the next decade. It is not a trivial problem, it is a serious 

budget problem at a time when the U.S. faces chronic budget deficits and long-run spending problems, so I am concerned about that. 

If you step back, I think it would be important for the committee 

to focus on two different things. The first is there are a set of 

issues which really are about the startup and what will a filing 

season look like next year, what will a population that is not used 

to receiving a, you know, a form 1095A which says, this is what 

your subsidies were, they may just throw those in the trash, will 

the error reconciliation process work effectively, we have no idea, 

but a bunch of startup problems. 

And then there is the longer-run problem, which is that this system is like the EITC, it is like Medicare. This is a pay-and-chase 

policy: pay people and then go find inappropriate payments. We 

have not proven capable of doing that in a very efficient fashion. 

We worry about the $60 to $80 billion a year in inappropriate payments to Medicare, we worry about the 20 percent error rate in the 

EITC. This is another program that has the same fundamental 

character, and I worry about whether it will be effective in the 

long-run. 

But I am pleased to have the opportunity to be here today and 

I would look forward to answering your questions. 

Chairman BRADY. Great. Thank you. 

[The prepared statement of Mr. Holtz-Eakin follows:] 


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f 

Chairman BRADY. Mr. Ellis, you are recognized. 

STATEMENT OF RYAN ELLIS, TAX POLICY DIRECTOR, AMERICANS FOR TAX REFORM, IRS REGISTERED TAX RETURN 

PREPARER, WASHINGTON, D.C. 

Mr. ELLIS. Chairman Brady, Chairman Boustany, Mr. 

McDermott, Mr. Lewis, Members of the Committee, thank you for 

inviting me to testify today. 

My name is Ryan Ellis. I come here today as a small business 

owner of a tax preparation firm, in the Commonwealth of Virginia 

and also as an IRS enrolled agent. I am also tax policy director at 


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Americans For Tax Reform, which is a non-profit here in Washington, D.C. 

Now I am here today to tell you that the upcoming tax filing season has the potential to be one of the most chaotic in years. One 

of the key elements of the Affordable Care Act, popularly known 

as Obamacare, is the creation of advanceable tax credits for the 

purchase of exchange health insurance plans. Taxpayers applying 

for credit assistance must be evaluated by government entities 

ranging from the SSA, to CMS, to the IRS. 

The goal is to have an educated estimate based on the most immediately available government documentation, e.g., prior year tax 

returns, et cetera, of the taxpayer’s probable income for the year, 

which in turn determines the size of the tax credit. In an effort to 

get this tax benefit out quickly, the estimated credit is advanced 

to the insurance company by the IRS, which applies it to customer 

premiums. This is an important point. The money has left the 

IRS’s hands up to over a year before the taxpayer actually calculates his final credit amount. The insurance companies have collected it, and they are not required to give it back. 

Press reports this month indicated that the Government was 

having a hard time doing all this, with 1.2 million of the 6 million 

Federal exchange applicants having to be asked for additional income verification information from CMS. That is not surprising. 

Applicants are asked to complete a detailed, confusing 12-page application, which asks for income, family size, et cetera. It is rather 

like trying to fill out a 1040 on the fly. Added to this is the lack 

of employer reporting requirements and the failure to complete the 

back end of the website properly. 

Inconsistencies, some of which are the results of failures of the 

healthcare.gov system, some of which are poor records from the 

government, and some of which are mistakes from the individual 

are not surprising, but they are a problem. 

Here it is the middle of June, and many people have now been 

receiving inaccurate subsidies for 6 months. To the public’s knowledge, not a single advanced tax credit has been adjusted this year. 

So what happens if the flawed, confusing process results in a tax 

credit larger than what the law calls for? A hypothetical example 

might help illustrate. A health exchange customer selects an 

Obamacare exchange plan, the Government estimates that this 

taxpayer will earn $30,000 this year, which makes her eligible for 

a $2,000 tax credit. This $2,000 is paid to the taxpayer’s insurance 

company to help with premiums. The next spring, our customer 

slash taxpayer is filling out her tax return. Unfortunately, the Government estimated the taxpayer earned too little and paid out too 

large a credit. She actually earned $40,000 and so only had a 

$1,500 credit coming to her. 

Depending on the taxpayer’s income level and availability of 

verified affordable workplace insurance, she will have to pay back 

much or all of the $500 overage to the IRS. This means skinnier 

refunds and maybe even a tax liability, and it won’t be the taxpayer’s fault, it will be the Government’s fault. It is also inevitable 

that many people are receiving tax credits which they are completely ineligible. 


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The firewall of the offer of employer-sponsored insurance is a 

new concept. Tax preparers will have difficulty figuring out how it 

works in operation. There is virtually no way to catch it on the 

front end, but come tax filing season, many people will end up 

owing thousands of dollars and it will be a complete surprise to 

them and to their tax preparer. 

The burden of explaining why the Government allowed individuals to accept too large a subsidy will fall on the tax preparer community. 

It is in the interest of the Congress to make sure that the entirety of the Obamacare sign-up system is fully functional; not just 

the front-end website, which got all the headlines, but the really 

important back end, where this complex income verification system 

must be able to work. 

Thank you for allowing me to testify today, and I look forward 

to your questions. 

Chairman BRADY. Thank you. 

[The prepared statement of Mr. Ellis follows:] 


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f 

Chairman BRADY. Ms. Mahoney, you are now recognized. 

STATEMENT OF KATIE W. MAHONEY, EXECUTIVE DIRECTOR 

OF HEALTH POLICY, U.S. CHAMBER OF COMMERCE, WASHINGTON, D.C. 

Ms. MAHONEY. Thank you, Chairman Boustany and Brady. 

Ranking Members Lewis and McDermott, and other Members of 

the Subcommittees for the opportunity to participate in today’s 

hearing. 

We appreciate this hearing’s focus on the challenges in verifying 

income and insurance information, given the delay of the reporting 

requirements under the health reform law, hopefully by examining 

the law’s interrelated provisions and how they were intended to 

work, we may be able to identify and advance solutions to alleviate 

the challenges that remain. 

My name is Katie Mahoney. I am the executive director at the 

U.S. Chamber of Commerce. While the Chamber opposed the 


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health reform law during the legislative debate, we are moving forward to do whatever we can to help our member companies understand and comply with the law. We continue to work with the regulators to mitigate the burdens and challenges of implementation 

and with members of Congress to provide relief to business. We 

have made some progress, but much more work needs to be done 

on both fronts. 

Since the law was enacted, the Chamber has filed 77 comment 

letters, many of which were in response to items issued to implement the employer mandate. While today’s hearing is on the 

verification of income and insurance information, I have been 

asked to testify specifically on the two reporting requirements contained in Sections 6055 and 6056. These sections were designed to 

provide the IRS with the data and information necessary to implement at least three other major provisions in the law: the employer 

mandate provision, the premium tax credit provision and the individual mandate provision. 

6056 requires employers subject to the employer mandate to report information to the IRS and to their employees to demonstrate 

compliance with the employer mandate. This information is necessary to determine which employers may be penalized and which 

individuals may be eligible for a premium tax credit. 

6055 requires those entities that insure individuals with minimum essential coverage to report to the IRS and those individuals 

the information necessary to demonstrate which individuals are 

covered and what that coverage looks like. This information is necessary for the IRS to know which individuals have met the requirement to obtain minimum essential coverage under the individual 

mandate and which individuals may be subject to a penalty. 

Even when described as simply as possible, the complexities are 

striking. Clearly the challenge of drafting regulations to implement 

these provisions is immense, but it is one that we have found the 

Treasury officials to take very seriously and approach very carefully. Efforts to promulgate regulations to implement 6056 and 65 

specifically began in 2012 in conjunction with other efforts to promulgate regulations on the employer mandate, which began in 

2011. 

At least ten regulatory items were issued in nearly 2 years between May of 2011 and April of 2013. We had many exchanges 

with Treasury during this process and filed numerous comments. 

In addition to responding to Treasury’s specific proposals, we repeatedly asked for transition relief, safe harbors and compliance 

assistance rather than strict enforcement of the provisions. As I 

shared with the House Energy and Commerce Subcommittee nearly a year ago, businesses needed more time. 

On July 2nd of 2013, Treasury announced that the reporting requirement regulations were not ready. As a result, transition relief 

for 2014 was provided to allow additional time to comply with the 

reporting requirements and the employer mandate, delaying compliance with these provisions. It would not have been possible to 

enforce the employer mandate provision without the information 

that the reporting requirements would collect. 

Following that announcement, Treasury continued its work, soliciting feedback and issuing eight more items in roughly 9 months, 


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including the NPRM’s on 6055 and 6056. We have worked with 

Treasury officials for the past 4 years as they labored to implement 

these requirements. We found their commitment to minimize the 

cost and burden to business while implementing the law as intended to be commendable. 

Many of the concerns and recommendations that we raised were 

explored and incorporated into the final rule, including several simplified reporting methods that will help ease the burden for some 

business and reduce reporting of statutorily specified but unnecessary data points. 

We applaud the officials at Treasury for their efforts, however, 

the extensive costs and time necessary to comply with these reporting requirements continues to be daunting. 

Many companies offer exceptional benefits, for which employees 

pay only a small portion of the premium. These businesses, like 

many others, are committed to improving the health of their employees and offering coverage that is highly valued. It is unfortunate that because of the way the statute is written, these businesses must direct resources to report on the coverage they offer 

rather than use those resources to pay for a greater portion of the 

cost of that coverage. 

Even more unfortunate is the extreme expense of these reporting 

requirements and the challenges in identifying precisely which 

month’s coverage is offered to which employees may incent employers to stop offering coverage all together. Clearly this is not what 

was intended and it is not what is best for employers or employees. 

In conclusion, what is to be done? Well, enacting the legislation 

passed by the House earlier this year to restore the long-standing 

definition of full-time employment to 40 hours would be helpful. We 

urge you to consider legislation to permit businesses greater flexibility and protection, and work with stakeholders to identify possible ways to provide further relief. 

Thank you. 

Chairman BRADY. Thank you. 

[The prepared statement of Ms. Mahoney follows:] 


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f 

Chairman BRADY. Mr. Skarlatos. 

STATEMENT OF BRYAN C. SKARLATOS, PARTNER, 

KOSTELANETZ & FINK, LLP, NEW YORK, N.Y. 

Mr. SKARLATOS. Good morning, Chairman Boustany, Chairman Brady, Members of the Committee. 

Thank you for inviting me here this morning. My name is Bryan 

Skarlatos. I am an attorney in New York, and my practice focuses 

in large part on tax procedure issues. 

I am here to talk to you today about how the IRS collects taxes, 

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payments of credits. When we talk about how the IRS collects 

taxes, it is important to remember the IRS is not an ordinary creditor like you or me. If somebody owes me money, I have to go to 

court, start an action to invoke the authority of the court to give 

me a judgment that I can use to collect the property to pay the 

debt. I can’t just take somebody’s car or take somebody’s bank account. 

It is different for the IRS. Because the IRS has a need to collect 

taxes, Congress has given the IRS super creditor powers. The IRS 

doesn’t need to go to court. It can act unilaterally, using its powers 

of lien and levy to collect taxes. Those are the two main tools it 

has. 

A lien is the first and most important concept. It is an intangible 

concept. It is not something the IRS does; it is a thing that arises 

by operation of law and the lien is what gives the IRS the right 

to collect somebody’s property, or to take somebody’s property. It is 

sort of like a string that the IRS can pull to take property from 

someone. 

A levy, is distinct from a lien. The levy is the actual procedure 

it uses to take the property. It can go in and take things that the 

taxpayer has an interest in, like a bank account, a car, wages or 

something like that. 

Now, the IRS can’t just do this without first having an assessment. It needs an assessment of taxes. Most taxes get assessed on 

the tax return and taxpayers themselves say, I owe a thousand dollars. That is a self-assessment and we indeed have a self-assessment system. If the taxpayer doesn’t pay the taxes that they say 

they owe, then the IRS has these collection powers, or if the IRS 

later comes in and says, you owe more money, you owe $2,000, not 

a thousand dollars, then the IRS has these collection powers, because the assessment arises. 

Once the assessment arises automatically, it doesn’t arise automatically. Excuse me. What happens first is that the IRS has to 

say, hey, you owe money, there is an assessment, and demand payment. If the taxpayer then fails to pay the tax, the assessment 

arises automatically and then the lien arises automatically upon 

the assessment, giving the IRS rights to the property. 

The lien is the important concept, as I mentioned, because it is 

very broad. It affects anything that the taxpayer owns or anything 

that the taxpayer could have an interest in. It also includes things 

like after-acquired property. So if the taxpayer buys a car or receives an inheritance after the assessment, the lien will attach to 

that after-acquired property. 

The IRS can also file a notice of tax lien. It does this in order 

to give itself priority over other creditors. It files the notice in the 

local county clerk’s office or in the local court office. That notice of 

tax lien by mere filing can have an impact on the taxpayer’s credit 

standing and it can affect certain agreements it has, credit agreements, mortgages, it can trigger events of default simply by filing 

the notice of lien. 

But the lien itself, as I said, is not the thing that takes the property. The thing that takes the property is the levy. The levy and 

the seizure, and levy and seizure are basically the same words for, 

similar words for two same concepts, is when the IRS goes in and 


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takes things. It can go to the taxpayer or it can go to third parties 

like a bank or like an employer or a customer who owes the taxpayer money. 

The levy, though, unlike the lien, does not attach to after-acquired property, so if a levy hits on a certain day and somebody 

deposits money into a bank account the next day, the levy does not 

attach to that. There is one exception, however, and that is for a 

levy on wages. A levy on wages continues, and continues on the 

taxpayer like a vacuum cleaner, continuing to take the wages as 

they are earned. 

The IRS has to give the taxpayer notice, 30-days’ notice before 

it is going to levy and take the property and at that time the taxpayer has the right to request a collection due process hearing to 

contest the levy or the underlying assessment of taxes. 

Now, the IRS doesn’t just take things without giving some notice 

and demand, and there are a series of notices that come out in the 

usual case and in that case, the taxpayer can try to negotiate an 

installment agreement or an offer in compromise where they pay 

less than the full amount due, depending on the taxpayer’s current 

assets and ability to pay. 

One other factor you should consider is that if there is an overpayment of tax in another year, the IRS can offset an underpayment simply by reducing the overpayment in another year. 

So those are some of the tools that the IRS has at its disposal 

to collect taxes. Thank you. 

Chairman BRADY. Thank you. 

[The prepared statement of Mr. Skarlatos follows:] 


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f 

Chairman BRADY. Mr. Pollack, you are recognized. 

STATEMENT OF RON POLLACK, EXECUTIVE DIRECTOR, 

FAMILIES USA, WASHINGTON D.C. 

Mr. POLLACK. Thank you, Chairman Brady and Boustany, 

Ranking Members McDermott and Lewis, Members of the Committee. 

Today’s hearing is important, because it is essential that tax 

credit premium subsidies be provided based on good and accurate 

information. This is needed to ensure that there are neither underpayments or overpayments of such subsidies. 


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In undertaking today’s examination, it is crucial to single out two 

important words, both with very separate meanings. These words 

are ‘‘inconsistencies’’ and ‘‘inaccuracies.’’ The two words should not 

be confused with one another, because they are not synonymous, 

and conflating those two words, like some in this Congress have 

done, does an enormous disservice to today’s inquiry. For example, 

two sets of data may be inconsistent, one depicting a situation 2 

years ago and another depicting the situation today, and they both 

may be accurate. It is crucial, therefore, to underscore the differences between inconsistencies and inaccuracies as we examine 

the discrepancies that appear to exist in application submissions 

versus Government data files among 2.1 million people enrolled in 

affordable care-related coverage. 

Of the 2.1 million discrepancies, over half concern discrepancies 

about applicants’ income. This should not be surprising, because 

applicants are supposed to provide information about their current 

2014 income, while the Government’s data reflects such households’ 

income based on their 2012 tax returns. Many significant changes 

occur in income status over those 2 years. 

Many people change jobs, resulting in gains or losses of income; 

many people receive differences in compensation, again, up or 

down; many people experience differences in real or expected overtime. Changes in family composition significantly impact income, 

and some families move from jobs to becoming students, and vice 

versa. And many other factors cause incomes to change over the 

course of 2 years. 

These 2-year differences should be reviewed, but there is little 

reason to surmise that these differences are inaccuracies in applications that should cause reductions in premium subsidies. 

The same is true with the almost 1 million discrepancies with respect to immigration and citizen-related information. Keep in mind, 

people eligible for marketplace coverage include citizens and nationals and others lawfully in the United States. The only persons 

disqualified for coverage are those who are not lawfully in the 

country, and those individuals are hardly likely to contact an exchange or other governmental entity. 

The kinds of discrepancies that do exist in this area involve matters that are innocuous and do not affect eligibility for or the size 

of premium subsidies. They include the precise Social Security 

Number, whether a person does or does not have a hyphenated 

name, whether the person has a permanent resident card or a 

green card, whether they are missing a digit in an address. 

There are other reasons to believe that the number of inaccuracies are small, and when we see verification, that they would be 

rectified, four reasons: one, similar verification systems exist in 

programs like Medicaid and CHIP, and the vast majority of instances consumers’ information is found to be accurate; second, 

Serco, which is the contractor responsible for obtaining information 

from beneficiaries to address ACA enrollment inconsistencies, 

briefed the House Energy and Commerce Committee last week, and 

what they said, they indicated that upwards of 99 percent of the 

inconsistencies would be in, quote, ‘‘innocuous’’, end quote, or benign, and easily resolved without impact on beneficiaries’ costs or 

coverage; third, consumers attest in their application form under 


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penalty of perjury, and that is not taken lightly; and lastly, if a review shows a household’s initial subsidy is inaccurate, the marketplace will adjust it for the remainder of the year, and places like 

the District of Columbia have actually suggested to people that 

they only take 85 percent of their subsidy so that they are on the 

conservative side of this, and, of course, then there is true up and 

reconciliation. 

The bottom line in all this is that it makes sense to complete the 

examination of discrepancies as soon as possible, but with respect 

to the number of inaccuracies, to borrow from William Shakespeare, this is much about very little. 

Chairman BRADY. Thank you. 

[The prepared statement of Mr. Pollack follows:] 


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f 

Chairman BRADY. While some today try to dismiss this, this as 

no big deal, the truth is Republicans and Democrats have been concerned about this for some time, with the risk to taxpayers by inadvertently committing taxpayer funded fraud, unfortunately, if this 

is not fixed. 


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Mr. Holtz-Eakin, on the screen, in barely readable type, is the income verification system of the Continuing Appropriations Act 

2014. This was passed Republicans and Democrats, signed by the 

President, includes language principally by Representative Black of 

Tennessee, an important section reads this way: Prior to making 

such credits and reductions available, the Secretary shall certify to 

the Congress that the exchanges verify such eligibilities consistent 

with the requirements of such act. And Secretary Sebelius made 

that certification January 1. 

One, was that certification in error, and two, as of today as it 

currently stands, does this system meet the requirements of the 

law? 

Mr. HOLTZ-EAKIN. In my opinion, it does not meet that requirement and the Secretary clearly made the certification for reasons that she can defend, but by delaying for 1 to 2 years depending on the size of the firm any collection other than voluntary of 

information from the employer side, you cannot know if someone 

has an offer of affordable insurance. That is a key piece of the eligibility requirement. 

Second, there are essentially different rules for Federal exchanges and state exchanges, and my understanding is that the administration is going to treat differently those states that did and 

did not expand Medicaid. You cannot make a sweeping statement 

that there is an overall certification system in those circumstances. 

Chairman BRADY. As of today—— 

Mr. HOLTZ-EAKIN. Yes. 

Chairman BRADY. As of today. Here we are June 10th, we have 

not even begun to resolve, even begun to resolve income-related inconsistencies. CMS acknowledges there is well over a million of 

these. They hope to get through them by the end of the summer; 

not yet known if that will happen or not. Obviously everyone acknowledges there is a long way to go in this. 

Some will say this is all working out, no problem, this will work 

itself out, but even if they fix all the technical items, will HHS and 

the IRS really ever have a working income verification system? 

Doesn’t the law, based on a very poor design, really prevent any 

agency from verifying income information before sending out the 

tax subsidy? 

Mr. HOLTZ-EAKIN. There is no existing program that does what 

you described effectively. My concern is from experience with the 

earned income tax credit, from experience with the Medicare payment programs that this is yet another program that will, in fact, 

place a premium on getting money out the door, it will then make 

a good faith effort to identify errors in payment and recapture, but 

we have as a Government never done that particularly successfully. 

And so, I understand the folks who point to particular details 

that can be fixed and done better, but as an overall track record, 

these kinds of programs have large errors in payment, and those 

are large taxpayer sums of money. 

Chairman BRADY. So the problems that we will see won’t merely fix themselves. The design of the system really makes it, as you 

indicated in your testimony, creates that pay-and-chase process, 

again, where we will always be paying out incorrect subsidies, 

chasing them down with some degree of success or not. 


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Mr. HOLTZ-EAKIN. Absolutely. And indeed, this law, in fact, exacerbates that slightly by making it the case that the recapture 

comes from taking money out of refunds. If there is no refund from 

which to take the overpayment, the taxpayer has—the recipient of 

the payment has no obligation to repay the Federal Government 

and thus the taxpayers. 

So, you know, you have designed it so as to not get back all the 

overpayments. There is no doubt about that. It is going to be in 

particular, people like Mr. Ellis in a bad position. If you are a tax 

preparer, you can have an individual sitting in front of you saying, 

I am not going to pay what I owe, and will he sign off on that as 

a tax return? I won’t answer for him, but I wouldn’t want to be in 

that position. This is really a poorly designed system from that perspective. 

Chairman BRADY. And in your testimony, you made the case 

that many of these individuals may not be as familiar with the tax 

preparation system. You are asking them to follow a very complex 

set of rules that they may have really no experience in dealing 

with? 

Mr. HOLTZ-EAKIN. Yes. I mean, there are two people on this 

panel that can speak to this better than I can, but I worry about 

what happens next February. There are going to be people who 

have not traditionally filed returns who are going to get an information form in the mail, it is a 1095A, and my guess is half of 

them will toss it, they will have no idea what that is. 

They will then have an obligation to file a return and reconcile 

the information on that form through another form, an 860—890— 

8962 form, and if they don’t put that form in, the IRS will reject 

the filing and send it back to them. They won’t get their earned 

income tax credit, they won’t get their child care, they won’t get 

anything. 

I think there is going to be enormous amount of confusion. This 

population is not used to this process, the forms are new. The way 

error checking and reconciliation is going to happen is, in fact, not 

clear. 

You know—— 

Chairman BRADY. And if I understand it correctly, because of 

the way Ms. Maloney talked about, if taxpayers don’t catch it this 

next tax season, with the reporting requirements put in place in 

2015, they will be caught in the 2016 tax system, which means 

they could be on the hook for 2 years of either overpayments or ineligible subsidies; is that correct? 

Mr. HOLTZ-EAKIN. That would be my reading of the law and 

the practice. I would encourage you, you know, to have the IRS 

commissioner come up and explain how they do in fact plan to do 

that. I think there is some uncertainty about that at the moment. 

Chairman BRADY. Thank you very much. 

Mr. Ellis, to sort of follow up, there is really a second group of 

taxpayers we are concerned about, and you identified them in your 

testimony. And so if an individual, if I go to my employer and ask, 

is the insurance you offer me affordable according to the Affordable 

Care Act, will that employer necessarily know what that means? 

Mr. ELLIS. No, because the employer doesn’t have all the information that it needs in order to make that judgment. The definiVerDate Sep 11 2014 03:17 Jul 21, 2016 Jkt 094427 PO 00000 Frm 00063 Fmt 6633 Sfmt 6602 I:\WAYS\WAYSPS\94427\94427.XXX 94427

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tion of affordable insurance from the workplace is nine and a half 

percent of someone’s adjusted gross income, of an individual’s adjusted gross income, but, of course, individuals if they are part of 

a family unit don’t file taxes as individuals. That only happens if 

they are single. 

If you are married or if you have dependent children and all 

these other things that come into a more complicated tax return 

situation, the employer is not necessarily going to have all that information. 

That is why the employer community was so insistent upon having this waiver of reporting, I think, for 2014, because they knew 

that they didn’t want to make an attestation to the Government 

based on information that was incomplete. 

Chairman BRADY. So if I have asked that question of my employer, they may not necessarily know what that means. So Serco, 

the Government contractor hired to process all the paper applications, resolve the conflicts of data, contact taxpayers and all, if they 

ask an employer today, is the insurance you offer John Q employee 

affordable, is the employer going to know that answer? 

Mr. ELLIS. Probably not, because that employer probably doesn’t 

have any more information than he did at any point this year. 

Chairman BRADY. So, the Government can supposedly check, 

and they are doing this manually, so doubt they are doing much 

checking right now, but can they check and get the wrong answer? 

Mr. ELLIS. Absolutely, they can get the wrong answer, and they 

will. 

Chairman BRADY. And then, who pays that back if the answer 

is wrong? Is it the individual? 

Mr. ELLIS. Ultimately the final liability lies with the taxpayer 

himself or herself that has received this advanced credit. 

Chairman BRADY. Okay. Final point. Mr. Ellis, in his testimony, 

Mr. Pollack stated the Affordable Care Act envisioned a modern, 

streamlined application system for health insurance and premium 

tax credits that would avoid the need for people to bring shoeboxes 

full of documents into Government offices. The Washington Post reports, piles of unprocessed proof documents are sitting in a Federal 

contractor’s Kentucky office. Quite literally there are millions of 

documents, much of which presumably came from someone’s 

shoebox. 

As the tax preparer, does the Affordable Care Act meet the goal 

envisioned by Mr. Pollack, and do you expect it to be overwhelmed 

by the contents of these shoeboxes next April? 

Mr. ELLIS. I expect it to be overwhelming, in that taxpayers will 

not know what they don’t know when they walk into a tax preparation meeting. I think tax preparers are going to have to learn 

themselves what it is taxpayers are going to need to bring. We are 

probably going to have to send them back home, send them back 

to the Government agencies that maybe they threw away forms 

from and come back and do follow-up meetings. So it is going to 

be burdensome on the entire process next filing season. 

Chairman BRADY. The purpose of the hearing is not to minimize 

the problem, it is to shine line on it. So both individuals, employers, others who could be caught up in this can take action now to 


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try to prevent it, and the Federal Government can actually do the 

job it was supposed to do under this law. 

So I now recognize the Health Subcommittee ranking member, 

Dr. McDermott, for 5 minutes. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. 

God, it sounds like the game is over, it is all—it is hopeless. 

Mr. Pollack, the ACA—doesn’t the IRS have a process at the end 

of the year that will take the income that you report that year and 

match it up with what you said you were going to have? 

Mr. POLLACK. Yes, of course they do and, you know, what is 

really important in this inquiry is not to confuse two different sets 

of things. 

One is verification of information that looks retrospectively, 

which is really the issue that is currently being considered when 

they say there are a couple million inconsistencies. The other is 

prospectively. When people provide the best information which is 

accurate at the time they provide that information, you and I don’t 

know, they don’t know whether in the middle of the tax year their 

employer is going to give them a bonus, whether their employer is 

going to increase their salary, whether there is going to be a difference in overtime pay. Those are the kinds of things that will be 

checked later on at the end of the tax year. That does not mean 

that the application that has been filed has current inaccuracies. 

I am concerned that the retrospective effort—I am sorry, that the 

effort at trying to adjust tax credits in the following year, which 

may have to look at things that nobody predicted and that are not 

contrary to what the information that was provided in good faith 

could result in a tax liability, but that is very different than saying 

that there are current inaccuracies. 

Mr. MCDERMOTT. It sounds to me like the testimony of some 

of the other witnesses is fear mongering to make people afraid to 

say, I think my income this year is going to be $30,000, and therefore I would be eligible for X amount of subsidy, and to take it, because it may turn out that something changes during the year and 

suddenly they are faced then with, it was $40,000 you made, you 

owe $500 back. Is that a fair statement of what the—— 

Mr. POLLACK. Yeah. There is no question that those who have 

opposed the Affordable Care Act have tried to deflate the number 

of people who apply for coverage and seek subsidies. 

Thankfully, the Affordable Care Act did better than anyone predicted. Over 8 million people actually enrolled in private coverage, 

about 5 million people enrolled in Medicaid coverage, another 1 

million enrolled in Medicaid coverage in April after the first enrollment period expired, but thankfully people, when they get counseling—and they are receiving counselors. There are navigators 

and assisters that are providing information to people so that those 

who are unfamiliar with the form and have difficulties with the 

form can fill it out accurately. 

Mr. MCDERMOTT. And was there anything in that process 

when they were filing that said, give us your income for 2 years 

ago so we can match what you tell us with what you received 2 

years ago? Was that the earliest—the best data available to the 

IRS? 


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Mr. POLLACK. Yeah. Well, of course when we move away from 

this shoebox mentality that we have had with social welfare programs where people have to come in with W-2’s and 1099’s and a 

host of other data, now we are doing it digitally, and what we then 

do is verification digitally. What we can only do with the best data 

that we have, and the best data that we have with respect to income is income in the tax files of a couple years ago. Mr. MCDERMOTT. So if I am making $30,000 now, maybe I was 

making 27 when I—the last time, in 2012. So when I report 

$30,000 as my income today, it will be matched against that 27 of 

2012, and it will look like an inconsistency, right? 

Mr. POLLACK. Yes and especially any inconsistency that ex- ceeds 10 percent, and that—from $2,700 to—$27,000 to $30,000, 

that is an increase a little above 10 percent, that will appear to be 

an inconsistency, but it doesn’t mean that the $30,000 response 

was inaccurate. 

Mr. MCDERMOTT. So what is being created here is the impression that there are thousands of people sitting out there saying, I 

think I will put my income down real low so I can get a big subsidy 

and see how far I could get with it. Is that a fair way to characterize? 

Mr. POLLACK. Well, I don’t think people—— 

Mr. MCDERMOTT. And I yield back the balance of my time. 

Mr. POLLACK. I don’t think people are looking at it that way. 

Chairman BRADY. If you would like to answer in a later question or submit it in writing, that would be perfect. 

Mr. POLLACK. I would be happy to do so. 

Chairman BRADY. Chairman Boustany. 

Chairman BOUSTANY. Thank you, Chairman Brady. The Oversight Subcommittee of Ways and Means has had multiple hearings 

looking at improper payments in various areas of the Tax Code, 

and we have tried to focus on this nexus of complexity in the Code 

and how it leads to improper payments, what is the IRS trying to 

do to deal with all this, and the compliance burden. We know that 

improper payments come about from identity theft, honest miscalculation, or the government’s inability to administer credits 

properly. We know that refundable credits are very difficult from 

an administration standpoint, and that is based on multiple conversations I have had with the IRS Commissioner, privately as well 

as in hearings. And I referenced government-wide, just under 5 

percent improper payment rate. EITC is more problematic, and we 

still have not gotten a full handle on this. But Mr. Holtz-Eakin and 

Mr. Ellis, comment on the vulnerability that this premium tax 

credit is going to pose in terms of creating significant improper 

payment, and what can the Federal Government do better, if we 

are going to have this system, and I would submit, I think, the policy prescription is pretty flawed, and we are seeing the implementation flawed as a result; but given that scenario, what can we do? 

Mr. HOLTZ-EAKIN. I guess the thing I would like to emphasize 

is that the reason I am concerned is because of the EITC experience, and this committee has looked at it for a number of years I 

know. There is no income attestation in the EITC. This is not 

about inaccuracies in attestations. It is about correctly delivering 

the right amount of a refundable credit to a deserving individual, 


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and we get that wrong at alarmingly high rates, 1 in 5, hundreds 

of billions of dollars. And that track record is the focus of my concern. 

It can be improved by effective electronic information sharing, 

and there is, you know, great efforts by the IRS to do that. I think 

at the startup of the ACA, there is going to be big problems there. 

We know that, in fact, the States have simply not been asked to 

do that. If you are on a Federal exchange, there was an attempt 

to check the records a few years ago; but I think for a number of 

years, until the employers are fully in the system and the matching 

and error checking is done effectively, it is going to be impossible, 

regardless of attestation, to simply line up the records and give the 

right amount of money out, and that is my concern. 

Chairman BOUSTANY. This level of complexity, especially with 

the problems they are having with the employer mandate and the 

reporting is significant. Ms. Mahoney laid out a number of major 

concerns in that regard. And I know we have talked, I think you 

have testified before about the additional $30 billion in regulatory 

compliance on taxpayers because of the Affordable Care Act. How 

does this situation with the subsidy eligibility process, employer reporting as we know the status today, these requirements, how will 

they really add to the compliance cost, and what is the effect going 

to be both on tax compliance and economic growth? 

Mr. HOLTZ-EAKIN. I have been concerned for quite some time 

that the Affordable Care Act does not cost you anything like a progrowth policy at a time when the U.S. is recovering poorly from a 

very deep recession. And so as a whole, it goes in the wrong direction. This is not what you would do to stimulate economic growth. 

The particulars of the compliance costs are quite troubling because 

the number is high, the paperwork and self-reported compliance 

cost—these are all figures from the agencies themselves—look like 

$300 billion over a 10-year horizon. Much of it is going to be visited 

upon a very low income population, the deserving targets of the exchange subsidies. They are the ones who are going to have to report every change in their personal lives quarterly to these exchanges. They are the ones that are going to have to identify the 

information statements that come in the mail, file new tax forms 

that they did not previously have to file, do the reconciliation, perhaps be denied their EITC until a second filing confirms the appropriateness of their subsidy. Those compliance costs are going to 

visit on that population, and that is not going to improve their economic lives. 

Chairman BOUSTANY. Mr. Pollack quoted Shakespeare earlier 

to the tune of much about nothing, but I would submit that $220 

billion over 10 years is significant; and this is just one piece in a 

budget problem that we have. I would like you to comment. I mean, 

this $220 billion estimate, give us a little more insight into where 

that figure might have come from? 

Mr. HOLTZ-EAKIN. How big is that? I mean, where it came 

from, if we spend $1 trillion in exchange subsidies over the next 

10 years at roughly 20 to 22 percent inappropriate payment rate, 

that is a $220 billion taxpayer finance mistake. And that is not entirely hypothetical because we have had that experience in the 

EITC, which is a smaller program. For perspective, right now the 


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gap between payments coming in, payroll taxes and premiums, and 

spending going out in Medicare is $300 billion. Crucial piece of the 

social safety net, $300 billion deficit every year, that is the size of 

the mistake that we are potentially making that could be applied 

to legitimate taxpayer goals like funding programs they want and 

reducing taxes they don’t think they need. 

Chairman BOUSTANY. Do you think the error rate, we are basically, for the sake of calculation, using a 20 to 22 percent error 

rate, do you think it is going to be higher? This strikes me as being 

actually more complicated than the EITC and suggests to me that 

the error rate could be higher. 

Mr. HOLTZ-EAKIN. Well, the EITC asks you to provide at the 

individual level, household level, your income, family size, the parameters of qualification for your credit. This is that, plus the employer side on affordable insurance, and it is by definition more 

complex and leads the situations that Mr. Ellis talked about where 

you might decide something is unaffordable for an individual, send 

them off to the exchanges, look at the family unit as a whole, decide it was affordable, they got the subsidies inappropriately. They 

are now in a very bad position of owing the entire amount back, 

perhaps with quite large penalties. It is going to be difficult to operate effectively. 

Chairman BOUSTANY. Ms. Mahoney, do you want to add anything to this? You focused a little bit on the employer reporting requirements and the complexity there. Is there anything that you 

would like to add? 

Ms. MAHONEY. I think that one thing to consider is that businesses are very different in terms of their population of employees, 

in terms of the size of their company, in terms of whether they selfinsure or do not self-insure. And so one of the things that we would 

like to continue to see is flexibility in terms of what compliance 

means for the reporting requirements because there are so many 

different types of businesses and different types of employees with 

variable hourly employees as opposed to seasonal employees as opposed to a population that you anticipate their hours very clearly. 

So I think that adds a huge layer for the employer. 

Chairman BOUSTANY. To put all this back into perspective, 

some very disturbing trends have already emerged, and as a physician, I know what the impact of this will truly be. We are now seeing more people in the emergency rooms across the country. This 

means that a lot of people who need medical care are getting their 

first line care in the emergency room where it is more expensive, 

typically later in the process, and it is certainly not the best way 

to establish a high-quality doctor-patient relationship. I don’t think 

this was the intent of this law, but this is the consequence of a 

flawed policy. With that, I will yield back, Mr. Chairman. 

Chairman BRADY. Thank you, Chairman. Ranking Member 

Lewis. 

Mr. LEWIS. Mr. Pollack. It is good to see you again. Thank you 

for being here. Thank you for continuing to fight the good fight. Almost 50 years ago you were down in Mississippi in the heart of the 

Delta trying to help people get registered to vote. Fifty years later 

you are still fighting, standing up for what is fair. Just thank you 

for being here. As you travel around the country, what do you see? 


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What do you hear about the Affordable Care Act? What are the 

American people saying about it? And I want you to take your 

time, and if you want to respond to anything, I want you to use 

my 5 minutes to say what you want to say. 

Mr. POLLACK. Thank you. Thank you, Mr. Lewis. You know, 

the last Census Bureau report tells us something that is truly extraordinary. What the Census Bureau reports said was that there 

were 48 million people in our Nation who are uninsured. You 

know, it is hard to put your arms around that number, 48 million. 

So think about it this way: Take the entire population of Oregon, 

and then Oklahoma, and then Iowa, and New Mexico, and Mississippi and Utah, Nebraska, Montana, North Dakota, South Dakota, Connecticut, Arkansas, Kansas, Nevada, West Virginia, 

Idaho, Hawaii, Maine, New Hampshire, Rhode Island, Delaware, 

Alaska, Vermont, and Wyoming, 24 States, and you aggregate the 

population together and throw in the District of Columbia, and you 

have fewer than 48 million people. 

What the Affordable Care Act does is it changes that, and we 

have seen some significant improvements already. For example, we 

just learned from the Gallup Survey that the number of people who 

are uninsured has reduced very significantly, and that is very important. But the Affordable Care Act is doing a whole lot more. It 

is providing peace of mind to people, people who had preexisting 

health conditions like asthma or diabetes or high blood pressure or 

history of cancer, they no longer have to worry whether they can 

get health insurance from an insurance company. Young adults 

who can’t afford insurance are now getting coverage, over 3 million 

of them, through their parents’ policy. And a lot of people who 

could never afford health insurance before are now receiving significant subsidies that makes premiums affordable and that make 

out-of-pocket costs affordable. And community health centers are 

receiving more money to serve more people. 

So the Affordable Care Act has taken some very important steps 

that are long overdue, and in the process, it is also doing something about health care costs that Mr. McDermott talked about. It 

is aligning payments so we pay for quality rather than quantity of 

care. It is improving quality effectiveness research to make sure 

that the care we get is the best care possible. It is improving coordination of care. Those are all very important steps, so I am really thankful that the Affordable Care Act, which is by no means perfect, but it is an extraordinary step in the right direction. 

Mr. LEWIS. Thank you very much. Mr. Chairman, I yield back. 

Chairman BRADY. Thank you. Mr. Johnson is recognized. 

Mr. JOHNSON. Thank you, Mr. Chairman. I can’t say what I 

want to say. You know, defenders of the President’s health care law 

claim the problems we are talking about today are predictable challenges in implementing new programs, the administration is working out the kinks and the problems will go away. I don’t think that 

is true, is it? Mr. Holtz-Eakin, are the problems of income reconciliation, unexpected tax debt or potential waste, fraud, and abuse 

issues of implementation, or do they go to the very core of how this 

law operates? 

Mr. HOLTZ-EAKIN. As I said in my opening statement, I think 

there are lots of issues that will arise in the first filing season due 


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to the deferral and waiving of some of the provisions, but the fundamental issue is much like the EITC and other programs and will 

not disappear. It is a problem in the design. 

Mr. JOHNSON. Well, I guess we have to wait and see. Mr. Ellis, 

as a tax preparer, what are your biggest concerns about the 2015 

tax filing season? 

Mr. ELLIS. My biggest concern is that there is a lack of education that is happening on both the preparer side and on the taxpayer side, that there is going to be a completely different dynamic 

in the tax interview for many of these clients next spring than we 

have had up until this point. We are going to have an added dimension of having to deal with this, and really everyone I think is 

going to be caught flat-footed in this. Taxpayers are not going to 

expect it coming. They, frankly, come in with a big pile of paper 

and have no idea what they are bringing to a tax meeting. That’s 

the honest truth. This will simply be added to that pile. 

They won’t be prepared to answer the type of questions that we 

are going to have to ask as tax preparers, tax preparers having to 

deal with a completely new set of forms and a completely new process to interview taxpayers are also ill-prepared for this. 

So my biggest concern is that we are going to have a lack of information all around, and then that doesn’t even bring into account 

the agency, the IRS, and their ability to educate both taxpayers 

and preparers in that regard. 

Mr. JOHNSON. Well, and they are going to be unable to fathom 

all the facets of this law I think ultimately. Thank you, Mr. Chairman. I yield back. 

Chairman BRADY. Thank you. Mr. Davis. 

Mr. DAVIS. Thank you. Thank you very much, Mr. Chairman. I 

want to thank the witnesses. You know, I was in church Sunday, 

and I was kind of touched with the message that the pastor gave, 

and he was trying to figure out why it is that sometimes we see 

things and just refuse to believe it, that he was pushing the fact 

that what the eyes see, the heart must believe. And so it amazes 

me that we continue to hear that ACA is not working when we can 

see, if we put in perspective, more than 8 million people have marketplace health insurance plans, including more than 6 million who 

are receiving tax credits. Approximately 6 million lower wage individuals have enrolled in Medicaid coverage, 6 million young adults 

have been able to stay on their parents’ health plan; 129 million 

Americans with preexisting conditions, including 17 million children, can no longer be denied coverage or charged higher premiums 

because of their conditions; and more than 100 million Americans 

no longer have a dollar limit on their coverage, providing them and 

their families with peace of mind that they will not go bankrupt 

if they are diagnosed with an expensive disease. 

The bottom line is that the ACA helps people with preexisting 

conditions, those who are between jobs wanting to become self-employed, and obviously this is a tremendous amount of improvement. 

Mr. Pollack, you have indicated that as you have talked to people 

and get the impressions from them how they see this, if they see 

it one way, I am wondering, why do so many other people seem to 

see it another way? Or if their hearts just refuse to believe what 

their eyes see. How would you respond to that? 


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Mr. POLLACK. I think there are three words that really reflect 

what has happened to people who are gaining coverage through the 

Affordable Care Act. Those three words are ′′peace of mind.′′ People 

now know that when they or a family member need care, they will 

be able to receive it, and I think that if you take a look at the surveys of those people who have enrolled, you will find that by an extraordinary margin, people are very happy with that. And I think 

as more people get enrolled, and more people will get enrolled over 

the course of the next year and the following year, I think you are 

going to see that the American public understands that the Affordable Care Act provides a very significant contribution to the improvement of America’s health care system. It is by no means perfect, and we are still going to have to make some changes to it, but 

it is a big step in a positive direction. 

Mr. DAVIS. Thank you very much, and I just hope that their 

hearts will catch up to their eyes, and they too will see that the 

Affordable Care Act is what America needs, and I yield back, Mr. 

Chairman. 

Mrs. BLACK. [Presiding.] Mr. Roskam. 

Mr. ROSKAM. Thank you, Madam Chairman. Mr. Holtz-Eakin, 

I noticed the first point that you made in your opening remarks I 

thought was interesting, and you cited the complexity of the Affordable Care Act, and I want to follow up on that. You know, one of 

the reasons that we have this hearing today is because it is so complicated that the administration is calling upon an honor system 

that just basically says, you know, you all just report in, and we 

will attribute, give that the imprimatur of actuality on it. We will 

just assume that what you say is true because it is so big and it 

is so complex and it is so difficult that the administration can’t deal 

with it. We know that the Congressional Budget Office recently 

came out, and they said, in part, that some of these elements of 

the Affordable Care Act are so complicated and so difficult to discern that the Congressional Budget Office can’t get its arms around 

the totality of this impact, and not to indict the CBO, they are just 

saying this is the reality, and the footnote in part says that CBO 

and Joint Committee on Taxation can no longer determine exactly 

how the provisions of the ACA that are not related to the expansion of health insurance coverage have affected their projections of 

direct spending and revenues. Then it goes on, isolating the incremental effects of those provisions on previously existing programs 

and revenues 4 years after enactment of the ACA is not possible. 

In other words, it is so big and it is so complicated and it is so 

overwhelming that a few months ago they were able to estimate 

that the 10-year cost was $1.3 trillion, and now they have said it 

is too big, there is no way to get our heads around this. 

One of the remedies, I believe, and I am interested in your insight in this, is legislation that I have introduced along with 80 

Members of the House calling for a Special Inspector General to 

monitor the Affordable Care Act. The thinking is this incredibly 

complicated piece of legislation that implicitly is so complicated 

that the administration can’t get its heads around it is implementing the honor system. 

Explicitly, the Congressional Budget Office says it is so big and 

complicated, we can’t get our heads around this thing, that I think 


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it is time for us to enact similar to what happened with the Troubled Asset Recovery Program, similar to Inspectors General on Iraq 

and Afghanistan, and an overall Inspector General to get the information to report back and to get our arms around these big questions. Can you give us any insight or thoughts you have, particularly on a large Inspector General and how the need for that? Am 

I overstating this? Am I overcharacterizing it? How would you 

think of that. 

Mr. HOLTZ-EAKIN. Well, first of all, I would, you know, issue 

the caveat that I haven’t read your bill. 

Mr. ROSKAM. It is really good reading. You would love it. 

Mr. HOLTZ-EAKIN. I am remiss, I know I should have. The Inspector Generals have been very valuable additions to agencies, 

they have, and I think the track record of their bringing to light 

inefficiencies, outright malfeasance, things like that is superb. 

What is unique about this law is really its breadth, the number of 

agencies it encompasses. I wouldn’t even be able to list them all. 

You have got DHS, IRS, Treasury, you have got HHS, you have got 

the Social Security Administration, the list goes on. Each of the 

IGs in those agencies is probably very good and looking as carefully 

as they can at the operations, but they are not going to see the big 

picture, they are not going to ask the question, are we seeing an 

efficient, good-faith implementation of the law that the Congress 

passed and the President signed. It makes sense to me to put 

someone in that position, particularly for such a very, very large 

amount of money. This is an extraordinarily important and large 

program. It makes perfect sense from that perspective. 

Mr. ROSKAM. Let me just direct you specifically to three questions that we prepared in advance. Is there any entity today that 

could give us an accurate report of how taxpayer dollars are being 

spent for this law across the entire Federal Government, the interactions with State government and the private sector? 

Mr. HOLTZ-EAKIN. No. 

Mr. ROSKAM. Do you agree that SIGMA would bring, that is 

this Special Inspector General Monitoring the Affordable Care Act, 

as you have come to understand it would bring much needed clarity to the law that has been haphazardly implemented, and where 

there are strong concerns about waste, fraud, and abuse? 

Mr. HOLTZ-EAKIN. Yes, because the implementation is now 

more important than the law. It has been so uneven. 

Mr. ROSKAM. And regardless of someone’s perspective on the 

Affordable Care Act, isn’t it a rational thing to say more information as it relates to the implementation of the law is a better thing? 

Mr. HOLTZ-EAKIN. Absolutely. 

Mr. ROSKAM. I yield back. 

Mrs. BLACK. The gentleman from Nebraska, Mr. Smith, is recognized. 

Mr. SMITH. Thank you, Madam Chair. Mr. Ellis, can you explain the difference between inconsistencies, that is, the difference 

between information entered on an application and government 

records, and then ineligibility based on an offer of affordable employer-sponsored insurance? Now, in the case of inconsistency the 

applicant will receive a notice of inconsistency; is that correct? 

Mr. ELLIS. That is correct. 


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Mr. SMITH. And then they will have the opportunity to rectify 

those inconsistencies, would that be accurate? 

Mr. ELLIS. That is accurate. 

Mr. SMITH. So in the case of an applicant, I would say someone 

acting in good faith who receives a tax credit not realizing or fully 

understanding they are ineligible because they or a family member 

were offered employer-sponsored coverage will receive an inconsistency notice. What will they owe when the error is identified? 

Mr. ELLIS. If the taxpayer in question was eligible for affordable 

employer-provided insurance, they would owe the entirety of their 

advance tax credit back. If they were simply given an overage, they 

would owe back the extra amount presuming that they make more 

than a certain amount of income as set in law by statute. 

Mr. SMITH. Now, if they did not have a refund coming, what 

would happen in that case? In that case they would have a straight 

liability to the IRS. They would have to do a payment. That payment could potentially have interest, and also if payment does not 

happen, the liens and levies that were discussed earlier could also 

come into play. 

Mr. SMITH. Okay. Mr. Pollack, would you agree with that analysis? 

Mr. POLLACK. Yes, I do. 

Mr. SMITH. So that a taxpayer acting in good faith could see a 

lien coming as a result of the complexities of the Tax Code? 

Mr. POLLACK. Is that a hypothetical potential? Of course there 

is. But the real issue here is really not the error scenario that we 

are focusing on right now. The real potential is for liability is not 

significantly in errors as we talked about errors before. It is because when people honestly, accurately portray their current circumstances, and they receive a tax credit subsidy accordingly, 

where the potential for liability is significant is that despite the 

fact that the response was honest and accurate, things change over 

the course of the year. Someone may have gotten a bonus in terms 

of their compensation. They may have received an increase in their 

salary. They may have had more overtime than they had expected. 

There are a variety of factors like that which mean that the accurate, not error, information provided by an individual changes over 

the course of that year. And that will result in a potential liability. 

That is what I think may very well happen in April of 2015. I do 

not believe that we are going to see liability to any significant degree because of errors as we have been talking about it in this 

hearing. It is what happens prospectively that was unpredictable, 

rather what happened retrospectively that was reported inaccurately. 

Mr. SMITH. My concern is that the Tax Code was already very 

complicated before we added more complications as a result of this 

healthcare issue, and my concern is that a taxpayer acting in good 

faith and wishing to do the right thing could see a pretty significant penalty. Thank you. I yield back. 

Mrs. BLACK. The gentleman yields back. The lady from California, Ms. Sanchez, is recognized. 

Ms. SA ́ NCHEZ. Thank you. I want to thank our chairmen and 

our ranking members for this hearing. I want to begin by pointing 

out that the Affordable Care Act is working. Gallup recently found 


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that the percentage of uninsured Americans has dropped to 13.4 

percent, which is the lowest recorded rate ever. More than 8 million people have signed up for exchange plans, with 6.8 million of 

those receiving an average tax credit of $4,400 to provide the peace 

of mind of having health insurance, many for the first time. 

Another 6 million have enrolled in Medicaid thanks to the ACA’s 

Medicaid expansion, including 1.4 million people enrolling in California’s medical system, and I could go on and on with numbers, 

but the bottom line is that the ACA is helping people, people with 

preexisting conditions, people between jobs and many, many others. 

Now is the law perfect? Well, no law is, but a tremendous improvement over the discriminatory, dysfunctional, and irrational 

market that existed prior to its enactment, it is doing much better. 

And we can agree that some of the issues that HealthCare.gov 

have encountered are unacceptable. However, it is not the first 

time that we have seen a troubled rollout. The implementation of 

Medicare Part D was riddled with false starts and complaints, but 

we didn’t defund it and we didn’t repeal it. We didn’t throw our 

hands up in the air and woe is me because it is complex or it is 

a little bit difficult or it could change. 

So let’s just all stop kidding ourselves and admit that there will 

be glitches with the ACA, but if we spend our time working together to ensure that the law worked, maybe we could make it 

easier for families to buy affordable health insurance. But the hearing today unfortunately does very little to accomplish that goal. It 

is clear that this hearing is just another attempt to bash the ACA 

and play politics with Americans’ livelihoods. 

Like most Republican hearings we have had recently, this is 

meant to produce a lot of noise and some crocodile tears but very 

few solutions moving forward. The majority is playing up a false 

sense of populism and claims that they are worried about people 

owing a huge tax bill to the IRS during the 2015 filing season. 

Well, I think that is ironic given that the Republicans eliminated 

improvements made by Democrats, and they want Secretary Lew 

to halt all tax credits that make health insurance more affordable. 

I think it is unconscionable, and that kind of demand demonstrates that Republicans are out of touch with everyday American families. Life is complicated, yes. And it is full of surprises. 

People get new jobs, they get married, they have children, they 

move from State to State. The verification system known as trueup ensures that tax credits accurately reflect the changing nature 

of people’s lives, and I am one of those examples. 

I have a biological son and I have stepchildren. I come from an 

immigrant family, and I use an accent over my last name. And my 

life, like so many southern Californians, could be considered complicated, but the ACA will recognize those complexities through the 

verification process during next year’s tax filing season. HHS has 

been transparent about the process and has tried to be proactive 

in its outreach. We shouldn’t deny Americans the assistance they 

need to buy affordable health care just weeks after they have received it. So if we spent a little more time really caring about the 

needs of real people instead of trying to tear down the law and 

defund it or repeal it, we might be able to work together in a conVerDate Sep 11 2014 03:17 Jul 21, 2016 Jkt 094427 PO 00000 Frm 00074 Fmt 6633 Sfmt 6602 I:\WAYS\WAYSPS\94427\94427.XXX 94427

ralbany on LAP520R082 with HEARINGS
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structive way, in a bipartisan way, to help ensure that Americans 

receive quality, affordable health insurance, and I am sorry for 

stepping on my soap box just now, but I felt it was important to 

point that out through this entire hearing. 

What I would like to do is I would like to ask Mr. Pollack what 

happens if we repeal or defund the Affordable Care Act as Republicans have suggested time and time again? What happens? 

Mr. POLLACK. Ms. Sanchez, I don’t think we are going to repeal 

the Affordable Care Act. We are not going to defund the Affordable 

Care Act. There are 8 million people who are now receiving subsidies, who are receiving coverage. Most of them, 85 percent are receiving subsidies. Five million people are receiving coverage 

through the Medicaid program, or CHIP. Three million kids are 

getting coverage through their parents’ policies. We are going to 

see those numbers increase substantially. I don’t think that this 

Congress, I don’t think any Congress is going to take away these 

benefits that are so important that make health coverage affordable for the first time. 

Ms. SA ́ NCHEZ. Let me ask you what I hope is a constructive 

question, which is how can we work to improve the application 

process for immigrant families in particular? 

Mrs. BLACK. Mr. Pollack, the lady’s time is expired. We will ask 

that you submit the answer to this question in writing. Thank you. 

The gentlelady from Kansas, Ms. Jenkins, is recognized. 

Ms. JENKINS. Thank you, Madam Chairman. Thank you for 

holding this hearing and thank you all for joining us today. A 

month ago, our Oversight Subcommittee was able to host IRS Commissioner Koskinen at a hearing on the IRS filing season. At that 

hearing, I asked Mr. Koskinen about the administration of the Affordable Care Act’s premium tax credit reconciliation process. As 

we have already covered at today’s hearing, the ACA’s premium 

tax subsidy will be based on folks’ income estimates, and these estimates will often use the prior year’s tax returns. Taxpayers will 

eventually have to reconcile the premium subsidies they received 

with the amounts they were eligible to receive based on their actual income. In many cases, whether it is due to a salary increase, 

move across State lines, or other change in situation, they could 

find themselves owing thousands of dollars back to the IRS. 

Recently CMS data indicated that 1.2 million enrollees had discrepancies related to income, and this is before we begin to factor 

in life changes that will occur throughout this year. I have asked 

Mr. Koskinen if he believes that taxpayers fully understand the 

risk that comes with failure to report a life change to the exchange 

and how they will handle the reconciliation process. He responded 

that the IRS is concerned that taxpayers need to understand the 

risk, and they are beginning to publicize this so that taxpayers 

have various modes of outreach, including their Web site and that 

he hopes that taxpayers will notify the exchange so that they will 

not be surprised. 

Mr. Ellis and Mr. Skarlatos, would you be willing to answer a 

few questions for me? Do you think that taxpayers are at all aware 

of their obligation to notify the exchange with their good news of 

getting a raise or marriage throughout the year, and do you believe 

that taxpayers understand their risk of failing to do so? Mr. Ellis. 


ralbany on LAP520R082 with HEARINGS
70 

Mr. ELLIS. No. Because if there is one constant in the tax preparation industry, it is that people forget about the IRS as quickly 

as they can once they file their tax return, and they don’t think 

about it again until the next January. 

Ms. JENKINS. Mr. Skarlatos. 

Mr. SKARLATOS. I don’t think taxpayers are aware. I think that 

is what tax preparers should be doing with them. They should be 

educating them as much as they can. 

Ms. JENKINS. Okay. Thank you. Do you believe the IRS’ efforts 

to publicize this information, either through a YouTube account or 

their Website, will make taxpayers understand their obligation? 

Mr. ELLIS. That requires taxpayers to have the interest to go to 

IRS.gov or to be recipients of the information in some other way 

that they would actually see it. Based on my experience with real 

world people that actually file their taxes, I think that is incredibly 

unlikely. 

Mr. SKARLATOS. I agree. I think it is unlikely. I think the burden again should be on the tax return preparers to educate the taxpayers. Ms. Jenkins. And as someone who has prepared tax returns 

and has had to deliver bad news to taxpayers regarding refunds, 

are you concerned the tax preparers will be the real frontline of 

taxpayer education at a time when it is too late. 

Mr. ELLIS. There is a joke inside the tax preparer world that it 

is always the taxpayer’s fault when you are in a meeting with a 

client, and I think that is probably going to be exacerbated here. 

I think the tax preparers themselves are going to be very unprepared for this. They are going to be talking to people who make a 

modest amount of income by definition. The 400 percent of Federal 

poverty line is not a very high level of income. These are not people 

that have a lot of liquidity to be able to deal with surprises. So, 

yes, I think it will be very tense, those conversations between preparers and clients. 

Mr. SKARLATOS. I agree. The Tax Code is very complex. The 

tax return preparers are the gatekeepers to the system, and it will 

be difficult for them to educate taxpayers in this way, but it is really the only way it can be done. 

Ms. JENKINS. Thank you. I yield back. 

Mrs. BLACK. Mr. Paulsen from Minnesota, you are recognized. 

Mr. PAULSEN. Thank you, Madam Chair, and thank you also 

for presiding over the hearing today. 

Just to recap, when the President’s health law was passed back 

in 2010, the law called for verifying individuals’ income in order to 

determine if they are eligible to receive a subsidy. The administration said we are not going to enforce that provision. So Congress 

moves in, re-passes legislation, the President signs into law that includes the provision once again that we require income verification. 

But then today now, we know that there are over 2 million people 

of the 8 million that are in the exchanges, these applicants, have 

unresolved inconsistencies. So that means 25 percent of applicants 

in the exchanges had discrepancies. This isn’t a glitch. This is 

clearly a systemic issue, and so the May 17 Washington Post report 

showing that as many as 1.5 million people; there are cases of significant inaccurate subsidy payments now due to incorrect income 

data. 


ralbany on LAP520R082 with HEARINGS
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In other words, there is no verification resulting in millions of 

taxpayers, families being on the hook potentially for billions of dollars in waste and fraud, and some of those cases bear out, I think, 

with Mr. Holtz-Eakin had mentioned earlier in terms of the EITC. 

So we are no longer talking about hypothetical problems regarding 

the new healthcare law. We are talking about real risks that are 

in place now, and this harm is happening as we speak, and during 

next year’s tax filing season millions of Americans are going to find 

out that they owe the IRS money because their premium credits 

were paid incorrectly. 

And the IRS and the administration in general is going to have 

to face a choice. One, they can go after innocent taxpayers creating 

financial hardship and confusion for those millions of families; or 

two, just and choose to once again ignore the law and force other 

taxpayers to cover billions of dollars in excess premium credit payments. Those are both very, very bad choices, and it didn’t have to 

be that way. That is what comes when you pass just a one-sided 

partisan law without bipartisan buy in. Mr. Ellis, is this really how 

the law was supposed to operate? 

Mr. ELLIS. Well, if you look at the actual letter of the law, it 

is operating the way it is supposed to operate. That speaks more 

to think the process not having been thought through properly 

when the law was drafted. As you point out, if the IRS implements 

the law as written, it is going to face that very difficult choice between going after people who have very modest levels of income 

and savings in order to pay this overage or simply ignoring their 

mandate to carry out the laws as written by the Congress. 

Mr. PAULSEN. Let me just follow up because as a tax preparer, 

you know what questions to ask when people seek your services. 

But what about the people who don’t seek your services? Typically 

how are they going to know? How are they going to know what 

they are responsible for as a part of verification, and aren’t those 

typically lower income Americans or individuals or families that 

aren’t seeking your services that are going to be trapped in this situation? 

Mr. ELLIS. Well, by definition if you look at the upper band of 

who is going to be affected by this, people that are receiving premium credits at all, 400 percent of the Federal poverty line is 

about $44,000 for a single person. It is about $90,000 for a family 

of four. So it is everybody between that and below all the way down 

to Medicaid eligibility. So many of those people are not today using 

tax preparers. They will continue to file their tax returns or not as 

they have up until the past. When they are going to find out about 

it is when they are going to get a notice of deficiency from the IRS 

after they file. 

Mr. PAULSEN. Mr. Holtz-Eakin, I just want to give you a 

chance to respond too real quick maybe to that or a couple of those 

points if you could. 

Mr. HOLTZ-EAKIN. I think that’s exactly right, and my concern 

is that for this population, they are going to be in uncharted 

waters. There is a question about whether some of the State exchanges will be able to get the information statements to the recipients, their subsidy payments. Once people receive it, will they 

know to hold on to it, this is something they need or it was about 


ralbany on LAP520R082 with HEARINGS
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that health thing they already did. Do they know to go to a preparer and thus send a reconciliation form? If they don’t send in a 

reconciliation form, my understanding is the IRS is simply going to 

reject the tax return and tell them to start over. That will be a 

shocker, particularly if they are used to getting an EITC. It can be 

a bumpy ride in 2015. 

Mr. PAULSEN. Thank you, Madam Chair. I yield back. 

Mrs. BLACK. The gentleman yields back. The gentleman from 

New York, Mr. Crowley, is recognized. 

Mr. CROWLEY. Thank you, Madam Chair. It is really a remarkable hearing today. It is unbelievable in many respects to me that 

my colleagues are willing to say and do just about anything to tarnish the Affordable Care Act and undermine access to health care 

in this country. Let me be very clear about a few things: One, the 

vast majority of what we are talking about when we hear inconsistency isn’t fraud. It isn’t malicious or a sign of anything bigger. 

These are expected, anticipated issues that happen with any Federal program checking various items of data. 

Two, there is, in fact, a verification system. It happens now as 

we speak and it is clearing the majority of inconsistencies. And 

three, there was a backup verification process that happens at the 

next tax filing when we know what a person’s actual income was 

for that filing year. This reconciliation process is necessary and 

helpful because people’s incomes, as has been stated over and over 

again, and family circumstances change over the course of a year, 

hopefully for the better. Some people maybe didn’t get all the tax 

credits that they were entitled to, in fact. But what’s shocking to 

me is all the fake outrage from my colleagues on the other side of 

the aisle about this reconciliation process when they have voted 

time and again to make this process harder on working families. 

After passage of the Affordable Care Act, Democrats worked to 

improve this reconciliation process, so families wouldn’t see their 

income taxes raised if they received even a small end-of-the-year 

bonus. But opponents of this law in their unending zeal to undermine the Affordable Care Act and to scare away people from accessing health insurance went back to this again and again to undo 

all the improvements we made and actually made it worse than before. 

I guess using Speaker Boehner’s metric of judging this majority 

based on what the undo rather than what they do, they consider 

what they have done a success. 

And that is not even enough for them. Twice more, they put forward proposals to completely repeal all protections for families to 

repay tax credits that turned out to be more than they needed. So 

when you hear them now crying crocodile tears about the burden 

on people to pay back some or all of their tax credits, remember 

that they themselves have themselves to thank for increasing this 

tax burden. 

Madam Chairlady, I would like to ask unanimous consent to 

enter into the record each of these Republican attempts to force a 

tax increase on working families, H.R. 4, H.R. 5652, and H.R. 436. 

Mrs. BLACK. Without objection. 

[The documents follow: Rep. Joseph Crowley 1, Joseph Crowley 

2, Joseph Crowley 3] 


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f 

Mr. CROWLEY. We tried to get our colleagues on the other side 

of the aisle to see what they were doing. We told them it was a 

tax on working families. Mr. Ellis, even your boss, Grover Norquist, 

admitted as much in his letter he sent to Chairman Camp back in 

2011, calling this a gross tax increase but then saying never mind. 

It is okay because it is tucked into a bigger bill. Every time, and 

they brought it back up repeatedly. We asked them to not put this 

burden on American families. What did we hear in response? 

Crickets. We heard nothing. Last summer right around the point 

that these same colleagues were beginning to change their tune to 

the so-called sympathy that is on display today, one of my colleagues on the other side of the aisle said that they had been told, 

and I quote, in a pretty loud tone that this would be a tax increase. 

I think that was aimed at me. I, from time to time, use a bellowing Queens accent, and I am proud of it. Because you know 

what I will say is this; I will speak up in a pretty loud tone when 

my constituents and hardworking Americans across the country 

are being targeted for baseless attacks. 

Mr. Ellis, I see that you are concerned about the, quote, liability 

the taxpayer will have at the time of tax filing. I share your concern, and that is why each of the numerous times my colleagues 

on the other side of the aisle tried to scale back or remove altogether protections for working families on how much they would 

have to pay back, I tried to stop it. Did your organization ever raise 

this concern to members of the majority? No. In fact, I have a letter 

here from your boss, as I mentioned earlier, to Mr. Camp reassuring him that your organization was okay with raising taxes on 

families as long as they also cut taxes and created loopholes for 

businesses. Your boss may be okay with raising taxes on individuals to cut them for businesses and industry, but my constituents 


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in Queens and in the Bronx are not okay with that. But maybe I 

am just using too loud a tone, and I yield back, Madam Chair. 

Mrs. BLACK. The gentleman yields back. The gentleman from 

New York, Mr. Reed, is recognized. 

Mr. REED. Thank you, Madam Chair. And being from New York, 

I don’t share that Queens accent. I am from the real part of New 

York, the country lawyer section of New York. I thank the gentlemen, Mr. Crowley, from New York. His friendship has always been 

appreciated. I just want to bring this down to day-to-day folks, 

being that country lawyer from western New York and being an 

area that is very rural, and I can tell you I remember first getting 

out of college, getting out of law school, being with my wife, filling 

out my returns, filling out my tax returns, and, you know, I got a 

refund check. And like millions of Americans, you know, I got that 

refund check, and we did a little something with it. My wife and 

I would go on a trip for the weekend. We would maybe buy something, maybe a new stove or something like that that we needed 

around the house. 

Just so I clearly understand what is going to happen here, and 

I get a lot of Americans aren’t going to do this intentionally. It is 

not going to be done fraudulently. What is going to happen is someone is going to misreport their income, they will go to fill out their 

return, their 1040EZ just like I did with my wife, and they are 

going to get a notice saying you know what, that refund check that 

you thought you were going to be able to rely on that millions of 

Americans have grown accustomed to getting every year, they are 

not going to get it. Is that correct, Mr. Ellis? 

Mr. ELLIS. It will at least be smaller because they are going to 

have to somehow some way, assuming their income is over a certain level, pay back any overage, yeah. 

Mr. REED. So they get an excess credit, tax credit, premium support payment, something of that nature, and that is equal to the 

calculated refund that they would typically get in their tax refund 

check; they are not going to get that check. Is that fair to say? 

Mr. ELLIS. Yes. 

Mr. REED. That is going to happen. And that is where, Mr. Pollack, with all due respect, when you say this is much about nothing, I remember those days. I remember those days. And I know 

millions of Americans are going to be looking at that saying wait 

a second. I was going to take my kids on a vacation. I was going 

to take them maybe to the zoo or something like that and spend 

a weekend with their families. You say, you know, to us this is 

much about nothing. 

Mr. POLLACK. That’s not what I said. 

Mr. REED. That was your testimony. 

Mr. POLLACK. What I said, Mr. Reed—let’s get it correct. What 

I said, Mr. Reed, is that the number of inaccuracies are going to 

be small, and that is much about very little. I didn’t say—— 

Mr. REED. Sir, with all due respect, I don’t appreciate you pointing at me, and I will tell you, you said much about nothing. 

Mr. POLLACK. But you are misquoting what I was referring to. 

Mr. REED. Why aren’t we telling them about it? No one wants 

to talk about this. All my colleagues on the other side, if you want 

to stand with the law, I stand for the repeal of the law. I disagree 


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404 

with it. Doesn’t mean I don’t care about Americans. I care about 

Americans. That is why I ran for this job. That is why I am doing 

this. If they want to stand with this law, why don’t you tell Americans what is coming. Why don’t you tell them what is coming down 

the pipeline. What is coming down the pipeline is Americans don’t 

understand what this is going to do to them. What is going to happen in 2015, when they get that notice from the IRS? Are they 

going to say, oh, I should have seen that coming? 

This is what my home State of New York did. The health exchange circulated a notice saying during the following year’s tax 

season you are expected to pay back whatever actual amount you 

took in the form of health insurance subsidies that you weren’t eligible for after your income change. Depending on your situation, 

this can be a huge amount of money. That is like buried on the 

health exchange. I can tell you, Americans are working hard, just 

like me and my wife were. So is this the best that we can do to 

warn Americans as to what is coming? Mr. Holtz-Eakin, I have a 

lot of respect for you. Is this the best we can do? 

Mr. HOLTZ-EAKIN. No. I think there is a real place for an IRS 

taxpayer advocation effort in this regard. I think it has not happened so far and it would be time to get going. 

Mr. REED. I have to also make a comment in response to my colleague from New York, that somehow by waiving this overpayment, 

and that is essentially what he is talking about. He is just saying 

we are going to just waive it. You don’t have to pay it back. What 

kind of responsible leadership is that? They have developed a system. They have stood by a law that is potentially going to overpay 

taxpayer dollars to people, and the best solution they can offer is, 

well, what we are going to say is don’t worry about paying it back. 

Well, someone’s got to pay it. That is one of the things I am frustrated in Washington, D.C., about. This is taxpayer dollars. It is 

not free money. This is their money. Somehow it is their money 

that they can say wave their magic wand and say we are just not 

going to pay it back. We are going to waive it. Is that the responsible, sensible solution that you would recommend us to pursue 

when we deal with this situation in 2015, Mr. Holtz-Eakin? 

Mr. HOLTZ-EAKIN. Absolutely not. 

Mr. REED. That is why I am frustrated. I am frustrated, and 

this isn’t much about nothing. This is a real problem. I am interested in solutions, but I am interested in responsible solutions that 

stand up for the hardworking taxpayer and not just say don’t worry 

about it. We are not going to pay it back because your taxpayers 

are going pay it back. With that I yield back. 

Mrs. BLACK. The gentleman’s time is expired. The gentleman 

from Georgia, Mr. Price, is recognized. 

Mr. PRICE. Thank you, Madam Chair. And I want to commend 

these two subcommittees and the committee for holding this hearing. I want to thank the witnesses, and I apologize for not being 

here earlier. I had a conflicting hearing. I want to draw attention 

to what title of this hearing is: Verification System For Income and 

Eligibility For Tax Credits Under the President’s Healthcare Law. 

We are not talking about the health consequences of the healthcare 

law. As a physician we can go on and on about that. This is about 

the financial aspect of the healthcare law to real people. I want to 


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associate myself with Mr. Reed’s remarks. This is real stuff for real 

people. We are going to be harmed in big, big ways. Not just on 

the healthcare side, but on the financial side personally as well. 

Mr. Holtz-Eakin, I had a chance to read part of your testimony, 

and in your testimony you likened the ACA premium tax credits 

to the EITC, Earned Income Tax Credit. I wonder if you would explain how the two are the same and how the two are dissimilar? 

Mr. HOLTZ-EAKIN. As I mentioned earlier, the EITC is a refundable credit, as are the premium tax credits from the ACA. 

They are based on family size and earnings in the same way that 

the ACA has subsidies up to 400 percent of the Federal poverty 

line, different amount, bigger for lower income individuals. The key 

difference is that is where the EITC stops. It is based strictly on 

the household’s tax return, and you could do it based on that information. To fully implement the ACA, you need to have employer 

information as well, particularly the offer of affordable insurance or 

not, the value of that insurance, and its characteristics. It is a 

much more complicated system than the EITC for that reason. The 

matching that will go into multiple employers during a single year, 

different work hours, all of that complexity will become clear as 

time passes. 

Mr. PRICE. And the error rate in the EITC is, I think, 1 in 5, 

or about 20 percent? 

Mr. HOLTZ-EAKIN. In the ballpark of 20, 23 percent, somewhere in that range. 

Mr. PRICE. So you have got a system that is much more complicated than the EITC. We already see how the Federal Government is doing on an error rate for the EITC, which is a simpler system at 20 percent; so what would you estimate the error rate to 

be for this verification system? 

Mr. HOLTZ-EAKIN. We have no track record, so I think it is always important to be conservative. So if you apply the 20-odd percent to the $700 trillion of insurance subsidies, you are looking at 

$200 billion, something in that range. 

Mr. PRICE. Hundreds of billions of dollars. 

Mr. HOLTZ-EAKIN. Yes. 

Mr. PRICE. And, of course, the systems are set up already to 

verify the income eligibility and the like, are they not, or the ACA, 

the subsidies? 

Mr. HOLTZ-EAKIN. No. 

Mr. PRICE. The systems aren’t set up? 

Mr. HOLTZ-EAKIN. No, sir. 

Mr. PRICE. So we have already started this program. We have 

got an error rate on a program that is similar in some ways of 20 

percent; and the systems aren’t even set up to provide the income 

and eligibility verification? 

Mr. HOLTZ-EAKIN. Again, I think there is going to be two very 

big sets of problems that are different. One is the fundamental 

character of the system, which we have talked about. The second 

is next year, and the startup when information sharing is incomplete, the employers are not yet required to provide information, 

and the taxpayers are not yet understanding their obligations 

under the new law. 


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Mr. PRICE. So let me take it in a little different direction, if I 

may. I serve on the Budget Committee as well. This appears to be 

a huge potential liability to the budget itself, does it not? 

Mr. HOLTZ-EAKIN. Yes. 

Mr. PRICE. So the amount of money that is projected to have 

been required to be spent by the American taxpayers to fund this 

program may, in fact, be expanding significantly; is that correct? 

Mr. HOLTZ-EAKIN. That is a concern, yes, sir. 

Mr. PRICE. And any quantification of that? Any way to know 

how much that would be? 

Mr. HOLTZ-EAKIN. Well, I mean, the 20 percent error rate is 

the best estimate that we have at the moment. From your time on 

the Budget Committee you know that in systems of this type, and 

the two other great examples are the EITC and then in Medicare 

where we have set up a system of pay and then go find inappropriate payments. Those estimates are on the order of 10 percent, 

60, $80 billion a year. So $800 billion over 10 years. You start adding up $800 billion there, $200 billion here, another, you know, 

$100 billion out of EITC, you can make significant progress on 

some of our problems. 

Mr. PRICE. So at a time when we continue to run significant 

deficits, at a time when we have an overall debt for the country of 

over $17.5 trillion, the spending increases in Washington continue, 

we have got a program in front of us where we don’t even have the 

systems in place that will continue to add to the national debt? 

Mr. HOLTZ-EAKIN. The decision has been made to add to the 

national debt. My hope is that we would run it efficiently enough 

to keep it as small as possible. 

Mr. PRICE. Mr. Ellis and Mr. Skarlatos, I wonder if in my brief 

seconds remaining, what tools does the IRS have to provide income 

and eligibility verification set up right now for this, Mr. Ellis? 

Mr. ELLIS. That is still not clear at this point in the middle part 

of the year. To the extent that they do it retroactively, it is going 

to have to use the W-2 system, and that is going to have to be a 

lag system because as you know that goes to the Social Security 

Administration first. So that remains to be seen. 

Mr. SKARLATOS. I am not aware of any other tools, sir. 

Mr. PRICE. Sounds like a real headache, Madam Chair. Thank 

you. 

Mrs. BLACK. The gentleman’s time has expired. Mr. Pascrell 

from New Jersey is recognized. 

Mr. PASCRELL. Now here is the real headache. Let me tell you 

what the real headache is. You are sitting over there and talking 

about taxpayers and liability when you just voted on $600 billion, 

$600 billion in tax relief which is unpaid for. You got a problem. 

You got a serious problem, and it is not just inconsistency. So I 

have heard the term ‘‘inconsistency,’’ and I have heard the term 

‘‘premium tax credits’’ over and over again. Mr. Pollack, you have 

some friends here. I have heard that over and over again. Here is 

the problem. Flashback like they do on television at a sporting 

event, flashback 10 years ago. The Prescription Drug Bill. Do you 

remember that, Mr. Pollack? 

Mr. POLLACK. I do. 


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407 

Mr. PASCRELL. Do all of you remember that? Mr. Ellis, do you 

remember it? 

Mr. ELLIS. Absolutely. 

Mr. PASCRELL. Good. Then you will follow what I am saying. 

Do you remember what happened in the passage of that bill? 

Democrats, for the most part, did not accept it, voted against it. We 

were here until 3:00, 4:00 in the morning, if you will remember 

that. It passed. And what did Democrats do after the passage? 

Democrats, after the passage, went back to their districts—I will 

speak for myself—went to towns which were not Democratic, spoke 

so the seniors about, yes, I was against this, but now we have to 

make it work. Here is the equalizer. And you don’t understand it. 

Here is the equalizer, Mr. Ellis. 

Instead of sour grapes and instead of burying our heads in the 

sand, we said we only have one country here. We have been talking 

about helping seniors out with the prescription drug plan, Plan D, 

for a long time, and while it wasn’t the plan that I voted for—I 

voted against it—we got to make it work. Here is how it works. 

Here is how you register for it. Here is how you get involved. 

In fact, it was so terrible, talk about a rollout. You guys got short 

memories. You really do. You really do. You got a major problem 

here. Not only was it a poor rollout, but you had to depend upon 

the States to bail you out of the plan, to make it work. The States 

had to come up with the money. 

Mr. PASCRELL. That is only 10 years ago. I am not talking 

about ancient history. I am talking about the United States of 

America 10 years ago. 

Mr. Pollack, let me ask you this question. This is especially interesting. We have twice tried to repeal a provision in the ACA, the 

Affordable Care Act, that would place limits on the premium tax 

credit reconciliation, once as a way to pay for the repeal of the 

medical device tax and another to pay for the Republican plan to 

replace defense sequestration cuts. 

Mr. Pollack, can you discuss the impact that repealing this provision, the one we are talking about today, would have on consumers? 

Mr. POLLACK. Well, there really is an irony. I have heard from 

on both sides of the aisle concern that people may have a liability 

in April of 2015 and that liability, mind you, is most likely to come 

not because of an error, it is more likely to occur because there 

have been changes of circumstances over the course of this calendar year that were unpredictable. Somebody got a raise, somebody got a bonus, somebody had more overtime pay. And I challenge us on both sides of the aisle, let’s work to try and ease the 

difficulties that people will experience, who provided information 

with no errors, no fraud, but changes occurred. 

And for those changes that occurred where somebody was conscientious, let’s try and ease the burden of reconciliation. Let’s go 

in the opposite direction and I think that makes a great deal of 

sense. It reflects the concerns that people expressed on both sides 

of the aisle, and I hope this is something we can do in a bipartisan 

way. 


ralbany on LAP520R082 with HEARINGS
408 

But in response to your question, if we eliminate the protections, 

particularly for lower income folks, it is going to mean they are 

going to experience significant hardship. 

Mr. PASCRELL. Mr. Eakin—can I have a quick question of Mr. 

Eakin? 

Mrs. BLACK. Your time has expired. 

Mr. PASCRELL. What is time? 

Mrs. BLACK. I would like to now ask Ms. Mahoney and Mr. 

Holtz-Eakin a question. 

During the regulatory writing process, the E-FLEX Coalition, 

made a specific recommendation to the administration of the tax 

credits, to make the tax credits more accurate, and this is what 

they suggested, and I am going to quote, ‘‘giving employers the option of prospectively filing information with the IRS about coverage 

available to employees through an annual certification process.’’ 

Their letter went on to say that ‘‘we believe that this is in the collective best interests of individual Americans, employers and the 

administration to ensure that the accuracy of such upfront determinations to avoid subjecting individuals to unexpected repayments of tax credits for which exchanges incorrectly deemed them 

to be eligible.’’ 

Now, the Treasury rejected this recommendation. Do you believe 

that was a mistake and should be revisited, and further, would it 

help employers and would it help more accurately administer the 

tax credits if this were put into place? Ms. Mahoney? 

Ms. MAHONEY. Thank you. I have very high regard for the 

members of the E-FLEX Coalition and their efforts. We are not a 

member of that coalition, but I would imagine that proposals that 

they put forth have viability and value to different types of employers. Again, it is a coalition that focuses on a certain segment of 

types of employers, and we continue to believe that there are a variety of different scenarios that employers are looking at and need 

a variety of different solutions. 

Mrs. BLACK. Mr. Holtz-Eakin, do you have an opinion on that? 

Mr. HOLTZ-EAKIN. I have no great detail of the specifics. It 

sounds like the kind of approach that says let’s give prior approval 

before you start sending out payments. There is a lot of merit to 

those kinds of situations. You can always do audits and other 

checks to make sure that it has been done in good faith on a regular basis and see how that system works. 

Mrs. BLACK. Thank you for that. 

Mr. Holtz-Eakin, I want to ask you, do you know how much taxpayer funds that we estimate are being issued every month without 

a verification system in place? Do you have an idea about that? 

Mr. HOLTZ-EAKIN. Off the top of my head, no, but I would be 

happy to get a number for you. 

Mrs. BLACK. Okay. Well, on the estimated number that I have 

seen in some of the reports is $10 billion a month, $10 billion a 

month and I might say that when this law was initiated, there 

were two major planks to this law: one is that if someone did not 

have employer insurance, that they would be eligible for the exchanges and the subsidies, and two, that they would also have to 

have verification of their income to ensure that whatever those 

subsidies were accurate. 


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We have now seen, this was the law, that neither one of these 

really is in place. One, the employer mandate has now been delayed until 2016. So there is really not a way other than attestation 

to say that someone does not have employer-sponsored insurance 

or that what is employer-sponsored insurance that they are unable 

to afford; and, two, we see a verification system that is not properly 

in place, yet we have been told by this administration on several 

occasions and the attestment of the Secretary of HHS as of the first 

of last year that there were—or first of this year that this 

verification process was in place. 

We now see that either they were incompetent in believing that 

it was, or we see that perhaps that was a malicious statement to 

convince us to just get off their backs. Regardless, it is clear that 

the implementation of the President’s health care law under this 

administration is harming Americans, we have heard that today, 

placing billions of taxpayer dollars at risk as well. 

Now that we know that 1.2 million applicants have inconsistencies on their basis of income, it is time that we put a temporary 

halt to the issuance of these taxpayer-funded subsidies until HHS 

can get their act together. 

And I specifically want to say that there is a bill out there, a bill 

that I have offered, H.R. 4805, the No Subsidies Without 

Verification. It was passed originally by the House and not taken 

up in the Senate and I do believe if we were to put a stop on this 

right now, it would protect taxpayers from getting a tax bill that 

they did not expect. 

In addition to that, it would also protect the American taxpayer 

from subsidies that were inappropriately given to folks either inappropriately because the verification wasn’t in place or because 

there was fraud. 

I want to just ask one last question of Mr. Holtz-Eakin, because 

I know that you have certainly been in the forefront of Government 

and the monetary piece of what we do here at the government 

level. What have you seen in other programs where there potentially were fraudulent dollars given out, and in specific in programs 

like the EITC? Can you tell us what you have seen in the past 

about when those dollars are fraudulently given out, how much of 

that money is ever brought back into the Treasury? 

Mr. HOLTZ-EAKIN. It is very difficult to recapture funds once 

they have been inappropriately paid, and the things that have happened with EITC, for example, is it is a refundable credit but there 

were also efforts to make it advanceable, arrive on a monthly basis. 

Those proved to be fraught with even more in the way of payment 

errors and the potential for fraud. 

Again, if you look at the Affordable Care Act, its basic intent is 

to identify, out of 310 million Americans, those who are eligible for 

subsidies, calculate the subsidy correctly, deliver it in advance each 

month to the exchange in the state of the residence and the insurance company that has the plan of their choice. It is an extraordinarily difficult task in the best of circumstances, and it will be 

difficult to do well. 

Mrs. BLACK. Thank you very much. 

I also want to thank all of our witnesses for their testimony 

today, and I appreciate their continued assistance in getting anVerDate Sep 11 2014 03:17 Jul 21, 2016 Jkt 094427 PO 00000 Frm 00415 Fmt 6633 Sfmt 6602 I:\WAYS\WAYSPS\94427\94427.XXX 94427

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swers to the questions that were asked here at committee that you 

may not have had time to answer. 

As a reminder, any member wishing to submit a question for the 

record will have 14 days to do so. If any questions are submitted, 

I ask that the witness respond in a timely manner. 

Mrs. BLACK. With that, this subcommittee is adjourned. 

[Whereupon, at 12:43 p.m., the subcommittees were adjourned.] 

Æ 


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