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'Honor system' subsidy determination could add significantly to ACA's cost



Instantaneous eligibility determination for exchange subsidies or Medicaid will not happen on Oct. 1 because of the Obama administration's decision to put off for one year requiring employers to report their employee health coverage, as well as a CMS-proposed rule published Friday loosening verification of individuals' income for the purpose of federal insurance subsidies.

In 2014, eligibility evaluations for premium tax credits and Medicaid eligibility will be based on the “honor system,” and will be performed manually by the state exchanges, rather than being based on IRS data provided to the exchanges through the new federal data hub. Experts say this will increase staff costs to manually determine eligibility. And it may increase fraud as well, thus costing the federal government more in premium subsidies.

The federal government will not require the District of Columbia and 16 states that are running their own exchanges to verify consumer statements that they do not receive qualifying health insurance from their employer. The federal government will conduct an audit for the 33 states where it is operating the exchange.

In addition, the federal government will reduce states' responsibility to verify the income levels consumers report.

One of the major consequences of Friday's proposed rule is that instead of state exchange applicants entering information into the exchange's system that is verified by the federal data hub—with a response back almost immediately in most cases on the amount of the subsidy or Medicaid eligibility—that function now will have to be done manually. That likely means more work for federal and exchange employees. And experts say depending on each individual situation, an eligibility determination could take anywhere from a few days to a few weeks. Those determinations will be based on financial information an applicant will provide, but may not be verified for some time.

The proposed CMS rule states that people should estimate their gross annual income using the “honor system” – which could lead to some people lying to get subsidized coverage. But Uncle Sam has ways of getting the money back. Lying on exchange forms carries a penalty as high as $25,000. And the IRS can force people to pay back any excess subsidies received after examining their 2014 income tax returns.

Stuart Itkin, vice president of marketing for Calverton, Md.-based EngagePoint, which is providing IT support to state insurance exchanges, says, “People are kind of learning as they are going along. It's like trying to change the tires of your car on the highway while going 55 mph —and the highway itself is changing, too.”

One of the biggest problems with the connectivity issue, he added, is that one state, for example, may have as many as 25 IT systems created years ago that now must be condensed into newer, fewer, more efficient systems.

Kip Piper, a healthcare consultant with Sellers Dorsey who specializes in in Medicaid and health reform, likens ACA implementation to the struggles the Medicare Part D prescription drug programs faced at the outset. And though the ACA is far bigger and more complex than Part D, some of the basic challenges are the same.

“All of the problems Medicare Part D encountered were IT related,” he said, adding that after its initial growing pains, the program has ended up a success.

Follow Jonathan Block on Twitter: @MHjblock

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