Simple subsidy mistake could cost you $25,000 fine

Obamacare critics have warned of a potential surge in improper federal subsidies due to the administration's recently announced delay in federal verification of income and lack of employer coverage to qualify for insurance subsidies on the state exchanges. A Wall Street Journal editorial called it the “liar's subsidy.” But Americans tempted to shade the truth to qualify for the generous subsidies should take a close look at other obscure provisions of the healthcare reform law.

The July 5 rule allowing those delays led supporters to highlight provisions in the Patient Protection and Affordable Care Act meant to discourage applicants from gaming the system and garnering federal subsidies to which they were not entitled. The law allows civil penalties of up to $25,000 for applicants who submit inaccurate information because of “negligence or disregard of any rules or regulations.”

That penalty, however, is not for the outright criminals who knowingly submit false information. Those folks are subject to fines up to a whopping $250,000.

So should people applying for exchange subsidies be concerned about a $25,000 fine if they mess up? A CMS official said such innocent mistakes would likely fall under a “good faith” exemption to penalties, provided by the law.

But the law specifies that no penalty would result only if the HHS secretary determines there “a reasonable cause for the failure and that the person acted in good faith.” Short of Kathleen Sebelius personally reviewing each application, the details of when a mistake is due to “negligence” or a “reasonable cause” would have to be spelled out by regulatory language.

But the Obama administration has proposed no such rules so far.

So, bumbler beware.

Follow Rich Daly on Twitter: @MHrdaly