The Corner

1 Million Obamacare Payment Errors — Who Could Have Seen This Coming?

The Washington Post reports that Obamacare may be suffering from a million cases of payment errors, with hundreds of thousands of overpayments. This is another black mark for the health-care law. The Post concludes, “The inability to make certain the government is paying correct subsidies is a legacy of computer troubles that crippled last fall’s launch of and the initial months of the first sign-up period for insurance under the Affordable Care Act.”   

But I’ve been worried about this issue years ago (see #5 in this), and I’m not persuaded it’s a startup problem.

Obamacare requires that HHS identify which Americans are eligible for subsidies, compute the correct amount of the subsidy – including cost-sharing subsidies, not just premium payments – and deliver the subsidy in advance for the policy of choice on the exchange in the state of residence. Worse, income changes all the time; marital status and family structure change all the time; and locations change all the time. It is an epic undertaking.    

The closest relative to the Obamacare subsides are the refundable Earned Income Tax Credits (EITC), which have a long history of administrative challenges. But the EITC depends only on family structure and income – it does not vary by policy chosen, state of residence, or employer offer of health insurance. And the EITC is computed only one time a year. The Obamacare subsidies promise to be a chronic administrative problem.

The good news for the administration is that subsidy payments are made directly to insurance companies. Overpayments for one policyholder are offset at least in part by underpayments to other customers, which will hide the problem somewhat. If payments were made directly to individuals, there would already be a wave of stories about payments to prisoners and puppies, and in the wrong amounts. The bad news is that individuals will be the ones responsible for returning overpayments, guaranteeing a once-a-year publicity nightmare.  

In other words, payment errors are a real issue that is unlikely to go away even as matures.

— Douglas Holtz-Eakin is the president of the American Action Forum.

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