The unfortunate IRS controversy has given new life to critics of the Affordable Care Act due to the IRS’s role in the implementation of healthcare reform. Almost overnight, diehard critics of “Obamacare” have begun to fret publicly about the ability of the Service to meet its obligations to carry out the program, giving Senator Max Baucus (D-MT) more Republican plaudits for his prediction that the implementation of the ACA could be a “train wreck“ than he has heard from his friends across the aisle since he became the Democratic negotiator for tax cuts during the Bush Administration.
With the focus on four or five supposed scandals diverting the attention of the press and the public—and, not least, the nonprofit sector—from the Affordable Care Act, it is no surprise that apprehensions are increasing and reliable information decreasing about the emerging contours of national healthcare reform. Two specific elements of the Affordable Care Act have been enveloped in the Washington climate of controversy and scandal, both with components significant to the nonprofit sector. But these ACA-related scandals are only so much smoke, being stoked by critics of national healthcare reform, without much kindling to ignite a broader fire.
The Role of the IRS in the ACA: Assigned or Usurped?
If one listens to the critics of the Affordable Care Act, it would seem that IRS agents will be wearing white lab jackets, outfitted with stethoscopes, and armed with scalpels for on-the-spot surgeries. If IRS staff can’t process a couple of thousand 501(c)(4) applications, how can they handle the Affordable Care Act? The conservative, but normally reasonably level-headed Michael Gerson imagines an even scarier scenario, an IRS “engaged in a regulatory power grab” to control healthcare reform. First comes healthcare, and then who knows what other powers of government or the private sector the IRS might feel impelled to usurp?
It is important to understand that the IRS isn’t involved in this because the Obama Administration needed some place in the federal bureaucracy to dump ACA responsibility. Rather, the ACA adds or changes some 40 provisions of the tax code in what the Treasury Inspector General for Tax Administration (TIGTA) calls “the largest set of tax law changes that the IRS has had to implement in more than 20 years.” The Washington Post reports that, all considered, 47 provisions of the ACA involve the IRS. One TIGTA report focused on four provisions of the ACA that involve the IRS in reporting information concerning employers and health insurance providers:
Key Affordable Care Act Information Reporting Provisions
1502: Reporting of Health Insurance Coverage (Internal Revenue Code Section 6055).
Requires that every business and individual who provides “minimum essential coverage” to any individual during a calendar year report to the IRS certain health insurance information. This information includes the names of the individuals obtaining health coverage, the dates of health coverage, and whether the coverage is a qualified health plan offered through an Exchange.
1514: Reporting of Employer Health Insurance Coverage (Internal Revenue Code Section 6056).
Requires large employers (average 50 full-time equivalent employees in the preceding calendar year) to file an information return with the IRS to report whether they offer their employees and their dependents the opportunity to enroll in minimum essential healthcare coverage, the period an employee must wait to become enrolled, and information regarding those employees who are enrolled in such coverage. The employers must also provide full-time employees a copy of the information returns they provide to the IRS.
9002: Inclusion of Employer Health Coverage on Form W-2, Wage and Tax Statement (Internal Revenue Code Section 6051).
Requires large employers to report the total dollar value of health insurance coverage sponsored by the employer on each employee’s annual Form W-2. Although this information is included on the Form W-2, the amount reported is not counted as taxable income.
9010: Imposition of Annual Fee on Health Insurance Providers.
Imposes an annual fee on health insurance providers whose net premiums written during the calendar year exceed $25 million. The annual fee requirement will begin no later than September 30, 2014. Each insurance provider is responsible for filing a premiums report with the IRS. Failure to file the report will generally result in an assessed penalty of $10,000 plus the lesser of $1,000 times the number of days the report is not filed timely or the amount of the fee required to be paid by the health insurance provider.
Adapted from “Affordable Care Act: Implementation of Key Information Reporting Provisions” (March 19, 2013)
The big fear in recent congressional hearings about the IRS has been unauthorized leaks of information. With charges floating around that the IRS improperly released information from 501(c)(4) social welfare organizations that had not yet been approved, critics fear that IRS staff will be handling individual taxpayers’ private health records, potentially leaking to who-knows-whom details of one’s use of Flexeril for back pain or Cialis for impotence. The charge that the IRS would leak sensitive private medical information on taxpayers came most recently from the inimitable Rep. Michele Bachmann (R-MN), a notion that the Washington Post’s fact-checker dismissed as “absurd” and awarded “four Pinocchios” for its erroneousness. Contrary to the fears of Bachmann and others, the IRS won’t be releasing that kind of information, and couldn’t if it wanted to, because it won’t have access to it. The only information it would have would be about individual taxpayers’ coverage status, not their personal health information.
The importance of the information that the IRS will collect about employers and providers is obvious: Under the legislation, employers with 50 or more employees have to provide affordable coverage to employees, and if they don’t, they will have to pay a penalty. It will be the IRS that monitors and collects the fee from employers that don’t provide the coverage from qualified plans.
On the other hand, small employers, including tax-exempt employers, will be eligible for tax subsidies for offering or maintaining health insurance for their employees. The credit is already in effect for small employers, at a maximum of 35 percent of premiums paid by small for-profit employers (less than 25 FTE employees with average salaries of $50,000 or less) and 25 percent by small tax-exempt employers. In 2014, the subsidy will increase to as much as 50 percent for for-profit employers and 35 percent for tax-exempt employers, though the maximum number of tax credits go to employers with fewer than 10 employees with average incomes of $25,000 or less. The Cohen Report has, in the past, explained how the White House originally hadn’t even included nonprofit employers for these subsidies, and when reminded of the 15 million people who work for tax-exempt entities, acceded to a subsidy for nonprofits at a lower level than for-profits, because of their purported built-in subsidies as 501(c) entities.
Similarly, in 2014, individuals will be required to purchase qualified health insurance or otherwise pay a penalty. Low-income people will be considered exempt, but it will be up to the IRS to verify taxpayers’ incomes and to determine if a taxpayer faces this requirement. The penalty is small, limited to the greater of one percent of income or $285 per family in Year One, two percent of income and $975 in Year Two, and potentially as much as 2.5 percent of income or $2,085 in Year Three. But unlike penalties on income taxes, for example, the IRS will not be able to place a lien on a taxpayer’s property or garnish a taxpayer’s wages for failure to comply. At most, it appears the IRS might be able to subtract the penalties from future tax refunds.
Yet another area of IRS responsibility concerns subsidies for purchasing healthcare coverage. The ACA provides for two areas of subsidies to help individuals purchase health insurance: Families with incomes between 100 and 400 percent of the federal poverty level will qualify for assistance to purchase insurance on the state or federal insurance exchanges, and families with incomes between 100 and 250 percent of the poverty level will be eligible for assistance with co-pays and deductibles. The income eligibility for these subsidies, as well as income eligibility for Medicaid, is the responsibility of the IRS. Again, for determining eligibility, the IRS will be able to share with the exchanges information on taxpayers’ eligibility for subsidies to purchase insurance, not information on their specific medical or health conditions.
These are all tax-related information gathering, tax collection, and eligibility determination functions. What part of the federal bureaucracy other than the IRS could possibly take on these roles? It stretches credulity to imagine that the tax code could be altered in these ways without the IRS playing a significant role in carrying out Congress’s directives. It is even crazier to imagine that the IRS was militating for changes in the tax code through the ACA so that it could control healthcare reform.
In his current proposed budget, President Obama has asked for $44 million in new funding to pay for the IRS’s role in the Affordable Care Act. According to the Fiscal Times, the IRS role in the Affordable Care Act will require 2,195 staff people assigned to ACA-related functions, and could run as high as $881 million over four years. Congress has been distinctly unhelpful in this regard, forcing the Department of Health and Human Services to divert $500 million from its $1 billion budget for the Affordable Care Act implementation to help the IRS carry out its early ACA implementation functions. Now, as expected, Congressional Republicans are attempting to starve the IRS of all monies for its Affordable Care Act roles, most recently via an amendment added by Senator Dean Heller (R-NV) to the Farm Bill that would prevent the IRS from receiving money to carry out its functions in national health insurance reform.
There is one other aspect of the IRS role in the Affordable Care Act that it inherited because of its function in overseeing 501(c)(3) organizations. The ACA added to the Tax Code by imposing new requirements on 501(c)(3) hospitals that must now:
- “establish written financial assistance and emergency medical care policies,
- limit amounts charged for emergency or other medically necessary care to individuals eligible for assistance under the hospital’s financial assistance policy,
- make reasonable efforts to determine whether an individual is eligible for assistance under the hospital’s financial assistance policy before engaging in extraordinary collection actions against the individual, and
- conduct a community health needs assessment (CHNA) and adopt an implementation strategy at least once every three years”
Nonprofit hospitals that fail to meet CHNA requirements would be subject to an excise tax. Not surprisingly, these new nonprofit hospital functions come with new reporting requirements. Nonprofit Quarterly provided extensive commentary on nonprofit hospitals’ CHNA requirements here and here. While the IRS gets to see whether nonprofit hospitals are meeting these requirements, its ability to assess the adequacy of the CHNAs, much less the quality of their implementation, is limited, as the IRS is checking on their qualifications, as modified by the ACA, as 501(c)(3) charities. It would presumably be the Department of Health and Human Services that might examine the content of the CHNAs for their adequacy regarding the management and delivery of healthcare to nonprofit hospitals’ communities.
In the final analysis, the IRS is scrambling to meet requirements imposed on it by Congress in this legislation. It is doing so without any indication from Congress that it will put the money necessary to hire, train, and deploy staff to carry out these functions into the IRS. A power grab outside the boundaries of IRS core functions? Sorry, but that narrative is a non-starter. These are tax-related functions that Congress assigned to the agency whose mission involves the tracking and collection of taxes. The only arena for legitimate paranoia is if the IRS gets starved by Congressional Republicans.
The HHS Role in ACA Fundraising: Not Quite Adding Up to a Scandal
Senator Baucus’s “train wreck” charge was lodged not against the Internal Revenue Service, but the Department of Health and Human Services and its secretary, Kathleen Sebelius. It dealt with the fact that the complicated structure of the Affordable Care Act requires “navigators” to help businesses and consumers figure out what they are entitled to as subsidies and insurance coverage policies. “The administration’s public information campaign on the benefits of the Affordable Care Act deserves a failing grade,” he told Sebelius. “You need to fix this.”
Some of the purported “complexity” of the healthcare coverage may actually be simplification. For example, the ACA’s establishment of bronze, silver, gold, and platinum levels of health plan coverage may actually improve consumers’ ability to compare and evaluate coverage options. The standardization of health plans in these categories, plus the requirement that within health exchanges insurers must offer at least one gold and one silver plan, will help consumers and employers. But it is still new, and the subsidies, the penalties, and the choices all add up to a complex world for people, especially those who might not have had health insurance before the ACA requirements.
The Affordable Care Act established a system of “navigators” to “help consumers enroll and learn about how to access care under their new coverage.” It’s logical that nonprofits would apply for designation as navigators linked to the state and federal exchanges to help consumers figure out this brave new world of national healthcare reform. The Obama Administration recently allocated $54 million for hiring and training individuals and organizations as navigators to help people who ought to sign up for healthcare coverage find ways of doing so. It sounds like a lot of money, but Stan Dorn at the Urban Institute called it a “drop in the bucket,” and Ethan Rome of Healthcare for America Now (HCAN) declared it “not enough,” but “an important down payment.” The navigator funding is structured as grants, but the government also plans for additional “non-navigator assistance programs” or “in-person assistance programs,” which could be constructed through grants, contracts, or direct government hiring.
Naturally, on the announcement of the intended funding, Congressional Republicans immediately launched an investigation into the navigator program. Around the country, insurance agents have been exceptionally critical of the yet-to-be-hired navigators, concerned that they won’t know the business, will lead consumers into inappropriate products, and, by empowering consumers to make their own choices, deprive insurance agents of commissions. Contrary to the agents’ fears, navigators and assisters cannot work for health insurance providers, will not be able to “sell” insurance, cannot be paid finders’ fees or any other compensation based on the advice they offer, and cannot make determinations of consumers’ income or other eligibility to purchase insurance on the exchanges.
A new idea? Hardly. Navigators work for a variety of state healthcare programs, including State Health Insurance Programs (SHIPs) and Children Health Insurance Programs (CHIPs). That doesn’t matter; for opponents of national health insurance reform, any and all aspects of the Affordable Care Act are new and suspicious, especially in the eyes of the congressional Republicans who recently voted for the 37th time to repeal the Affordable Care Act.
As Dorn and Rome noted, the $54 million allocation is hardly enough to do the job of helping people understand and enroll in a health insurance coverage system that’s undergone major change. According to a survey conducted by Enroll America, 78 percent of uninsured adults and 83 percent of adults who might be eligible for expanded Medicaid coverage lack awareness of their options under the Affordable Care Act. Remember that even after the full implementation of the ACA, there will still be millions of people left uninsured; for example, undocumented immigrants and many others will be left in a state of confusion between states with health insurance exchanges and those that don’t have them, states with expanded Medicaid coverage and those that spurned the opportunity, and more.
Recognizing the resource shortage, Secretary Sebelius, facing what the Washington Post described as a “shoestring budget” for enrollment and other public information assistance, reportedly called “health industry executives, community organizations and church groups and asked that they contribute whatever they can to nonprofit groups that are working to enroll uninsured Americans and increase awareness of the law.” Immediately, critics insinuated that Sebelius was approaching healthcare executives (read: health insurance executives) for funding with the implicit tradeoff of favors from the administration further down the road. Sebelius’s critics weren’t just from the right. Meredith McGehee, the policy director of the Campaign Legal Center, quickly said that she was concerned that Sebelius’s fundraising could be construed as “using the power of government to compel giving or insinuate that giving is going to be looked at favorably by the government.” The Post cited an unnamed “industry official,” who had not been in on any of Sebelius’s fundraising calls, but said that “there was a clear insinuation by the administration that the insurers should give financially to the nonprofits.”
One thing is certain. Sebelius wasn’t soliciting money for HHS or any other unit of federal government. Rather, as HHS spokesperson Jason Young said, the Public Health Service Act allows the HHS secretary to encourage support for nonprofit organizations that provide health information and other public health activities. It is striking that the mini-brouhaha around Sebelius’s calls don’t seem to have been matched by criticisms of government solicitation of funding related to other federal programs, such as extra funding raised by the Social Innovation Fund of the Corporation for National and Community Service from the foundations of John Doerr, Eli Broad, and Pierre Omidyar. Obviously, private contributions for programs supporting social entrepreneurship are okay, but for supporting affordable health insurance coverage, not so much.
So what really happened here? For House Republicans, it is another brewing scandal. Perhaps envious of the visible scandal-investigating roles of Rep. Dave Camp and Rep. Darrell Issa on the IRS controversy, House Energy and Commerce Chairman Fred Upton (R-MI) has written to a bevy of insurers—Blues and others—asking them to reveal whether Sebelius called them and what she said or promised, based on the contention that Sebelius’s activities might have been in “disregard for constitutional principles” and violated federal law.
But Sebelius’s multiple fundraising phone calls added up to only two: one to H&R Block, the other to the Robert Wood Johnson Foundation. Other calls weren’t for fundraising purposes, but for “technical advice and non-financial support because they were regulated” by HHS, according to spokesperson Young. Enroll America had asked Sebelius to call lots of players for funding, but she didn’t. At least in the case of RWJ, Sebelius’s call wasn’t asking for anything new. RWJ has given Enroll America, an entity created by Families USA (which calls itself “the voice for healthcare consumers”) $14 million since 2010.
It’s quite an intellectual leap, but Sen. Lamar Alexander (R-TN) compared Sebelius’s going to Block and RWJ to the Iran-Contra scandal, apparently putting Secretary Sebelius in the same category as former Reagan Administration official Oliver North. Like Bachmann’s imaginary scenario of IRS agents handing out people’s individual health records, Alexander’s view of Sebelius and the Affordable Care Act is beyond our ken. The New York Times reported that Sebelius did get some sort of commitment from RWJ for another $10 million for Enroll America, plus $500,000 from H&R Block, but evidence of a quid pro quo between Sebelius and the Kansas City-based tax preparer or the New Brunswick-based healthcare foundation isn’t readily apparent, probably because