• Blog post up for grabs: over-reporting income for subsidy eligibility

    Something I pointed out months ago got a new life on Twitter yesterday. Here’s the idea: Imagine, in 2014, you are a person desiring health insurance and with <100% FPL income in a state that has not expanded Medicaid. It remains true that if your income were 100% FPL you could get subsidized coverage on the exchange. What to do?

    The flip answer could be “get a job,” but let’s presume you’re trying to do that anyway. Another answer is to claim 100% FPL income, e.g., by saying you have some unreported cash income. Maybe you mowed some lawns and moved some furniture around the community. What entity is going to be able to successfully challenge this claim? It is hard to imagine the IRS auditing lots of poor people because they are claiming their incomes are too high.

    Note, if it is possible to obtain subsidized coverage this way, it is so because of the SCOTUS decision on the ACA, which made Medicaid a state option. Call this the SCOTUS private option, if you like.

    There’s a post up for grabs chasing down whether people could get away with this. I could do it, but I’m feeling generous and/or lazy. (Hint: Start with Tim Jost. See his recent Health Affairs post, which doesn’t quite get to this issue, but comes awfully close.)

    Just to demonstrate I had the idea first (as far as I know), here are a few of my old tweets on this:

    @afrakt

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    • Given that many people who are currently “uninsured” are actually eligible for Medicaid but haven’t signed up, and the Oregon study that showed that many people gifted Medicaid failed to file paperwork, how many poor people in this situation are savvy enough to think of this?

    • Is there any guarantee that the coverage you’d get in the exchange will be better than what you get with Medicaid?

      • Guarantee? No, but it’s pretty hard to find private insurance that’s worse than Medicaid (and no, I’m not suggesting Medicaid is worse than nothing – but it’s really, really terrible coverage for most primarily because of the poor access to providers).

        • Have you seen a Medicaid/private access study that compares Medicaid to specific private plans, not to private plans in general? That is, many people are enrolled in specific private plans with restrictive networks. Asking a practitioner whether she accepts privately covered patients in general misses the mark, but that’s what I tend to see.

    • Why would they find the Exchange insurance attractive?

      First, for context, advocates are generally of the belief that premiums and coinsurance for plans in the Exchanges – after subsidies – will be excessive for those at the lower income range of those eligible. That’s why the Basic Health Plan, an alternative state option to make a cheaper program for those 133-200% FPL, was written into the ACA (though regulations are delayed so the program won’t be an option until 2015). CalSIM projections of Exchange takeup in this income range are also pretty low.

      With this in mind, consider the premium that would be expected of people considering overstating their income. Congress, aware that spending power for anything beyond basic necessities drops disproportionately as income decreases, said that for those on the Exchange under 133% FPL, premiums should be only 2% of income. (This group was just meant to be permanent residents during the 5-year waiting period.)

      Take a couple with 2 children whose actual income is 50% FPL, or $11,775. (Assume they’re not already eligible for Medicaid, as in Texas.) If they state their income as $23,550, they’ll be eligible for Exchange coverage, but by the same token they’ll be expected to pay $471 a year, when in reality the ACA contemplated that $235 would be all that households at their true income level could afford, and even that may be an overestimate. It may not seem like much, but consider what running a household of that size on $12,000 is like day-to-day, and the fact that income tends to be much more volatile at that stratum.

      Then add on the high levels of coinsurance that will be expected of them in these plans, and it starts looking, I’d guess, not much better a proposition than going to free clinics and hoping to avoid hospitals.

      This would vary by plan chosen and other factors, of course (some plans might have a $0 premium based on how the subsidy is calculated), but I think by and large this kind of overreporting won’t be a big problem.

      Also, isn’t there evidence that some people report income tailored to maximize EITC benefit? That would provide much more immediate and directly valuable returns, and I don’t know if both forms of overreporting can be effectively combined.

      Posted from my phone, so I apologize for no links. I can provide some later if asked.

    • If there’s a way to finagle income to tax subsidies for health insurance to make good financial sense – then savvy people will find ways to do it if their lives depend upon it – no matter how much paper work, math, or lawyers are needed.

      The government law enforcement & fraud agencies are so underfunded, they can’t even track the HUGE scale medicare fraud happening & being reported by whistleblowers… They’re so understaffed that good tips on big fraud go ignored. So do we really think some government agency is going to hunt down every 36 year old with skin cancer who reports $1,200 more income than they actually had in order to get a subsidy to afford needed health insurance?

    • ” It is hard to imagine the IRS auditing lots of poor people because they are claiming their incomes are too high.”

      Actually 50% of all audits our on people claiming EITC, that is poor people often suspected of over reporting their income. Flags are on schedule C with no 1099’s. The big thing to say now is it is baby-sitting money since they would never be paid of $599 at once.

      I am seriously contemplating overstating my income personally. I can get a bronze plan for $0. Also since I am an Enrolled Member of a Federally recognized Indian Tribe I have no co-pays or deductibles. I don’t have to get insurance for a number of reasons, but IHS sucks.

    • Could two poor people barter with each other, give each other 1099’s reporting the barter income, and in that way boost their income enough to qualify?