[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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                      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










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                            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.

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    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.
    [The prepared statement of Mr. Slavitt follows:]

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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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