    [House Hearing, 113 Congress]
    [From the U.S. Government Publishing Office]

        HEARING ON THE STATUS OF THE AFFORDABLE CARE ACT IMPLEMENTATION

    =======================================================================

                                    HEARING

                                   before the

                             SUBCOMMITTEE ON HEALTH

                                     of the

                          COMMITTEE ON WAYS AND MEANS
                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED THIRTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                               September 10, 2014

                                   __________

                                SERIAL 113-HL16

                                   __________

             Printed for the use of the Committee on Ways and Means

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    [[Page ii]]

                          COMMITTEE ON WAYS AND MEANS

                          DAVE CAMP, Michigan,Chairman

    SAM JOHNSON, Texas                   SANDER M. LEVIN, Michigan
    KEVIN BRADY, Texas                   CHARLES B. RANGEL, New York
    PAUL RYAN, Wisconsin                 JIM MCDERMOTT, Washington
    DEVIN NUNES, California              JOHN LEWIS, Georgia
    PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
    DAVID G. REICHERT, Washington        XAVIER BECERRA, California
    CHARLES W. BOUSTANY, JR., Louisiana  LLOYD DOGGETT, Texas
    PETER J. ROSKAM, Illinois            MIKE THOMPSON, California
    JIM GERLACH, Pennsylvania            JOHN B. LARSON, Connecticut
    TOM PRICE, Georgia                   EARL BLUMENAUER, Oregon
    VERN BUCHANAN, Florida               RON KIND, Wisconsin
    ADRIAN SMITH, Nebraska               BILL PASCRELL, JR., New Jersey
    AARON SCHOCK, Illinois               JOSEPH CROWLEY, New York
    LYNN JENKINS, Kansas                 ALLYSON SCHWARTZ, Pennsylvania
    ERIK PAULSEN, Minnesota              DANNY DAVIS, Illinois
    KENNY MARCHANT, Texas                LINDA SANCHEZ, California
    DIANE BLACK, Tennessee
    TOM REED, New York
    TODD YOUNG, Indiana
    MIKE KELLY, Pennsylvania
    TIM GRIFFIN, Arkansas
    JIM RENACCI, Ohio

            Jennifer M. Safavian, Staff Director and General Counsel

                      Janice Mays, Minority Chief Counsel

                                     ______

                             SUBCOMMITTEE ON TRADE

                          KEVIN BRADY, Texas, Chairman

    SAM JOHNSON, Texas                   JIM MCDERMOTT, Washington
    PAUL RYAN, Wisconsin                 MIKE THOMPSON, California
    DEVIN NUNES, California              RON KIND, Wisconsin
    PETER J. ROSKAM, Illinois            EARL BLUMENAUER, Oregon
    JIM GERLACH, Pennsylvania            BILL PASCRELL, JR., New Jersey
    TOM PRICE, Georgia
    VERN BUCHANAN, Florida
    ADRIAN SMITH, Nebraska

    [[Page iii]]

                                C O N T E N T S

                                   __________

                                                                       Page

    Advisory of September 10, 2014 announcing the hearing............     2

                                   WITNESSES

    The Honorable John Koskinen, Commissioner, Internal Revenue
      Service........................................................     8
    Andy Slavitt, Principal Deputy Administrator, Centers for
      Medicare & Medicaid Services, Department of Health and Human
      Services.......................................................    62

    [[Page (1)]]

        HEARING ON THE STATUS OF THE AFFORDABLE CARE ACT IMPLEMENTATION

                                  ----------

                         WEDNESDAY, SEPTEMBER 10, 2014

                 U.S. House of Representatives,
                           Committee on Ways and Means,
                                        Subcommittee on Health,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:06 a.m., in
    Room 1100, Longworth House Office Building, the Honorable Kevin
    Brady [chairman of the subcommittee] presiding. Advisory
        [The advisory announcing the hearing follows:]

    [[Page 2]]

    ADVISORY

    FROM THE
    COMMITTEE
     ON WAYS
    AND
    MEANS

                             SUBCOMMITTEE ON HEALTH

                                                    CONTACT: (202) 225-3625
    FOR IMMEDIATE RELEASE
    Wednesday, September 3, 2014
    No. No. HL-15

                      Chairman Brady Announces Hearing on

                Status of the Affordable Care Act Implementation

        House Committee on Ways and Means Subcommittee on Health Chairman
    Kevin Brady (R-TX) today announced that the Subcommittee will hold a
    hearing on the Administration's continued efforts to implement and
    administer the Affordable Care Act (ACA). The Committee will hear
    testimony from Andy Slavitt, Deputy Principal Administrator of the
    Centers for Medicare & Medicaid Services (CMS) at the U.S. Department
    of Health and Human Services (HHS), and John Koskinen, Commissioner of
    the Internal Revenue Service. CMS is the federal agency that oversees
    the operation of the Exchanges through the Center for Consumer
    Information and Insurance Oversight (CCIIO), and the IRS oversees the
    distribution and verification of the subsidies in the ACA. The hearing
    will take place on Wednesday, September 10, 2014, in 1100 Longworth
    House Office Building, beginning at 10:00 A.M.

        In view of the limited time available to hear from the witnesses,
    oral testimony at this hearing will be from the invited witness only.
    However, any individual or organization not scheduled for an appearance
    may submit a written statement for consideration by the Committee and
    for inclusion in the printed record of the hearing.

    BACKGROUND:

        As the ACA's Exchanges approach the second enrollment period,
    beginning on November 15, 2014, CMS and the IRS continue to implement
    new policies to address on-going problems including: the delay of the
    employer mandate; the back log in resolving eligibility
    inconsistencies; the failure to complete the back-end systems for the
    Exchanges; and the numerous exemptions to the individual mandate. Many
    of these challenges were identified at a Health Subcommittee hearing on
    December 4, 2013, and remain unresolved.

        The ACA provides for an income-based premium tax credit for certain
    individuals who purchase health insurance through the new Exchanges.
    The accuracy and availability of these tax credits, which began with
    coverage on January 1, 2014, depends on multiple pieces of data,
    including an individual's income and eligibility for affordable
    employer-sponsored insurance. The Administration's 2013 decision to
    delay employer-reporting requirements continues to complicate the
    government's ability to verify an offer of "affordable employer-
    sponsored insurance."

        The accuracy of these tax credits, which are paid directly to
    insurance companies, cannot be guaranteed without accurate income and
    insurance information. As a result of the failure to provide complete
    and accurate information, the government may overpay and be forced to
    rely on the IRS to recover overly generous tax credits from individuals
    during the 2015 tax-filing season.

        On January 1, 2014, Health and Human Services Secretary Kathleen
    Sebelius certified the ability of HHS to verify the income and
    eligibility of enrollees on the Exchanges and healthcare.gov, as she
    was required to do so by law. The Continuing Appropriations Act, 2014
    required that "prior to making such credits and reductions available,
    the Secretary shall certify to the Congress that the Exchanges verify
    such eligibility consistent with the requirements of such Act." Despite
    the Secretary's cer

    [[Page 3]]

    tification, a June 2014 HHS Office of Inspector General report noted
    that CMS had yet to verify nearly 1 million income inconsistencies
    potentially putting at risk millions in taxpayer dollars through
    inappropriate subsidies/1/.

        In announcing the hearing, Chairman Brady stated, "This White House
    continues to rewrite the President's health care law because the law is
    unworkable. The growing number of American families losing the health
    insurance they have and like is not something that can be glossed over.
    The White House must come clean with the American public and tell us
    how they will fix this mess before the beginning of Open Enrollment in
    November. More delay and confusion will only result in more mistrust
    and more families losing access to the health insurance that works for
    them and their families. The Centers for Medicaid and Medicare Services
    and the IRS need to do more to protect American families and
    taxpayers."

    FOCUS OF THE HEARING:

        The hearing will focus on the status of the Obama Administration's
    implementation and oversight of the Affordable Care Act.

    DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

          Please Note: Any person(s) and/or organization(s) wishing to
    submit for the hearing record must follow the appropriate link on the
    hearing page of the Committee website and complete the informational
    forms. From the Committee homepage, http://waysandmeans.house.gov,
    select "Hearings." Select the hearing for which you would like to
    submit, and click on the link entitled, "Click here to provide a
    submission for the record." Once you have followed the online
    instructions, submit all requested information. ATTACH your submission
    as a Word document, in compliance with the formatting requirements
    listed below, by the close of business on Wednesday,`` http://
    oig.hhs.gov/oei/reports/oei 01 14 00180.pdf''September 24, 2014.
    Finally, please note that due to the change in House mail policy, the
    U.S. Capitol Police will refuse sealed-package deliveries to all House
    Office Buildings. For questions, or if you encounter technical
    problems, please call (202) 225-1721 or (202) 225-3625.

    FORMATTING REQUIREMENTS:

        The Committee relies on electronic submissions for printing the
    official hearing record. As always, submissions will be included in the
    record according to the discretion of the Committee. The Committee will
    not alter the content of your submission, but we reserve the right to
    format it according to our guidelines. Any submission provided to the
    Committee by a witness, any supplementary materials submitted for the
    printed record, and any written comments in response to a request for
    written comments must conform to the guidelines listed below. Any
    submission or supplementary item not in compliance with these
    guidelines will not be printed, but will be maintained in the Committee
    files for review and use by the Committee.

        1. All submissions and supplementary materials must be provided in
    Word format and MUST NOT exceed a total of 10 pages, including
    attachments. Witnesses and submitters are advised that the Committee
    relies on electronic submissions for printing the official hearing
    record.

        2. Copies of whole documents submitted as exhibit material will not
    be accepted for printing. Instead, exhibit material should be
    referenced and quoted or paraphrased. All exhibit material not meeting
    these specifications will be maintained in the Committee files for
    review and use by the Committee.

        3. All submissions must include a list of all clients, persons and/
    or organizations on whose behalf the witness appears. A supplemental
    sheet must accompany each submission listing the name, company,
    address, telephone, and fax numbers of each witness.

        The Committee seeks to make its facilities accessible to persons
    with disabilities. If you are in need of special accommodations, please
    call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
    business days notice is requested). Questions with regard to special
    accommodation needs in general (including availability of Committee
    materials in alternative formats) may be directed to the Committee as
    noted above.

    [[Page 4]]

        Note: All Committee advisories and news releases are available on
    the World Wide Web at http://www.waysandmeans.house.gov/.

        The subcommittee met, pursuant to call, at 10:06 a.m., in
    Room 1100, Longworth House Office Building, the Honorable Kevin
    Brady [chairman of the subcommittee] presiding.
        Chairman BRADY. Committee will come to order. The
    Affordable Care Act has changed how Americans receive their
    healthcare. There has been ample debate over the last 4 years
    about the ACA and what impact it will have. Today we have the
    chance to look in the rearview mirror and judge results rather
    than the rhetoric and promises, and we have the opportunity to
    look forward to next year to see what other changes and
    surprises may lay ahead for the American people.
        It is no surprise that I and many of my colleagues on this
    side of the aisle were very concerned about what would happen
    with the rollout of the ACA and HealthCare.Gov. Unfortunately,
    for the American people, many of those concerns came true. The
    ACA has helped some Americans, no doubt, but has hurt many
    more. Millions of families lost their doctor and their
    healthcare plan. Millions more saw their premium spike because
    of new taxes and regulations that provide them with no
    additional coverage, just more costs, and many more workers saw
    their hours cut as businesses prepare for further mandates.
        But worst of all, many Americans have lost trust in our
    government when it comes to being honest about its healthcare
    promises. Many patients fear what may be in store for them
    next. They have lost their health care they have and like, lost
    their doctor and are seeing their premiums soar. And for those
    that end up in the government exchanges, the ones that the law
    was supposed to help, they were subjected to a disastrous
    rollout of HealthCare.Gov, delays as paperwork went missing,
    and the ongoing reality that they may owe thousands of dollars
    back to the IRS for subsidies they are not eligible for. Not
    because they did anything wrong, but because the ACA income
    verification system was not and still is not working.
        But the administration assures us next year its smooth
    sailing. Unfortunately, the answer to that is ``no.'' Open
    enrollment has been delayed until November 15. I am worried
    that individuals won't enroll. The Centers for Medicare and
    Medicaid Services recently announced that if individuals don't
    select a new plan by December 15, they will be auto enrolled in
    their old plan.
        The problem with that, however, is that their premium tax
    credit, if they get one, will be based on the one they are
    receiving today, whether accurate or not. If a person wants to
    accurately know how much of a subsidy they will receive for
    2015, they need to go through HealthCare.Gov again. Yes, the
    HealthCare.Gov that was just hacked, carries the risk of
    putting Americans' sensitive, personal information at risk.
        In plain English, it means that working families will have
    to wait that much longer or work that much harder to find out
    how much their health care will cost next year. It is not right
    for those trying to put together their family budgets right
    now. What is also

    [[Page 5]]

    not right is the fact that the ACA's income verification is
    still not working.
        Despite Secretary Sebelius' certifying to Congress on
    January 1st of this year that a working verification system was
    in place, the HHS inspector general found that there were
    nearly 1 million income inconsistencies on exchange
    applications. Because individuals were able to self-attest to
    their income levels, there was little data before taxpayers'
    subsidies were sent out the door. And if the data is wrong,
    thanks to the horrible poor implementation of the bill,
    hundreds of thousands of Americans could be hit with a nasty
    surprise when they do their taxes next year. They could be
    forced to pay back hundreds or even thousands of dollars.
        Recently, the Treasury Department spokesperson suggests
    that the ineligible subsidy that someone owes back to taxpayers
    could be capped. That is not how the law is written.
    Individuals who are not eligible, either because of improper
    income data or coverage from another source must repay the
    entire amount. The ACA tried to invent a system that would
    collect that information to prevent things like this from
    happening and improper subsidy, but guess what? It has proven
    so far to be too complicated and too burdensome.
        The administration has admitted time and time again, the
    law doesn't work, delaying one provision after another or
    exempting special interests or politically-favored friends from
    the most onerous parts of the law. And while the mandate on
    local businesses is not being enforced, for 2014, the mandate
    on individuals to buy government-approved health care or pay a
    tax is. That certainly doesn't sound fair to me. And that is
    why this White House has lost, in my view, the trust of the
    American people.
        Today's hearing is an opportunity for CMS and IRS to begin
    an open and honest conversation with the citizens of the great
    country about their health care. And before I recognize Ranking
    Member Dr. McDermott for the purposes of an opening statement,
    I ask unanimous consent that all members' written statement be
    included in the record. Without objection, so ordered.
        And I will recognize the Ranking Member Dr. McDermott for 5
    minutes for the purpose of his opening statement.
        Mr. MCDERMOTT. Thank you, Mr. Chairman.
        Mr. Koskinen and Administrator Slavitt, welcome to a tale
    of two cities. Before we enacted the ACA 4 years ago, America's
    healthcare system was dysfunctional and deadly. Forty-six
    million people were uninsured, and every year 45,000 Americans
    died because they lacked coverage. Many Americans who had
    insurance weren't getting a good deal. Their health security
    was tenuous at best and prospect of bankruptcy due to medical
    bills was a real threat for far too many families. Insurance
    companies could hike up plan rates with impunity and without
    accountability. Insurance companies could refuse to cover
    people with preexisting conditions, and benefits dropped away
    from people who were most sick and needed health care the most.
        Meanwhile, Medicare costs were increasing at unjustifiable
    high rates, in part because the Federal Government was
    overpaying private insurance companies tens of billions of
    dollars through the Medicare Advantage program. Waste, fraud,
    abuse continued to

    [[Page 6]]

    chip away at the trust fund as fraudsters and other
    questionable actors built beneficiaries. And the American
    taxpayer, while law enforcement like the tools to crack down
    on, fraud, in fact, had existed. Millions of seniors were
    falling into the Medicare prescription donut hole where
    coverage evaporated just when they needed it.
        Today, things are different. There is a real health
    security for millions of Americans due to ACA. Marketplaces
    across the country are backed up, running, ready for business.
    Eight million Americans signed up for coverage during the first
    open enrollment period, and the number of uninsured Americans
    has dropped by almost 10 million. Six million Americans have
    gotten tax credits and subsidies to help offset their
    healthcare costs.
        In addition, smart States have expanded Medicaid, which has
    increased coverage to millions more of the most vulnerable
    Americans. Thanks to the ACA, hardworking Americans have no
    longer been denied coverage because they have preexisting
    conditions, and their rates cannot be arbitrarily raised when
    they get sick. We are cracking down on fraud, waste and abuse,
    instead of targeting fraud after the fact. Federal regulators
    are increasingly preventing violations on the front end.
        Thanks to vigorous enforcement and the tools provided by
    the ACA, the administration has recovered more than $19 billion
    over the past 5 years. Payments to private insurance companies
    have been reduced to more appropriately reflect the cost of
    delivering Medicare while Medicare benefits have actually been
    increased. With free preventive care and coverage in the donut
    hole, millions of seniors have saved billions of dollars since
    the ACA was enacted.
        Now, have there been a few hiccups? Yes, there have been a
    few hiccups. You start something big, you always have a few
    hiccups. Talk to the Boeing Company. Implementations of the ACA
    have suffered due to Republican propaganda designed to confuse
    and scare the public, senseless repeal votes and harmful
    budgets cuts. And as the Commissioner from the IRS has
    testified in the past, the IRS is seriously understaffed making
    it harder for the agency to implement key parts of the ACA.
        Similarly, CMS has been denied needed resources, yet
    despite the Republican's best effort at sabotage, the ACA is
    working. The law is saving money and lives. And my belief is
    that we are on a pace to guarantee health security for 32
    million more Americans in the coming years and Medicare
    spending is at its lowest per-person growth in history.
        In light of the ACA's success, I look forward to the day
    when Republicans do an about-face to accept their share of the
    responsibility in guaranteeing health security for all
    Americans. That means ending this senseless mission of sabotage
    and repeal. That means working with the Democrats to ensure all
    of our constituents benefit from all the ACA has to offer.
        And we look forward to your testimony. Thank you.
        Chairman BRADY. Thank you, Ranking Member Dr. McDermott.
        Today, we will hear from witnesses on two panels. John
    Koskinen, Commissioner of the Internal Revenue Service, and
    Andy Slavitt, Principal Deputy Administrator for the Centers
    for Medicare and Medicaid Services.
        Commissioner Koskinen, you are recognized for 5 minutes.

    [[Page 7]]

        Mr. KOSKINEN. Thank you, Chairman Brady, Ranking Member
    McDermott and Members of the Subcommittee, thank you for the
    opportunity to appear before you today to update you on the
    work that the IRS is doing to fulfill our responsibilities
    under the Affordable Care Act. My testimony will focus on the
    significant efforts the IRS has been making to prepare for the
    2015 filing season in relation to the premium tax credit and
    the individual shared responsibility provision under the Act.
        The IRS has already implemented a number of tax provisions
    under the Act, including the branded prescription drug fee, the
    tanning tax and the medical device excise tax. It should be
    noted at the outset that the vast majority of taxpayers will
    need to do nothing more next year under the Affordable Care Act
    than check a box on their tax returns because they have health
    coverage from one source or another.
        People who buy insurance through the marketplace and who
    qualify for the premium tax credit will have an extra
    calculation to make when they file. Most of them chose to have
    an advanced payment sent to their insurer during the year based
    on their family situation and estimated income for 2014. They
    will have to reconcile this advance payment on their return. We
    have already issued a draft of the new form they will use for
    this purpose, Form 8962.
        If anyone paid for the insurance up front and claims to be
    eligible for the premium tax credit, they will calculate the
    amount of the credit they are entitled to and claim it on their
    tax return. The IRS has also developed the Form 1095-A and
    instructions. Beginning with the coverage purchased in 2014,
    the marketplace must issue the Form 1095-A to those who bought
    a policy through the marketplace. The data on this statement
    will verify the fact of marketplace coverage and facilitate the
    reconciliation process for the premium tax credit.
        The data will also be sent to the IRS and it will help us
    make sure that only people who qualify for the premium tax
    credit receive it. We are in the process of conducting tests
    with the Federal and State marketplaces to ensure that our
    systems can accept this data and will be ready to operate as
    planned when filing season opens next year.
        The work being done to prepare for filing season also
    involves the individual shared responsibility provision. This
    requires people to have insurance coverage for each month of
    the year, have an exemption or make a shared responsibility
    payment. A number of individuals will be exempt from this
    provision.
        For example, a person could be exempt for hardship reasons
    or if a gap in their coverage during the year was less than 3
    consecutive months. Those who qualify for an exemption will
    provide information about it on a new form we have developed,
    Form 8965. The IRS has also been working to make sure that
    people understand how these two major ACA provisions may affect
    them at tax time. In helping people understand how the ACA
    might affect them, our primary goal is to make it as easy as
    possible for people to file their taxes next year. By providing
    this information in advance, we are also trying to answer as
    many questions as possible before the

    [[Page 8]]

    filing season to limit the number of people who need to call us
    for help.
        For example, our Web site, IRS.gov, has a new section
    devoted to the ACA. We have also issued 16 healthcare tax tips
    and nine YouTube videos on ACA topics so far this year, with
    more on the way. And we have increased our use of social media,
    including Tumblr and Twitter to help get the word out. And yet,
    we still anticipate an increase in calls next filing season
    from taxpayers seeking assistance in regard to the ACA.
        We are concerned about our ability to meet this demand
    because of ongoing budget constraints and because of the
    possibility of additional increase in calls if Congress passes
    tax extender legislation later this year. We hope that Congress
    will pass any extenders as early as possible this year with as
    few changes as possible.
        I would note that the various ACA implementation efforts I
    have just described were accomplished in the absence of
    appropriated dollars requested for this effort. For fiscal year
    2014, the administration requested $430 million for the IRS to
    implement these tax-related provisions. Of that total, 300
    million was needed for building and improving information
    technology systems and processes. No portion of the request was
    funded. Nonetheless, the IRS continues to deliver on this
    mandate given to us by Congress by refocusing the needed
    funding from other IT and agency priorities.
        Our concern with fiscal year 2015 budget request of about
    $400 million for additional taxpayer services, if we had the
    funding, we would hire enough full-time equivalents to end up
    with a level of service at 80 percent. Without the funding, we
    expect that our taxpayer level of service may drop to as low as
    below 50 percent, which would mean that almost half of the
    people calling will not be able to reach a live assistant. We
    continue to work, as I said, to ensure that taxpayers in
    advance have as much information as possible to limit that load
    on our call-in system, but it is going to be one of our major
    challenges.
        This concludes my testimony, and I would be happy to take
    your questions.
        [The prepared statement of Mr. Koskinen follows:]

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        Chairman BRADY. Thank you, Commissioner.
        Mr. Slavitt, welcome.

    [[Page 16]]

        Mr. SLAVITT. Good morning, Chairman Brady, Ranking Member
    McDermott, Members of the Subcommittee. I am Andy Slavitt,
    Principal Deputy Administrator of CMS. I joined CMS 2 months
    ago from the private sector where I spent the last 20 years
    principally working with physicians, hospitals, health plans
    and employers on solutions to problems of healthcare costs,
    quality and access. During that time, I have been both an
    entrepreneur and have run a major division of one of America's
    largest healthcare companies.
        In late October of last year, I began my involvement with
    the Affordable Care Act implementation when I joined the group
    of people helping the CMS team on the turnaround effort of the
    health insurance marketplace. I am pleased to appear before you
    today. Before answering your questions, I will briefly walk you
    through some of the progress of the Affordable Care Act to date
    and talk about our priorities for the coming period.
        There is growing evidence that the Affordable Care Act is
    working to make higher quality healthcare more affordable and
    accessible for millions of Americans. During the first open
    enrollment, millions of Americans selected a private insurance
    plan through their State or Federal health insurance
    marketplace and millions more have retained coverage on their
    parents' policies or have newly qualified for Medicaid or CHIP.
        According to Gallup, the adult uninsured rate fell to 13.4
    percent for the second quarter of 2014, a record low. In
    addition, we are seeing historically low growth and overall
    health spending measured at both the consumer level and the
    national level. This success is not being achieved by
    government policy alone, but in partnership with the private
    sector as insurers grow by competing to provide better quality
    and affordable services. Now, as we continue through the first
    year of marketplace implementation, we must build on that
    progress that is underway and continue to approve our execution
    based on the lessons from the last year.
        First, we are focusing on increasing the value consumers
    get when they come to the marketplace. Early evidence from
    States that have already published this information is
    indicating consumers will have more options and more
    competitive rates. According to a recent survey conducted
    across 16 major cities, premiums for the benchmark marketplace
    plan will actually decrease on average in the coming year.
        This is good news for consumers who are typically paying
    less than $100 a month for premiums for a policy in the
    marketplace. Most important is that this gives many families
    access to affordable, quality health care for the first time.
    According to a Commonwealth Foundation survey, two out of three
    newly-covered adults are saying they are now taking medicine
    and seeing doctors they couldn't afford before. When you get
    underneath all the statistics about the uninsured rate dropping
    and rates remaining competitive, this is what counts.
        Next, we have heightened our focus on execution. Even as we
    continue to learn about new consumer needs, we are building out
    further automation and are working to improve interaction
    points with consumers and health plans. High on our agenda is
    making it easier for consumers to enroll and renew their
    coverage, pro

    [[Page 17]]

    viding scale to handle greater volumes of people, and
    completing back office functionality.
        How we execute has been a major area of focus from the
    Secretary on down. Our operating principles are
    straightforward: Clear accountability with a new marketplace
    CEO and clearer structure; ruthless prioritization, which has
    meant we haven't done everything everyone has wanted, but have,
    instead, built in more time to test what we build; and
    transparency, even when things happen that we don't plan on.
        The team at CMS is hard at work on implementation. This
    coming year will be one of visible and continued improvement
    but not perfection. We are in the early stages of the program
    newly serving millions of consumers and are still learning
    about the best ways to support their unique needs. We are
    making the right progress to have a successful open enrollment
    and continue to deliver on the promise of the Affordable Care
    Act to improve healthcare access, cost and quality for all
    Americans.
        Thank you, and I look forward to your questions.
        Chairman BRADY. Thank you, Mr. Slavitt.
        Commissioner Koskinen and Mr. Slavitt, I want to return to
    the theme I mentioned in my opening statement and that is
    trust. I think, my view, the American people have lost trust in
    the IRS for a number of reasons, including health care. And I
    think the disastrous rollout of HealthCare.Gov has created a
    lack of trust among the American people, as well as promises
    not kept.
        I do appreciate the work, Mr. Slavitt, you are doing, and
    there is a lot of it, to try to bring that site up to speed,
    more importantly, making sure we get the back end completed and
    right. Problems, obviously, remain with this. There are going
    to be more problems going forward into the second year.
        So my question to both of you, and it really isn't a gotcha
    question, but in spite of all these problems, you know, how do
    you expect to, again, regain the trust of the American people
    when it comes to their health care? The ACA, in my view,
    through heavy subsidies is reducing the cost for some, but it
    is increasing the cost for others. And there is real concern
    back home from patients, providers and businesses about the
    Affordable Care Act.
        So what are you doing to make sure the second year of the
    ACA is not like the first year in that steps will be taken to
    regain the trust of the American people regardless of what
    party they are, that are just simply concerned about their
    health care? Commissioner.
        Mr. KOSKINEN. Well, we take, as I hope everyone knows,
    seriously the obligation to, as I say, try to make it as clear
    and straightforward and as easy as possible for people to
    determine what they owe and to be able to make those payments.
    As I have said on numerous occasions, we distinguish between
    the willing to pay and the unwilling to pay. And those willing
    to pay, even if they have difficulties, as I have said, don't
    have to hire somebody off late night TV to come talk to the
    IRS.
        If you are willing to pay, trying to become compliant, we
    are anxious to work with you. We have installment agreement
    possibilities, we have ways of creating offers and compromise.
    With a focus on ACA, our role and the front-end rollout to
    providing income

    [[Page 18]]

    verification data went very smoothly. The Inspector General
    said that it was virtually perfect. But we understand that
    there are going to be challenges with the first filing season,
    and that is why we are spending as much time as we are,
    starting last spring, trying to explain to the American people
    how the ACA affects them and what they need to do for filing.
        And as I said, one of the most important things for the
    public to understand is the vast majority of those filing next
    year out of the 150 million expected individual returns, 120,
    125 million of them will simply check a box that they have
    coverage and that is all they will have to do. The other people
    filing, those who are either reconciling premium tax credits,
    seeking a credit, filing an exemption or dealing with the
    shared individual responsibility payment will have additional
    responsibilities when they file, and we are doing everything we
    can to get them that information. We have had tax preparer
    forms across the country with 10,000 tax preparers focusing on
    the ACA.
        But we take very seriously that, again, compliance with the
    Internal Revenue Code is a critical part of the tax system in
    the United States. We have a very compliant population. Our
    compliance rate is among one of the highest in the world. But
    to maintain that compliance rate, your point is well taken,
    people have to have trust and confidence in the system. They
    have to be confident they are going to get treated fairly no
    matter who they are.
        As I have said, one of my highest priorities is to try to
    make sure that people understand, when they hear from the IRS,
    it is not because of who they are, what organization they
    belong to, who they voted for in the last election, if they
    hear from us, it is about an issue in their tax return. And if
    somebody else had that issue, they would hear from us, as well.
        Chairman BRADY. There are questions about that. But let me
    ask you this: The IRS has three main tasks right now. One is to
    confirm income verification to those who are getting subsidies
    today; secondly, on January 1, delivering to American people
    Form 1095-A that tells them what they need to do to file their
    taxes; and then to prevent having verification income placed
    before the second year premiums and subsidies are released.
    Where are you on each of those three?
        Mr. KOSKINEN. As I noted, last year in the rollout, we
    provided income verification information to 27 million
    inquiries. The inspector general reviewed it and said we were
    100 percent accurate on the information we provided. It was
    primarily information about tax return information for 2012.
        Chairman BRADY. Of those you have the information for, but
    the inspector general said roughly 1 million of them had
    inconsistencies, were not complete applications. What has been
    going on with those?
        Mr. KOSKINEN. That was the review of HHS's and CMS's
    rollout. But in terms of the information provided by the IRS,
    the inspector general found that 100 percent of it was
    accurate. It was accurate to----
        Chairman BRADY. So all the income from the IRS standpoint,
    everyone who is receiving subsidies today, their income has
    been fully verified?

    [[Page 19]]

        Mr. KOSKINEN. Our role is to provide the data when the
    inquiry was made. We don't play a role in terms of what they do
    with the data. We will have a significant role when people
    file----
        Chairman BRADY. The IRS has a roll of income verification?
        Mr. KOSKINEN. When they file, we will obviously verify
    income as we do for the 150 million people who file, and that
    will determine the calculation that the taxpayer makes. It will
    determine whether they are eligible for the premium credit, how
    much of the advance payment they got and what reconciliation
    they have to make.
        Chairman BRADY. So again, today, of those receiving
    subsidies through the ACA that are helping them with their
    health care, the IRS says you can assure us all of those
    incomes have been verified at this time?
        Mr. KOSKINEN. We provided income verification when
    requested last year in the rollout. We will do it again in this
    year's rollout. We have been advising taxpayers since last
    spring that whatever determination they made with the
    marketplace is about their circumstances. If there is any
    change in those circumstances, either in their family size or
    their income, they need to go back to the marketplace, because
    our concern is that everybody makes an estimate when you file
    your W-2s and your withholding. You are estimating what your
    income will be, obviously, for most people it changes to some
    extent.
        Chairman BRADY. Sure.
        Mr. KOSKINEN. So we are focused on and concerned that we
    don't want people to have either gotten too small an advanced
    payment or too large of an advanced payment.
        Chairman BRADY. What I didn't hear was a ``yes'' there. And
    I am hopeful we can get to the day where you can say yes, we
    have verified them.
        The 1095-A due in January, have you completed testing on
    that? Can the American public be assured when they are ready to
    do their taxes and get their refunds, that that form will be
    there in January?
        Mr. KOSKINEN. Right. We don't provide that form. That form
    is provided by the marketplace.
        Chairman BRADY. But you provide the information for it?
        Mr. KOSKINEN. Happy to turn it over to my colleague.
        Chairman BRADY. Okay. How about preventing income
    verification to prevent eligible subsidies, ineligible
    subsidies in the future?
        Mr. KOSKINEN. As I said, in this rollout period for the
    second year, we will continue to provide income information to
    our system marketplaces and determine eligibility. But I would
    stress in the filing season, we will check, as we always do
    with everybody who files, their income will be verified. As I
    say, we have a very compliant population. They provide
    information about their income as it actually happened. What we
    are providing in the rollout is income information that can be
    used for verification for a previous tax year.
        But, again, that is what your, in this year's rollout, it
    will be what your tax income information was for 2013, but
    it'll be used for eligibility for 2015. And again, when you
    file for your 2015

    [[Page 20]]

    taxes, you will have a different number almost no matter who
    you are as opposed to what you estimated.
        Chairman BRADY. Sure. What is the process for collecting
    overpaid subsidies to those who are not eligible? Do you have
    that process in place?
        Mr. KOSKINEN. That process will be our normal process in
    the sense that to the extent that your subsidy was too small,
    you will get a credit for that. For a lot of people in this
    income range it will be a refund. To the extent that your
    advance payment was too large, there will be a deduction either
    from your refund or an increase in the tax owing.
        Chairman BRADY. Sure. Now, I know how that process works.
    Is it fully in place to do that?
        Mr. KOSKINEN. It is, at this point, we are about to test
    our own systems. But I am assured, I have been meeting every 2
    weeks since January with the IT people, with the program people
    and the business people, looking at exactly what we have to do
    to make that happen, and thus far, I have been assured that,
    while it is a challenge, we are on track to be able to do that.
        Chairman BRADY. Sure. For someone who, through no fault of
    their own, received a subsidy they weren't eligible for, about
    what month in next year will they get the bad news that they
    owe taxes back to Uncle Sam?
        Mr. KOSKINEN. They will get that news whenever--shortly
    after----
        Chairman BRADY. It would be bad news. They will get that
    news.
        Mr. KOSKINEN. They will get that news when they file, in
    the normal course. In other words, that news would be no
    different than any other bad news you might get if you turn out
    to owe taxes. So you will file a return. You will actually make
    your own calculation off the 1095 you get. You will determine
    whether you got too much and you owe additional tax or have a
    smaller refund. You will make that determination and you will
    file it with your return. Some people file in January. Some
    people file in April, and obviously, some extend their return
    into October.
        Chairman BRADY. So they may start the repayment as early as
    January of the coming year?
        Mr. KOSKINEN. It will all depend when they file.
        Chairman BRADY. Sure.
        Mr. Slavitt, can you address the issue, again, I know the
    serious work you are doing, both to address the problems in the
    past and try to both get the site working right and the back
    end right. There is no question about that seriousness. Can you
    address the trust issue at this point?
        Mr. SLAVITT. Sure. Mr. Chairman, thank you for the
    question. I have actually thought a little bit about this
    question. As I mentioned, I have worked for the government for
    2 months, and interestingly----
        Chairman BRADY. You are an old man.
        Mr. SLAVITT. I am an old man. Well, interestingly, the
    people that I work with at CMS and at the Department and across
    the government, the career people have been some of the most
    trustworthy people I have ever worked with, yet, coming from
    the pri

    [[Page 21]]

    vate sector, as you have said, there is a trust gap. And, you
    know, the way I understand that trust gap to be closed is the
    following ways: One is with transparency. Even when the news is
    bad, we need to be clear about what that news is, and I think
    this summer you have seen we have put out numbers, even worse-
    case numbers when there are challenges to help people with
    inconsistencies and so forth, rather putting those numbers out
    than other numbers and waiting for them to get better.
        Second, is accountability. That means being here, and my
    first several months I have been here as frequently as I need
    to be. It also means owning up to mistakes. I don't think
    people expect us to be perfect. I do think people expect us to
    fix things when they don't work and be very candid about them
    and be very accountable.
        And the third is straight talk. As much as possible, that
    means giving a direct and clear response when people are asking
    us very fair questions. It means saying ``I don't know'' when
    we don't know, even when we want to struggle to get back to
    people. There is no question that this implementation has a lot
    of pieces. It requires a lot of cooperation, and I think we can
    gain trust, I believe, in the work we are doing across
    government if we are clear in those categories.
        Chairman BRADY. Thank you, Mr. Slavitt. Again, I think you
    are trying to implement a poorly-designed, poorly-written,
    unworkable law; nonetheless, I think that approach of openness,
    transparency and straight talk will go a long way, frankly,
    towards restoring that trust. So thank you very much.
        Dr. McDermott.
        Mr. MCDERMOTT. Thank you, Mr. Chairman. I would like to
    enter in the record the tax inspector general's for tax
    administration's report, ``Affordable Care Act: Accuracy of
    Responses to Exchange Requests,'' dated 3 July, 2014. I ask
    unanimous consent.
        Chairman BRADY. Without objection.
        [The Honorable Jim McDermott]

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        Mr. MCDERMOTT. Both you gentlemen are listening to these
    questions, and I am trying--I am a physician, so I am thinking
    I have got a patient sitting in my office, and his name is John
    Smith and he has a wife named Mary, and their income is $70,000
    between them. So that is their income last year. Do I
    understand that is the income that they bring forward, they say
    this is what I made last year, right?

    [[Page 48]]

        Mr. KOSKINEN. That is correct. They provide that
    information to the marketplace.
        Mr. MCDERMOTT. Now, if during the year John and Mary both
    have done good work and they get a pay increase, let's say they
    get $5,000 increase this year because the economy is
    recovering, so now they are making, not $70,000 together but
    $80,000, how does that affect their income verification from
    last year?
        Mr. KOSKINEN. It won't change their verification. Their
    verification was made at the time they applied for the policy
    and if they applied and were eligible for the tax credit. So
    again, what I said in response to the chairman's question, one
    of our concerns has been since the spring trying to remind
    people, if you were in that fortunate situation and you now
    expect to earn more money than you originally expected with
    your income verification, you should report back to the
    marketplace and adjust any advance payment you are getting,
    because to the extent you qualified and the payment is going to
    the insurance company, if your income goes up, the amount of
    that payment will go down.
        And if you can adjust it during the course of the year, it
    means you will be closer to the right number when you file a
    return. If you don't make the adjustment during the year, your
    premium tax credit will be higher than it should've been and
    you will have to actually make that adjustment on your tax
    return.
        Mr. MCDERMOTT. So the individual, when they get a pay
    increase, has to go to their employer and say--or who do they
    go to and say, I want to adjust because I am now making $35,000
    instead of $30,000 or whatever?
        Mr. KOSKINEN. They go back to the marketplace where they
    purchased the policy.
        Mr. MCDERMOTT. Back to the exchange?
        Mr. KOSKINEN. Back to the exchange.
        Mr. MCDERMOTT. Not to the insurance company but to the
    exchange?
        Mr. KOSKINEN. To the exchange. The exchange is what
    determines how much of a premium payment, advance payment goes
    to the insurance company.
        Mr. MCDERMOTT. And they have to do that if----
        Mr. KOSKINEN. Mr. Slavitt, will correct me if I'm wrong.
        Mr. SLAVITT. You got it right, Commissioner.
        Mr. MCDERMOTT. If they get it anytime during the year, they
    have to make a correction that month to be able to take care of
    it at the end of the year or--I thought that was a fixed
    figure, that their income for this year is $70,000, and if they
    get an extra $10,000 that is next year's income.
        Mr. KOSKINEN. No. What happens is the estimate was made
    last fall. We provided income verification for the tax year
    2012.
        Mr. MCDERMOTT. Which is $70,000 for this couple.
        Mr. KOSKINEN. Assume that was $70,0000. Now we are in 2014
    and they are going to make $80,000. The premium advance payment
    was made on the basis of the $70,000, but your tax return for
    this coming filing season will be based on what you actually
    earned in 2014 and what you actually earned in 2014 will be
    reconciled as to what your premium tax credit should be and
    what the advance payment should have been. So if your income
    goes up this

    [[Page 49]]

    year, which is a terrific situation, your eligibility for the
    premium tax credit will decline to some extent.
        Mr. MCDERMOTT. So anybody whose pay goes up this year and
    is getting subsidies will have a deduction or have a reduction
    in the subsidy at the end of the year?
        Mr. KOSKINEN. Correct. When they make their reconciliation,
    they estimated they were going to make $70,000, turned out they
    made $80,000, on their calculation on the forms we provided
    they will calculate what their premium for 2014 premium tax
    credit should be, and if the advance payment turned out to be
    larger because their income had gone up, they will make an
    adjustment on their return.
        Mr. MCDERMOTT. So how many people is this going to affect?
    How many people's income go up during the year?
        Mr. KOSKINEN. I am not sure anybody knows. We expect of the
    8 million people covered, we are probably going to have 3
    million or 3.5 million returns because you have families in
    that 8 million. And of those 3 million, 3.5 million, any number
    of them are likely to have had a change in family
    circumstances, a change in income. The income may have gone up,
    it may have gone down. I don't think there is any way that I
    know off the top of my head to tell you what percentage will be
    affected.
        Mr. MCDERMOTT. Suppose you have some problems--I guess my
    time is just about up--but if they have had some problems at
    the job and their income has now been reduced by $5,000 apiece,
    so they now are only making $60,000.
        Mr. KOSKINEN. Again, if they go back to the marketplace
    during the year, their advance payment will be adjusted in
    light of the new estimate of what they are actually going to
    make during the year. If they don't go back to the marketplace,
    when they file next spring, they will do a calculation and it
    will show that their premium tax credit amount they are
    eligible for is actually larger than the sum of the advanced
    payments that went to the insurance company and they will have
    an increase in their refund.
        So there is no penalty for not going back to the
    marketplace, but if you go back to the marketplace, it will be
    able to make an adjustment that gets you closer to what your
    actual tax return is going to look like next spring.
        Mr. MCDERMOTT. Thank you.
        Chairman BRADY. Thank you, Dr. McDermott.
        Mr. Johnson is recognized.
        Mr. JOHNSON. Thank you, Mr. Chairman.
        Good morning, sir. You know, you all promised Americans
    under the Affordable Care Act that they could keep their health
    plan and their doctor at a lower cost. But as my constituents
    are seeing, those promises are just empty promises. They are
    outright lies. The reality is that millions of Americans have
    lost their health care and are being forced by this Act to get
    plans with higher out-of-pocket costs and fewer doctors.
        And as you know, we are less than 4 months from the tax
    filing system, and unfortunately, Americans will face yet
    another hardship under Obamacare, because you can't file a
    simple tax form anymore. You've got to report your health care
    on it and you can't do that on a simple form. Is that true? In
    other words, will folks

    [[Page 50]]

    who are forced to pay more for health care and lose their
    doctor now be forced to file a more complicated tax return?
        Mr. KOSKINEN. Those who actually have gotten a premium tax
    credit will have a calculation they have to make for it. As I
    say, the vast majority of Americans are going to have, you
    know, we estimate 120 million, 125 million Americans are going
    to be affected by the Act by simply checking a box on their
    return. But anyone who actually has purchased a policy and is
    either claiming the premium tax credit or reconciling the
    advance payment they have already gotten, will have a more
    complicated process as they will have to make that calculation
    on their return.
        Mr. JOHNSON. So they can't file a simple form?
        Mr. KOSKINEN. So they will not be able to file the simple
    form.
        Mr. JOHNSON. So that is a hardship on America, isn't it?
        Mr. KOSKINEN. It's part of the obligation, if you have got
    premium tax credit advance payment, then you have to reconcile
    it at the end of the year.
        Mr. JOHNSON. Okay. Mr. Slavitt, under President Obama our
    national debt has reached a record high of almost $18 trillion.
    So one of the most important things we can do here in
    Washington is get the fiscal House in order. In April, the CBO
    and the Joint Tax Commission estimated that the Federal
    Government will pay $17 billion in 2014 for health insurance
    subsidies and over $1 trillion from 2015 through 2024. The GAO
    testified in a July hearing that they had obtained numerous
    policies through the Federal exchange using false identities,
    including made up or nonexistent Social Security numbers.
        Then the HHS Office of the Inspector General released a
    study of internal controls at select insurance exchanges, that
    report found that those exchanges were unable to validate the
    Social Security numbers and other eligibility requirements.
    Considering that nearly 87 percent of those who enroll in a
    plan through the Federal exchange receive a subsidy, that is a
    major concern.
        Can you respond to these findings and tell us exactly what
    you are doing about it, and are you personally following that
    issue?
        Mr. SLAVITT. Yes, Congressman Johnson. So there is a fairly
    extensive process when someone fills out an application to
    apply to the covered under insurance marketplace. For a typical
    family of four, they provide 21 pieces of information that we
    independently verify through our computer systems that link up
    to various government entities. If even one of those pieces of
    information, of those 21 pieces of information we cannot
    verify, for whatever reason, then it is our obligation to seek
    physical documentation from the individual to make sure that,
    in fact, what they are reporting, when this pertains to their
    income level, whether it pertains to their citizenship status
    or whatever the information happens to be, that we get
    verification.
        We have been contacting people extensively, in many cases
    with 10 or more outreaches, to ask them to submit the
    documentation so that we can be sure that all the information
    is coming in as accurate. It is, as you can imagine, a fairly
    extensive process. It is our first year doing it. It's the
    first year consumers have had to do it, and we are being, I
    think, fairly open about the fact that there

    [[Page 51]]

    are numbers of people who have inconsistent information that we
    have to match, and we are making that level of progress.
        Mr. JOHNSON. Thank you.
        Thank you, both, for being here.
        Thank you, Mr. Chairman.
        Chairman BRADY. Thank you.
        Mr. Thompson, you are recognized.
        Mr. THOMPSON. Thank you, Mr. Chairman.
        Thank you, both, for being here.
        Mr. Koskinen, I want to follow up on Mr. Johnson's question
    about the extra hoop that you have to jump through if you
    receive a subsidy. There isn't an easier way to do this? You
    have to elevate them to a completely different process for
    filing?
        Mr. KOSKINEN. It is a calculation. In other words, they
    have applied, as I discussed earlier, they have applied based
    on an estimate of what their income will be for 2014, those who
    have gotten----
        Mr. THOMPSON. So can this be an extra box to check or
    something on the short form?
        Mr. KOSKINEN. No, because you actually, if you got the
    premium, advance payment has gone to your insurance company,
    you have gotten that benefit. And what we need to do at the end
    of the year is reconcile--you need to do as a taxpayer is
    reconcile how much of an advance payment have you gotten
    compared to what you are actually entitled to. And what
    determines what you are entitled to is how much you actually
    made this year as opposed to what you estimated when you
    enrolled.
        Mr. THOMPSON. Let me ask a different way. Is this going to
    be an significant enough change to trigger some sort of
    elaborate filing, or is it something people can still do on
    their own?
        Mr. KOSKINEN. This should be something that people can do.
    The form, is the usual form. It is simply a calculation of what
    you earned, what you are eligible for, what you actually
    received. You will have the 1095-A that will give you the
    information you need to fill out that form. The vast majority
    of Americans----
        Mr. THOMPSON. Dr. McDermott had asked about individuals who
    either get a raise during the year or get a reduction in salary
    during the year and you explained--and it sounded to me like a
    pretty complicated process that these folks are going to have
    to go through. But are you doing something to educate people,
    to let them know that if they do have a change of income that
    they are going to have to proactively do something on their
    forms?
        Mr. KOSKINEN. Yes. As I noted, we have been talking about
    this in our public releases since the spring. Our Affordable
    Care Act site on the Web site has this information highlighted.
    We have been trying to continually remind people to make that
    adjustment, although it is not a requirement. If they don't
    make the adjustment, they make more money. When they make the
    calculation it will be a simple calculation. This is what I was
    entitled to and this is what I got.
        Mr. THOMPSON. I suspect that most folks after they sign up
    for health care aren't going back to review the Web site. They
    figure that they have done that and they are getting on with
    the other things in their life. So I don't know that merely
    putting something

    [[Page 52]]

    on the Web site is going to be enough. And it seems to me there
    ought to be some way to better educate folks what they may have
    to face in this process.
        Mr. KOSKINEN. Well, I am not a user of Twitter or Tumblr,
    so I can't tell you the reach of it, but we have YouTube
    videos, we have information that is going out on all the social
    networks and Web sites. As I say, we have talked to tax
    preparers across the country all year long about this.
        Again, to the extent they go back to the marketplace and
    make the adjustment, it means they will be closer in their
    calculation. But one way or the other, whatever they do----
        Mr. THOMPSON. Somebody ought to be thinking through this. I
    am not saying you are not. But somebody ought to be thinking
    through this, because when this hits, I don't think it is going
    to be enough to say I am not a user of Twitter or whatever. I
    think we need to figure out how to better educate folks going
    into this.
        Mr. KOSKINEN. Right. We are continuing to do it. We are
    doing the best we can. We are open to other suggestions, as I
    say. We have got what I call a full court press trying to get
    full information out to people, not only about the adjustments,
    but about how the calculation is made when they file their
    returns.
        Mr. THOMPSON. Mr. Slavitt, you have got pretty extensive
    private sector experience working in the technology industry,
    including working on components of HealthCare.Gov. And you now,
    in your current position, you are leading efforts related to
    marketplaces and other technology innovations. And given the
    issues that HealthCare.Gov experienced last year, which I add
    that you helped to fix, I am glad that you are there given your
    experience. It seems to me you probably know the right
    questions to ask.
        Looking forward to November 15, the next enrollment period,
    what are the markers or the benchmarks you are looking for to
    prove the system is ready for open enrollment?
        Mr. KOSKINEN. So Congressman, we are in a more favorable
    situation when we have a functioning Web site that is already
    up and running. Having said that, we have new functionality
    that needs to be added for open enrollment next year. So let me
    give you a little bit of a feel for how we are approaching
    that. First is, we are rolling out new functionality and adding
    it over the summer as opposed to all at once, and so that helps
    us ensure that we can put things into the marketplace and test
    them.
        Second thing, and I know we are over time, is that we have
    built a much longer period of time in for testing, because when
    software is built, people need to use it and pound on it before
    it can be rolled out. We are more fortunate this year in that
    we have more time. Having said all of this, I am a realist and
    we will not get it perfect, but we have, I think, the right
    processes in place to make it as good as it should be.
        Mr. THOMPSON. Thank you.
        Chairman BRADY. Thank you.
        Mr. Roskam, you are recognized.
        Mr. ROSKAM. Thank you, Mr. Chairman.
        Commissioner, the Congressional Budget Office estimates
    that there is going to be $1 trillion in Obamacare subsidies
    over the next 10 years, and that is just a huge pool of money,
    as you know.

    [[Page 53]]

    You said that those who simply check a box are going to be free
    from a level of scrutiny, which suggests that there is going to
    be a significant number of people who are going to be subject
    to scrutiny in terms of income verification and so forth. And
    it seems to me like the IRS is just poised to go swimming in a
    huge pool of money.
        So the question is, what are the things that are happening
    proactively to prevent the next Lois Lerner, Lois Lerner 2.0,
    from looking out of a landscape with a high level of
    discretion, to be able to say, you know what, we are going to
    make inquiries here and we are going to make inquiries there
    and we are not going to make inquiries over here. And you see
    where I am going.
        Mr. KOSKINEN. Right.
        Mr. ROSKAM. And there is a high level of suspicion.
        And also, I mean, you said you are meeting with IT people
    every 2 weeks, and I accept at face value that you need to meet
    with IT people every 2 weeks, but are these the same IT people
    that can't find Lois Lerner's emails and can't deal with hard
    drives? And so what level of confidence does the American
    public have as they are looking out and they are saying to
    themselves, holy Moses. I mean, when this institution, the
    Internal Revenue Service, reaches its long arm into our lives
    and grabs somebody by the neck and shakes them up, it gets
    people's attention and it can be incredibly damaging.
        Now, you know, the administration last year said we are
    basically going to do an honor system because it is too
    overwhelming. So what is the level of confidence that there is
    not an environment where Lois Lerner 2.0 is able to emerge?
        Mr. KOSKINEN. You have asked a set of questions, and let me
    try to deal with all of them. First of all, and we are trying
    to remind everybody of this, the inspector general who filed a
    report about the use of improper criteria said, to fix the
    problem there were a series of nine recommendations that the
    IRS should adopt. We have adopted and implemented all of those
    recommendations. In our normal exam process, there is no way
    that any individual can single out any taxpayer for review.
        Mr. ROSKAM. Why not?
        Mr. KOSKINEN. Because there is a review process.
        First of all, the first cut of the selection is made
    automatically by computer. To the extent, then, exams are
    decided, there are three people who meet and have to approve
    that; so that the system is designed and has been for some time
    so that no one can pick out an individual taxpayer for review.
    We have buttressed that with all of the recommendations the IG
    said we should do.
        Mr. ROSKAM. Wasn't that true, though, in the (c)4
    situation, where, I mean, look these are (c)4 applicants that
    rise to a level of scrutiny. They were presumably chosen by a
    computer by definition because they were (c)4 applicants, and
    then Lois Lerner makes decisions about, well, we are going here
    and we are going there. So you have got now another computer
    that is going to be deciding there is a threshold that the
    program presumably pops people up, and presumably those are
    people by your own definition who haven't checked the box.
        Mr. KOSKINEN. Right.

    [[Page 54]]

        Mr. ROSKAM. So now they are in open country.
        What prevents an IRS employee from saying, I am going after
    you?
        Mr. KOSKINEN. First of all, and I am waiting for the rest
    of the investigators to be completed, there is no evidence thus
    far that anybody picked an individual organization to be picked
    out. There were improper criteria to select an entire set of
    organizations. No individual organization was targeted.
        Mr. ROSKAM. You are not defending Lois Lerner?
        Mr. KOSKINEN. I don't know her, and I am not defending her.
        Mr. ROSKAM. I wouldn't give her eye contact, but go ahead.
        Mr. KOSKINEN. What I am trying to defend is that whatever
    the recommendations were the inspector general thought were
    necessary to fix the problem have been adopted, have been
    implemented, and I am confident that if people haven't learned
    any other lesson in the last year and a half they have learned
    this lesson, that we need to provide guarantees to the American
    public that they can be confident that whether it is the
    Affordable Care Act or any other part of the implementation of
    the Tax Code, if they hear from us, they are hearing from us
    for something in their return and that they have not been
    selected arbitrarily. If someone else had that same issue, they
    would hear from us as well.
        Mr. ROSKAM. Commissioner, my time is waning. Let me just
    impress upon you one point, that I know you are understanding
    what I am saying, but just unambiguously, this committee has a
    high level of scrutiny and a high level of expectation that the
    administration by the Internal Revenue Service of all elements
    of the Tax Code are unbiased and impartial, and it is a huge
    background to overcome because the American public is burned,
    and they are not going to put up with it.
        And so with that, I yield back. Thank you, Mr. Chairman.
        Mr. KOSKINEN. I would just say, we share that view with
    you; that is, that the American public deserves and needs to be
    confident that the IRS is a tax administration agency without a
    political agenda, without political connections. And we stand
    ready to work with this committee and every one of the members
    of this committee to do whatever we can to make sure that that
    happens.
        Chairman BRADY. Thank you.
        Mr. Kind, you are recognized.
        Mr. KIND. Thank you, Mr. Chairman.
        I want to thank our guests here for your testimony. And I
    would like to just echo Mr. Roskam's sentiment, Mr.
    Commissioner. We do expect impartiality and fairness from the
    IRS. I feel more confident with you in the seat right now with
    the overview and following the recommendations of the IG report
    that you have followed up, and I commend you for those efforts.
    But naturally, there is some credibility that has to be
    restored right now and we look, you know, forward to working
    with you in order to do that.
        Now, let's just back up and keep today's testimony a little
    bit in context. Commissioner Koskinen, you, again, in your
    opening testimony indicated that the vast majority of Americans
    were merely needed to just ``check a box,'' and they are going
    to satisfy what they need to do as far as showing if they have
    got health insurance in their lives. Is that correct?

    [[Page 55]]

        Mr. KOSKINEN. Correct.
        Mr. KIND. And can you break that down as far as percentage-
    wise, the number of Americans that are filing who just merely
    have to check the box and not do anything further?
        Mr. KOSKINEN. Because it is the first year of filing, it is
    hard to know with precision, but our best estimate is that out
    of 150 million returns we will process, 125 million will simply
    check a box.
        Mr. KIND. And that won't require a separate IRS form to do?
    It is built into the normal----
        Mr. KOSKINEN. The normal 1040 will have a box. I have
    looked at the line.
        Mr. KIND. If you are a recipient of some tax credit in the
    exchanges and that, there is a separate form for them to have
    to fill out in order to match up income verification for that
    purpose, right?
        Mr. KOSKINEN. That is correct.
        Mr. KIND. That won't be on a 1040-EZ; that requires a
    separate form?
        Mr. KOSKINEN. That requires a separate form that we have
    already provided, and we are trying to educate preparers and
    everyone else about how to fill it out.
        Mr. KIND. Mr. Slavitt, now, some of us had a recent meeting
    with Secretary Burwell, and she was trying to put the numbers
    in context, too. There is really two kind of reconciliations
    that are going on right now: One is income verification, but
    one is also citizenship verification, too. And she indicated
    that on the citizenship side there was initially 970,000
    discrepancies or so, but that number has been drastically
    reduced to about 220,000. Does that sound right to you?
        Mr. SLAVITT. Right. So I think, in August we had sent out
    about 310,000 letters informing people who we have had contact
    with on a number of occasions that we needed to receive
    documentation from them in order to maintain their policy in
    the marketplace. Since that time, and I believe the estimate
    that Secretary Burwell gave you was, since that time, as
    deadlines have tended to do for us, we have seen an influx from
    individuals, and so I think that that number has been dropping
    below 310,000 pretty meaningfully.
        Mr. KIND. And probably safe to assume that number is going
    to continue to go down as more people respond to the inquiries
    sent to them. Is that right?
        Mr. SLAVITT. That is right.
        Mr. KIND. Now, some of this might be a little confusing for
    some. Is there a role for the navigators to play in order to
    help these individuals to send the proper documentation in
    order to satisfy the requirements?
        Mr. SLAVITT. Well, we found in the first year that in-
    person assistance of a variety of types, navigators certainly,
    but also agents and brokers and others have a tremendous role
    to play in helping people through, whether it is that issue or
    even some of the issues that Commissioner Koskinen has
    addressed.
        Mr. KIND. Now, is that going to be true for income
    verification, or are there some privacy concerns that attach to
    that?
        Mr. SLAVITT. Regarding navigators, or regarding----

    [[Page 56]]

        Mr. KIND. Yeah, the role of navigators, someone assisting
    the individual to get proper documentation.
        Mr. SLAVITT. Yeah, I think that level of assistance is
    available to most people and they should take advantage of
    that. They also can call our call center directly and we can
    walk people through that process.
        Mr. KIND. You indicated that on average, the typical
    individual is getting about ten touches from you in order to
    match up the data that you have with what they are submitting?
        Mr. SLAVITT. That has been true for citizenship and
    immigration status, and for other categories it has been five
    or six.
        Mr. KIND. And what form of information are the individuals
    getting? Is it more detailed? It is not just a letter saying,
    hey, something doesn't match up, or is it this is what you are
    missing? Can you----
        Mr. SLAVITT. So we have tried reaching out to them with
    letters. We have also had the health plans directly reach out
    to them with some success, as well. And then where we haven't
    had success we have used the telephone, we have called them,
    and we have attempted to walk people through them. We
    understand that for a lot of people, this is their first time
    through a process like this, and sending information to some
    place that they are not familiar with isn't always the most
    comfortable thing.
        Mr. KIND. Commissioner Koskinen, back to you again, the
    income verification information you are looking for is really
    no different from what a typical taxpayer may have to do. If
    something doesn't match up with their income that they are
    submitting through the W-2 form or whatever, such as if they
    are missing a 1099 or something, they will get a notification
    from the IRS saying, hey, something doesn't match up here. Is
    that right?
        Mr. KOSKINEN. That is correct. Although, initially, we
    expect that, as with all tax returns, people will make that
    calculation themselves. As I say, when we all do our
    withholding, we make an estimate as to what we are going to end
    up owing and it always is a different number at the end and it
    is the same way here.
        Mr. KIND. And that has been going on for years and we
    haven't seen the demise of western civilization with that
    practice, have we?
        Mr. KOSKINEN. Not yet.
        Mr. KIND. Okay. Thank you. Thank you, Mr. Chairman.
        Chairman BRADY. Some would argue differently, Mr. Kind.
        Dr. Price, you are recognized.
        Mr. PRICE. Thank you, Mr. Chairman. I want to thank the
    witnesses as well for the information. I have found much of
    this fascinating.
        Our friends on the other side of the aisle seem to be
    waking up to the fact that it is a complex program that it is
    requiring things of Americans and patients across this country
    that haven't been required before and may be significantly
    problematic. In fact, the CEO of H&R Block, Mr. Koskinen, says
    that Obamacare would add significant complexity to the tax
    system, and I think that the questions from Mr. McDermott and
    Mr. Thompson actually outlined that. And Mr. Kind put the
    punctuation point on it, and that is that anybody who fills out
    their form today, tax form today, 1040-EZ, simple form, good
    thing for consumers, good thing for citizens,

    [[Page 57]]

    but if they have any change in their work status, any change in
    their income, will not be able to fill out the 1040-EZ. Is that
    correct?
        Mr. KOSKINEN. No. That is an overstatement of the
    situation. They will not be able to use the 1040-EZ if they
    have received an advance payment on a premium tax credit. A lot
    of people use the 1040-EZ who are going to be part of that
    125----
        Mr. PRICE. But those 25 million that you estimate, I
    suspect is going to be greater than that, because millions,
    tens of millions, if not over 100 million Americans see some
    change in their income----
        Mr. KOSKINEN. Right.
        Mr. PRICE [continuing]. Throughout the course of the year.
    The fact of the matter is that they are not going to be able to
    use the form that they used before, they will be required to
    use another form.
        Mr. KOSKINEN. That will be----
        Mr. PRICE. In fact, if they go to the site that you
    identify, that is not even done automatically, right? If----
        Mr. KOSKINEN. Right.
        Mr. PRICE. If they go to the marketplace, as you call it,
    go to the exchange now and they say, my income just went up, is
    that automatic?
        Mr. KOSKINEN. No. First of all, I would like to make it
    very clear: Millions of people use the 1040-EZ and they are
    going to continue to use the 1040-EZ. The people who are going
    to actually have to make a separate calculation are only those
    who actually get advanced premiums on the premium tax credit or
    are applying for the premium tax credit.
        Mr. PRICE. Millions of folks. Is it automatic when they go
    on the site and identify that they have in--either increased
    their income or decreased? Isn't that a manual process now?
        Mr. KOSKINEN. I don't know what happens on the Web site, so
    Mr. Slavitt would have to tell you.
        Mr. PRICE. Is that a manual process at this point?
        Mr. SLAVITT. If someone has a change in status of any
    variety, income, of several varieties, they have children, a
    divorce, a loss in the family, we ask them to come back to the
    Web site and update their information.
        Mr. PRICE. Is that a manual process now or is that an
    automatic process?
        Mr. SLAVITT. It is automated. Once they update it, it is
    automated.
        Mr. PRICE. I know you have only been with them for 2 months
    now, and I won't hold you to account on that, but please go
    back and check.
        Mr. SLAVITT. Okay.
        Mr. PRICE. Let me get some basic information, Mr. Slavitt.
    How many folks are enrolled through the exchange?
        Mr. SLAVITT. As of the end of the last open enrollment
    period, there were--I think the number was some 8 million
    people that had enrolled in coverage.
        Mr. PRICE. How many?
        Mr. SLAVITT. Some 8 million had enrolled in coverage.

    [[Page 58]]

        Mr. PRICE. 8 million. How many of those folks had insurance
    coverage before?
        Mr. SLAVITT. I don't know.
        Mr. PRICE. You don't know.
        Mr. SLAVITT. I don't.
        Mr. PRICE. HHS doesn't know how many folks had coverage
    before but now were forced into the exchange?
        Mr. SLAVITT. We do know that we have seen the uninsurance
    rate drop significantly in the second quarter. I think that
    tells us that there are a lot of people through the exchanges
    or through Medicaid----
        Mr. PRICE. Wouldn't it be helpful to know how many had
    insurance before to see whether or not the system's working?
        Mr. SLAVITT. Sure. We also--that is fair. We also don't
    want to overburden people by asking them needless questions
    when they are applying for insurance.
        Mr. PRICE. Well, we ought to poll the American people as to
    whether or not you are asking them needless questions.
        How many folks had coverage through the workplace before
    the Affordable Care Act went into effect?
        Mr. SLAVITT. I don't know the exact number. I believe some
    96 percent of people who have coverage have it through their
    workplace. I haven't seen----
        Mr. PRICE. 159 million sound somewhere in the range?
        Mr. SLAVITT. Sounds--sounds right.
        Mr. PRICE. How many folks have coverage through the
    workplace now?
        Mr. SLAVITT. I haven't seen an updated study.
        Mr. PRICE. Well, I would urge you to look. Again, I know
    you have only been there for 2 months and it is a lot of
    numbers, but that number has gone down.
        Mr. SLAVITT. We will do, Congressman.
        Mr. PRICE. So the place where folks have been getting their
    coverage that has worked for them for years and years and years
    has decreased the numbers of individuals.
        You talk about costs going down. In fact, costs are
    actually going up, by HHS's own admission. Average of 7 percent
    increase in premiums in the next year. With the higher
    deductibles that folks are having, paying--the deductibles for
    many people now are between $4,000 and $12,000 a year. Let me
    suggest to you that an individual making $50,000 a year, a
    family making $50,000 a year who has a $6,000 to $8,000
    deductible, that is not a person who can afford a $6,000 to
    $8,000 deductible. That is how you have shoved everybody into
    these programs.
        The increase in bad debt in physician's offices across this
    country in the exchange is up 60 percent, 60 percent. Those
    folks are going to have to figure out what to do, and it is not
    going to be able to continue to provide coverage for people.
        I want to touch on identity theft. You all had a hacker
    break into the system, correct, in July?
        Mr. SLAVITT. That is correct.
        Mr. PRICE. When did you know that?
        Mr. SLAVITT. August 25th.
        Mr. PRICE. When did you notify the Federal authorities?

    [[Page 59]]

        Mr. SLAVITT. I believe it was within 10 days or so of that.
        Mr. PRICE. When did you notify the insurers that were
    participating in the exchange and covering those lines?
        Mr. SLAVITT. At the very same time. There was no impact to
    the insurers, but at the very same time.
        Mr. PRICE. The fact of the matter is, as you should know,
    is that the insurers found out about this through the press,
    through the press. If we are going to protect people's personal
    information, especially as it relates to health care, and not
    notify those individuals and not notify the insurers who are
    trying to protect as hard as they can the information that they
    have, this is unconscionable. This is what the American people
    are concerned about.
        Mr. SLAVITT. Congressman----
        Mr. PRICE. I think that we have underscored once again the
    challenges with this law, and urge you to get the facts, look
    objectively. You spent a significant amount of time in United
    Health Care and Optum. You--talk to those folks. I have talked
    to them recently. The fact of the matter is what CMS is doing
    right now, what HHS is doing right now with the ACA isn't
    working in the real world. I would urge you to talk to your
    former colleagues. They will shed a whole lot of light on what
    is going on.
        Mr. SLAVITT. Congressman, thank you. You want you to know I
    did personally call a representative of the Insurance
    Association to inform them.
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        Chairman BRADY. Thank you, Dr. Price.
        Mr. Pascrell, you are recognized.
        Mr. PASCRELL. Thank you, Mr. Chairman, very much.
        Look, Commissioner, you know what is going on here. If you
    can't shoot the dog, starve it. That is what this is all about.
    In the budget itself, in the budget itself, the House bill as
    amended for the appropriations, the total IRS funding in 2015
    would be about $9.8 billion, which is 19 percent below 2010,
    when the ACA became the law of the land. So we are--in every
    manner, shape or form, in every hearing that we have had here,
    and I have a great respect for every Member of our side as well
    as the other side, but we know what it is: Starve it and it
    will go away, it will disappear, it will die.

    [[Page 69]]

        I mean, there are some great things that are happening in
    the ACA, even to--its detractors know that. They won't admit
    it. They will not admit it.
        So we know how many people we have enrolled, and we know
    how many people have received tax credits. We are trying to
    verify all of them, which is true. You want to know the mess we
    had 10 years ago on the prescription drug bill? Nobody wants to
    talk about that. This is half a story you get here, and there
    is a reason: We are going to starve the dog. We are not going
    to shoot it, because they haven't found the way to do that,
    either. And, again, 6 million more people are enrolled in
    Medicaid. Or the Children's Health Insurance Program, you don't
    want to talk about that, do you, what you have done to it?
        So the United States uninsured rate continues to decline.
    It is about 13.4 percent now. Correct me if I am wrong,
    gentlemen.
        Mr. SLAVITT. That is correct.
        Mr. PASCRELL. Thank you. Before the ACA, many people were
    paying for plans that didn't provide them with the coverage
    they needed. Some of these people that have lost their coverage
    are better off now because they had to go into the exchange and
    they got better plans. Let's talk about that. And for those who
    are falling through the cracks, we have an obligation to them,
    too. Nobody's denying that.
        I like to talk about this at town meetings. I hope you do,
    too. And I am sure you will be objective and tell the good with
    the bad.
        Americans are denied coverage for pre-existing conditions
    and insurance companies arbitrarily increase their premiums to
    the point where they can't afford it. You talk about 7 percent
    increase. I will tell you what the increases were for each of
    the last 5 years.
        My Republican colleagues refuse to acknowledge any benefits
    that have resulted from this law. And it is not a perfect law,
    Mr. Commissioner. We have never passed a perfect one, believe
    it or not.
        Unlike the Part D Medicare prescription drug plan, where
    Democrats who voted against the bill came together and helped
    educate and enroll seniors, I voted against that, but I went
    back to my district to initiate those folks, the seniors, with
    what this plan was all about, they have done nothing to do
    that. They haven't cooperated in the least.
        So my question to you is this, Mr. Commissioner. And thank
    you--I was here the last time you were grilled, and you handled
    it very, very well, you kept your cool. Continue to keep your
    cool, Mr. Commissioner.
        My Republican colleagues are fond of attacking the Obama
    administration at every step of the Affordable Care Act's
    implementation. They have expressed outrage over the delays,
    but at the same time, refused to give the agencies the funding.
    That is a big cut, 20 percent. The House appropriations bill
    for fiscal year 2015 that would set the funding at 19 percent
    below what it was 4 years ago.
        Mr. Commissioner, can you explain how budget cuts have
    affected your agency's ability to implement the ACA?
        Mr. KOSKINEN. We view, as I have said on numerous occasions
    in the past, implementing the Foreign Account Tax Compliance
    Act, FATCA, and the Affordable Care Act are statutory mandates

    [[Page 70]]

    that we have an obligation to implement, so whatever else it
    means we are not doing, we are going to implement both Acts
    this year in the filing season. As I noted, by not providing
    the $430 million for fiscal 2014 or the $450 million for fiscal
    2015, it simply means that we have to take that money from the
    other places we have available.
        Mr. PASCRELL. So therefore----
        Mr. KOSKINEN. It is either enforcement, taxpayer services,
    or continued improvement in----
        Mr. PASCRELL. So you are moving dollars around?
        Mr. KOSKINEN. We have to move the dollars around.
        Mr. PASCRELL. The Affordable Care Act, Mr. Chairman, so far
    has had little impact on the insurance people get through their
    jobs, with roughly the same share of employers offering
    coverage in 2014 as last year, to correct the record.
        Chairman BRADY. Thank you, Mr. Pascrell.
        Mr. PASCRELL. May I just finish my point?
        Chairman BRADY. Very quickly.
        Mr. PASCRELL. As you have allowed other folks to. I
    appreciate that.
        Chairman BRADY. No. We have been--I tell you what, we have
    been very close to time on everybody. And certainly finish.
        Mr. PASCRELL. And you have been very, very charitable in--
    --
        Chairman BRADY. Thank you, sir.
        Mr. PASCRELL [continuing]. With all of us. Thank you.
        The employer sponsored health insurance premiums were
    rising about 3 percent. I would like to enter this report from
    the Kaiser Family Foundation on employer health benefits since
    that seems to be of interest to my friends on the other side.
    Thank you, Mr. Chairman.
        Chairman BRADY. Without objection.
        [The information follows: The Honorable Bill Pascrell]

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        Chairman BRADY. Mr. Buchanan, you are recognized.
        Mr. BUCHANAN. Thank you, Mr. Chairman. I also want to thank
    our witnesses for taking their time to be here today.
        Mr. Commissioner, let me just ask about subsidies people
    have brought up. One of my colleagues mentioned about getting a
    $5,000 increase, but what happens--at least in Florida, I see a
    lot where you have realtors that are independent contractors,
    you have a lot of people that have a minimal salary but they
    are on commission, or you have minimal salary where they get
    subsidies, but they

    [[Page 79]]

    might get a year-end bonus. How do you address that? Or
    somebody, for example, that one year as a realtor where real
    estate hasn't been great for a period of time, but Florida is
    back now, was making $30,000 a year, now he might make $100,000
    this year, the next year make $30,000. How do you deal with--
    you know, I would say that is a large percentage of people that
    are employed in America are in those circumstances where they
    don't have a fixed salary at $60,000 a year. They might earn
    $70,000, but it is based on how they do over the year----
        Mr. KOSKINEN. Right.
        Mr. BUCHANAN [continuing]. In terms of bonus, commissions
    or other things. How do you address that in terms of subsidies
    one year making $30,000 and the next year making $150,000 the
    following year making $30,000?
        Mr. KOSKINEN. Those--it is a situation many people face.
    They face the same issue when they file their estimated taxes
    or make W-2 determinations. They make an estimate, their best
    judgment as to what they are going to owe in taxes. Everybody
    tries not to owe taxes at the end of the year, so over 80
    percent of the people who file actually get refunds every year.
    And so they are going to make the same kind of judgment here.
    They have to make an estimate when they file for withholding or
    when they file estimated taxes, they have to make an estimate
    here if they are going to apply for the premium tax credit. At
    the end of the year when they file their tax return, much as
    when they reconcile their income generally on their overall
    taxes, they will make a reconciliation as to whether they got
    too much or too little on their premium tax credit in the
    advanced payment.
        Our expectation is, just as people adjust their estimates
    for withholding, and they usually over withhold to make sure
    they take into that account, that we expect that a lot of
    people when they make their estimates, if they are fluctuating
    like that, will estimate on the low side, will have a lower----
        Mr. BUCHANAN. Well, it sounds like you have got a pretty
    good handle on, you know, all these variations of
    possibilities.
        Mr. KOSKINEN. Well, we expect them to kind of mirror the
    normal variations people make when they have to estimate how
    much to pay in estimated----
        Mr. BUCHANAN. Thank you. I want to kind of move over to Mr.
    Slavitt real quick.
        You have been in the healthcare-related industry for how
    many years?
        Mr. SLAVITT. 20 years.
        Mr. BUCHANAN. Yeah. Let me just tell you, as someone that
    has been in business before I got here 30 years and bought a
    lot of health care for a lot of employees, I think we have got
    quality health care, but it is--my biggest concern is cost. I
    think it is--everybody likes to talk about the middle class, I
    grew up in the middle class, but it is bankrupting the middle
    class, cost. It is not unusual in my area, I represent a part
    of Florida, but I am the only member in Florida, where you have
    someone between 50 and 65 years old, I do a lot of town halls,
    that are talking their costs for them or maybe their employees,
    but ideally for them and their family of four could be as high
    as $2,000 a month. That is not unusual,

    [[Page 80]]

    $1,500 to $2,000. So I am very concerned about health care in
    general, and I see the costs continuing to go up. As someone
    that has employed a lot of people or I talk to a lot of people
    back in the district, they get a bill every year, even since
    the ACA, going up 10 to 20 percent a year, cost of living is 2
    to 3 percent, and this has been going on for, it seems like, 10
    or 15 years. It is one of the biggest concerns we have got, is
    health care. It is not that we don't have good providers, but
    the cost is bankrupting, in my opinion, the middle class. What
    do you say to that? Do you think--do you share that concern.
        Mr. SLAVITT. Yes. Congressman, you are--you are exactly
    right. You know, affordability----
        Mr. BUCHANAN. I don't use the term ``bankruptcy''----
        Mr. SLAVITT. Right.
        Mr. BUCHANAN [continuing]. Lightly, I am an optimist, but
    it does concern me when people are paying $1,000 to $2,000 a
    month for health care along with all their other costs, and I
    don't see that changing.
        Mr. SLAVITT. Yes.
        Mr. BUCHANAN. Go ahead.
        Mr. SLAVITT. Yes. Congressman, affordability is one of the
    three critical pillars of our implementation, along with
    quality and access. And I think there are a couple things that
    are, I think, highly encouraging, although early still: one is
    that the premium levels that people are paying are at much more
    affordable levels; second is I think those in business and
    those who are individual health plan members for some time are
    used to things like double digit rate increases. And I think,
    you know, the five or six States that have publicly put forward
    the rates that they are going to have for 2015 are all in the
    range of single digits. I think Arkansas was a couple percent,
    I think Delaware was a couple percent, I think California was 4
    percent. So these are relatively----
        Mr. BUCHANAN. I would take--just do me a favor and take a
    look at Florida. I have met with one of the largest providers
    in the State and did a lot of our stuff, one of the largest,
    met with the CEO for the State.
        Mr. SLAVITT. Yep.
        Mr. BUCHANAN. And, you know, they are talking--I don't know
    what they are going to be. It is going to 20, 40 percent. They
    are losing a lot of money, because they have got the sickest in
    Florida, a lot of them that are joining up and they are very
    concerned. They used to make tens of millions, now they are
    making zero. So I can see what is going to happen to--you know,
    from that standpoint, so I am very concerned about that.
        Let me mention one other thing I wanted to bring up. The
    insurance companies in our State have been in to see me that
    they are looking to the Federal Government, because they were
    promised or felt they were promised that they would make a
    certain return or somehow the government would underwrite their
    losses. What is your sense of that? Is there any--are insurance
    companies going to have the opportunity to come back to the
    Federal Government and get subsidized somehow?
        Mr. SLAVITT. So let me follow up in writing, given that I
    am out of time, but, no, that is--that is not going to be the
    case.

    [[Page 81]]

        Mr. BUCHANAN. That is what they are looking for.
        Chairman BRADY. Thank you. Time has expired.
        Mr. Blumenauer is recognized.
        Mr. BLUMENAUER. Thank you, Mr. Chairman.
        Commissioner, I appreciate your coming back for another
    round.
        Mr. MCDERMOTT. You might push your mike.
        Mr. BLUMENAUER. My mike was on. It is not----
        I will try Mr. Pascrell's, not that he needs a mike.
        Chairman BRADY. It always seems to work.
        Mr. BLUMENAUER. That is right.
        Mr. MCDERMOTT. He turned that off.
        Mr. BLUMENAUER. Mr. Commissioner, I appreciate your joining
    us for another round. I particularly appreciate the end of your
    testimony where you were talking about needing the resources to
    be able to meet the needs of people, not just with the
    Affordable Care Act provisions, but just the ongoing challenges
    of trying to administer an IRS Code that Congress repeatedly
    makes more complex. No IRS employees are complicating the Code.
    That is our job.
        I had the occasion last month to just sit down in a large
    sort of brown bag discussion with your employees in Portland,
    and I was--I was struck by how frustrated they are. They don't
    want people on hold for 45 minutes. They want to be able to
    meet their needs. And I would just urge you to be relentless in
    driving this point home that we can't continue to cut the IRS
    budget, reduce staffing, make the Code more complex, and then
    beat up on the IRS and still expect that we are going to keep
    the highest compliance rate in the world for over 150 million
    taxpayers. I appreciate your forthrightness, and I would just
    encourage it.
        And I would hope that individual members of this committee
    in particular could sit down in a shirtsleeve session off the
    record, no cameras, and just meet with the men and women who
    are trying to meet the needs of our constituents. I have found
    it instructive every time I do it, and I think maybe if more of
    our members did that, we might look at the budgeting a little
    different.
        But I would just say, Mr. Chairman, I appreciate your
    ongoing efforts and your evenhandedness, even allowing us to
    slide over for a second or two, and your good humor. I also
    appreciate that you have been looking at a draft kind of tying
    together some elements that a number of us have co-sponsored on
    the committee, good work from Mr. Roskam, Mr. Gerlach.
        I have indicated in the past that I hope we can shift gears
    and get to the point where we can actually have hearings on
    things that can pass and don't have anything to do with the
    Affordable Care Act. I would note the legislation I have with
    my good friend Dr. Roe helping make sure that end of life care
    has a value. And we put it in the Affordable Care Act. It
    somehow wasn't included in terms of reconciliation. But in
    terms of what we do with Medicare, card identification, the
    secure card, the Prime Act, Congresswoman Black and I have some
    legislation dealing with value-based insurance. There is a
    whole host of things that we could be making progress on. Put
    them on the floor. They will pass. They will make the system
    better. They are not going to make the nightly news, but
    collectively we will be doing our job. And I hope we can
    minimize hearings that are just beating up on people for things
    beyond

    [[Page 82]]

    their control, that actually we kind of make their job harder,
    and that we get down to cases.
        I appreciate the draft that you are circulating. I look
    forward to supporting it. And the other references that I have
    made of bipartisan legislation that will make a difference,
    that can be approved, they could--some of these could roll out
    before we adjourn for October, and certainly in the lame duck
    when we will be standing around trying to figure out what to
    do, waiting for the powers that be on the big stuff, we could
    get some good things going and give Congressman Gerlach a
    going-away present with important legislation that will make a
    difference.
        Thank you, Mr. Chairman. Again, I appreciate your good
    humor and your evenhandedness, and I would respectfully request
    that maybe we could put that to work on some legislation that
    will pass before we adjourn for the year.
        Chairman BRADY. Thank, Mr. Blumenauer. I want to--I share
    your belief that while we have very strong differences on the
    Affordable Care Act, and a hearing like today is really about
    finding out what our families and patients and taxpayers have
    to face in the second year, there are legitimate questions that
    need to be asked. But we are also trying to create a climate
    where we can take the good work that is being done by these
    committee members on all those areas that you have an interest
    in, I think we have a bipartisan interest in, in legislation
    and move that forward. So we have got some work to do in each
    of those areas. We are trying to work through these final
    points, for example, on the--our fraud, bipartisan fraud bill
    and some other issues as well. So look forward to working with
    you. Thank you.
        Now, Mr. Smith, you are recognized.
        Mr. SMITH. Thank you to our witnesses today for your time
    here and sharing your insight and expertise. I think between
    the two of you, you do have vast insight, perhaps Mr. Slavitt,
    you bring some objectivity as a relatively new employee over at
    CMS.
        Let me start. Commissioner Koskinen, the waivers that are
    offered by HHS or CMS, does IRS keep track of those waivers?
        Mr. KOSKINEN. Yes. We have got a very, I think, positive
    working relationship with HHS and CMS. And to the extent that
    exemptions or waivers are created, they get built into our
    system as well, and so we are--we need to be aware of those,
    because obviously when people file their taxes, that we have a
    form that allows them to identify the exemption that applies to
    them.
        Mr. SMITH. What percentage of the American population files
    a Federal tax return?
        Mr. KOSKINEN. Well, that is a very good--a good question,
    because if you are below a certain income level, you are not
    required to. We have 150 million returns that are filed every
    year, and it is obviously the vast majority. I would be happy
    to get back to you, because I have never actually asked that
    question as to how many people do not have to file a return.
        Mr. SMITH. I mean, because we have heard earlier that, you
    know, there are so many great and wonderful things that have
    come about, and yet we know that the enforcement of and the
    benefits perhaps to some, benefits of the healthcare situation
    here are offered through the Tax Code. So are there concerns
    that perhaps

    [[Page 83]]

    there might be some beneficiaries out there who would not see
    the benefits or the complications associated along the way?
        Mr. KOSKINEN. Thus far, our experience has been, as a
    general matter, and there are a number of tax credits that have
    been written into the Tax Code that we administer, the vast
    majority of people take advantage of those credits. We do run
    the earned income tax credit program, and part of our goal
    there is to make sure everybody who is eligible for the credit
    knows about it and uses it. In that case, about 80 percent of
    the eligible people for the earned income tax credit actually
    take advantage of it. So I am sure if everything continues to
    go as it usually does, there will be some people who are
    eligible for the premium tax credit and support for health care
    who may not take advantage of it.
        Mr. SMITH. Okay. Thank you.
        Mr. Slavitt, let's talk about the individual mandate
    briefly. Can you give us an update on the individual mandate?
    Obviously the administration is choosing to stick with the
    individual mandate in contrast to delaying the employer
    mandate. Is that accurate?
        Mr. SLAVITT. The individual mandate, yes, is law and we
    are--we are administering and implementing the law that way,
    yes.
        Mr. SMITH. And what would you say is a rough, I am not
    expecting exact, but a rough compliance rate with the
    individual mandate?
        Mr. SLAVITT. I don't think that will be known until after
    we get through the year and through tax season, but in any
    event, I don't have an estimation, and I would be happy to try
    to get one to you, if it is possible.
        Mr. SMITH. So penalties being levied would take place when?
        Mr. SLAVITT. I think through the Tax Code, is my
    understanding.
        Mr. KOSKINEN. It would be--it would be this year. There is
    no----
        Mr. SMITH. No. I know. That--that is the how; but the when.
        Mr. SLAVITT. During the tax filing season.
        Mr. KOSKINEN. It will be when you file your return, on the
    1040-A, you will check either I have got coverage or I have a
    premium tax credit.
        Mr. SMITH. Wait. We are through one tax-filing season where
    that question has been asked, correct?
        Mr. KOSKINEN. No. It did not apply last year. So the 2014
    filing season for tax year 2013 did not have any requirement
    for individual shared responsibility payment. The first time it
    will take effect----
        Mr. SMITH. But the question was asked about health care,
    was it not?
        Mr. KOSKINEN. No. In other words, the tax returns last year
    did not have Affordable Care information in them.
        Mr. SMITH. Okay. So--but then in this next tax-filing
    season, it will.
        Mr. KOSKINEN. This coming spring for the 2014 tax year, we
    call it filing season 2015, because----
        Mr. SMITH. Okay. If someone marks ``no,'' can you share
    what happens from that point forward?

    [[Page 84]]

        Mr. KOSKINEN. Yes. If you mark on your return that--``no,''
    and you don't--aren't eligible for an exemption or a waiver,
    and there is a form you can fill out, then what happens is you
    will do a calculation and you will have the responsibility, the
    additional tax for this year is the $95 per individual capped
    at $250, give or take a little, for a family.
        Mr. SMITH. Would that be considered a penalty?
        Mr. KOSKINEN. Well, it is an additional tax. You can call
    it, you know--you can call it a penalty. Whatever it is, you
    will owe that amount of money.
        Mr. SMITH. It is avoidable, you are saying?
        Mr. KOSKINEN. Pardon?
        Mr. SMITH. It is avoidable?
        Mr. KOSKINEN. It is not avoid--it is avoidable if you are
    eligible for an exemption, and there are a significant number
    of exemptions available for people who don't--who had short--
    lack of coverage for less than 3 months, people who have
    particular hardships can provide that information, some
    religious affiliations will be able to provide that
    information. There are a series of exemptions. So it is
    avoidable to that extent, but if you don't qualify for an
    exemption, then you will owe the additional tax.
        Mr. SMITH. Thank you. I yield back.
        Chairman BRADY. Thank you.
        Ms. Black is recognized.
        Ms. BLACK. Thank you, Mr. Chairman. Thank you for holding
    this very important hearing. I appreciate being a non-member of
    this committee and having an opportunity to be able to ask the
    witnesses questions. And thank you, by the way, for being here.
        Commissioner, I want to go back to a line of questioning
    that my colleague from Florida was talking about in relation to
    income accuracy in the filing process. And I think that I have
    probably--I think I remember bringing this up the last time we
    had a hearing on the oversight, and that was the idea of the E-
    FLEX Coalition.
        Mr. KOSKINEN. I am sorry. E-FLEX----
        Ms. BLACK. The E-FLEX Coalition made a specific
    recommendation to make the administration of the tax credits
    more accurate. They suggested, and I quote, their suggestion
    is, ``giving employers the option to prospectively file
    information with the IRS about the coverage available to
    employees through an annual certification process.''
        Their letter went on to say, we believe that it is in the
    collective best interests of individual Americans, the
    employers and the administration to ensure accuracy--which is
    what my colleague was talking about--on such upfront
    determinations to avoid the subjecting of individuals to
    unexpected payments of any credits for which the exchanges
    incorrectly deemed them to be eligible.
        Now, the Treasury during the rule writing process rejected
    that recommendation. Do you believe, given what we are going to
    be seeing, as my colleague referenced, that sometimes the--
    especially for those that are in sales where their income may
    be here and the next year it might be down here, that it would
    be helpful to have that information prospectively?

    [[Page 85]]

        Mr. KOSKINEN. Well, tax policy matters are determined by
    the Treasury Department and the Congress. We are just the tax
    administrators, so we follow whatever the rules are.
        As I noted, every taxpayer makes an estimate in advance as
    to what their income is going to be in the following year and
    then they reconcile it when they file their tax return and they
    know exactly what they earned. Where taxpayers have variety and
    they have bonuses or they are on commissions, in the normal
    process of filing their taxes, they make estimates, and they
    generally make estimates trying to make sure that they don't
    owe any more tax than usual, which means that is why most
    people get a refund.
        We expect that with regard to those who qualify for the
    premium tax credit and are applying for an advanced payment,
    they will adjust and make the same kinds of estimates that they
    make for their withholding purposes.
        Ms. BLACK. But the system is more complicated when you are
    having to go back and figure out, okay, do taxes. Now, let's
    just say someone has earned more than what they anticipated.
    Will there be a call-back?
        Mr. KOSKINEN. Not a call-back. If you have earned more than
    you anticipate and you have been getting you advanced payment--
    --
        Ms. BLACK. Right.
        Mr. KOSKINEN [continuing]. Paid to your insurance company,
    the payment doesn't come to you, at the end of the year, if
    you, in effect, have claimed more of a credit that has gone to
    your insurance company, you will either have a smaller refund
    or more tax owed, yes.
        Ms. BLACK. So it will just be withheld from them. That
    won't be--let's say that they don't owe--or they are not due a
    return. And so what will happen then, because you can't
    withhold something from someone who wasn't due a return? How
    will you retrieve the money that has been paid out for an
    advanced tax credit?
        Mr. KOSKINEN. They would be treated the same way any tax
    collection process. We would match up, we would determine if
    there is an amount owed. The first thing we usually do is send
    people a letter saying we see a discrepancy in your return. Can
    you explain what the issue is.
        In fact, I would just make a plug here. We are trying to
    make people understand. We contact taxpayers by letter first.
    So if you are hearing from us by phone for the first time, the
    chances are pretty good you are not hearing from us. There is a
    significant amount of tax scamming going on that we are
    concerned about.
        But in any event, we would advise the taxpayer. And they
    would be treated the same way any taxpayer was who had an
    amount owing, or at least some apparent discrepancy in what
    they filed and what they owed.
        Ms. BLACK. It seems so complicated. It seems to me it would
    almost be better for us to say, what was your income this year,
    and then having the filing date maybe 2 months after they know
    what their income is at the end of the year. So moving the
    signup to maybe February so they know what their income was
    last year and you can go on that, but it seems like a very
    complicated system.

    [[Page 86]]

        Let me go to Mr. Slavitt on an issue that you did actually
    mention, and that was the end-to-end testing. And we know that
    the end-to-end testing is a critical step in preparing for that
    successful 2015 open enrollment. Last year the testing occurred
    far too late, and we know that there was not time to correct
    those problems. And so you did mention that there is a new
    functionality and you are going to be rolling that out over the
    summer. Does this include testing of the auto enrollment
    renewal transaction process as well?
        Mr. SLAVITT. Yes, Congresswoman, that will be tested. I
    believe it is slated in October.
        Ms. BLACK. Slated in October.
        Mr. SLAVITT. Yeah.
        Ms. BLACK. So that is--the----
        Mr. SLAVITT. The auto----
        Ms. BLACK [continuing]. Signups--okay. And the signups will
    begin when?
        Mr. SLAVITT. So recall that the auto enrollment
    functionality will occur in December----
        Ms. BLACK. In December. Okay.
        Mr. SLAVITT [continuing]. Because that is when----
        Ms. BLACK. You won't test it until November?
        Mr. SLAVITT. We will be--so to give a quick overview of the
    process, and I know I am over time, people will have--the
    beginning of open enrollment is November 15th. People will have
    an opportunity to come back, shop, and select a plan. The
    functionality you are referring to is what do we do in the
    occasion when somebody is enrolled in a plan----
        Ms. BLACK. Right.
        Mr. SLAVITT [continuing]. But doesn't come back.
        Ms. BLACK. Right.
        Mr. SLAVITT. December 15th, we will automatically enroll
    them in their existing plan, presuming that that plan is still
    offered through the marketplace.
        Ms. BLACK. But you are doing some testing on that as well?
        Mr. SLAVITT. We will--we will test, we will test
    everything.
        Ms. BLACK. Okay. So have you worked with the insurers on
    this testing?
        Mr. SLAVITT. So our initial testing with insurers actually
    is beginning this week with a group of insurers we call alpha
    insurers, and then in early October, we will invite all the
    insurers to begin to do their testing, end-to-end testing with
    the goal to make sure that when someone comes through the
    process, at the end of it, they get an 834 and they can return
    one back to us.
        Ms. BLACK. Okay. Thank you very much.
        Thank you, Mr. Chairman.
        Chairman BRADY. Thank you, Ms. Black.
        Commissioner Koskinen, I just want to follow--I am not sure
    we got a clear answer on one part of Representative Black's
    questions. If your income changes or if some reason there is an
    overpayment of subsidies, there is a cap on your overpayment
    depending upon your income, but if you were given, for example,
    affordable--offered affordable insurance at work and you don't
    take it, you are not eligible period. The law is very clear
    that all of that must be repaid.

    [[Page 87]]

    Will you be following--following the law in the collection of
    that in that instance in the ineligible subsidy?
        Mr. KOSKINEN. Yes. If somebody is ineligible and has
    received a credit, they will be treated the way anybody else
    would be in our compliance process.
        Chairman BRADY. No, no, no. The question was, the law in
    that case, there is not a cap. All of the subsidy must be
    repaid. Will you be following the law in that recapture?
        Mr. KOSKINEN. Yes. Wherever we can, we follow the law.
        Chairman BRADY. Whenever we can. I encourage you to follow
    the law----
        Mr. KOSKINEN. Right.
        Chairman BRADY [continuing]. In all instances. And I had so
    many things going through my mind at that point. Commissioner,
    thank you for being here.
        Mr. Slavitt, I know my office has reached out to you as
    well from a letter that Ms. Black, myself and others sent to
    Ms. Tavenner in August regarding the issue of the abortion
    surcharge, if you recall from the law that was a sensitive
    issue. The resolution was that consumers could know which plans
    provided those services, to choose one or the other, and if
    they did, there would be a separate charge to that. That was
    very clear. We sent a letter asking for a written response from
    the agency. I would encourage you to encourage the agency to
    respond as soon as possible.
        Mr. SLAVITT. Yes, chairman. We are--we have the letter.
        Chairman BRADY. Great.
        Mr. SLAVITT. We are working on it.
        Chairman BRADY. Great. Thank you very much.
        I want to thank the witnesses for being here today. There
    are still a lot of questions dealing with the law going
    forward, but we will work together on this.
        I do want to recognize Dr. McDermott for a special notice.
        Mr. MCDERMOTT. Thank you, Mr. Chairman. Before we close the
    hearing, I would like to say a few words about a departing
    staff member, Askia Suruma is leaving the committee after 21
    years in Congress--or working for Congress. He is the staff
    director of the Democrats on the committee and the staff
    director on the Oversight Committee. Prior to coming to this
    committee, he was a staff director--senior staff director for
    the Rules Committee and worked with Martin Frost from Texas. He
    is leaving to go to George Washington University, and we are
    grateful for his time here and wish him all the best, and
    please join me in thanking him.
        [Applause.]
        Chairman BRADY. Thank you for all your hard work.
        With that, the witnesses, members do have 14 days in which
    to submit questions. Encourage the witnesses to respond as
    quickly as possible. Again, thank you for being here today.
    Hearing is adjourned.
        [Whereupon, at 11:45 a.m., the subcommittee was adjourned.]

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