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








                       VERIFICATION OF INCOME AND
                      INSURANCE INFORMATION UNDER
                        THE AFFORDABLE CARE ACT

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

                             JOINT HEARING

                               before the

                       SUBCOMMITTEE ON OVERSIGHT
                                  AND
                         SUBCOMMITTEE ON HEALTH

                                 of the

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

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION
                               __________

                             JUNE 10, 2014
                               __________

                        Serial No. 113-OS9/HL13

                               __________

         Printed for the use of the Committee on Ways and Means



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]















                       VERIFICATION OF INCOME AND
                      INSURANCE INFORMATION UNDER
                        THE AFFORDABLE CARE ACT

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

                             JOINT HEARING

                               before the

                       SUBCOMMITTEE ON OVERSIGHT
                                  AND
                         SUBCOMMITTEE ON HEALTH

                                 of the

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

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 10, 2014

                               __________

                        Serial No. 113-OS9/HL13

                               __________

         Printed for the use of the Committee on Ways and Means



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                       U.S. GOVERNMENT PUBLISHING OFFICE 

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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 OVERSIGHT

             CHARLES W. BOUSTANY, JR., Louisiana, Chairman

DIANE BLACK, Tennessee               JOHN LEWIS, Georgia
LYNN JENKINS, Kansas                 JOSEPH CROWLEY, New York
KENNY MARCHANT, Texas                DANNY DAVIS, Illinois
TOM REED, New York                   LINDA SANCHEZ, California
ERIK PAULSEN, Minnesota
MIKE KELLY, Pennsylvania

                                 ______

                         SUBCOMMITTEE ON HEALTH

                      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





















                            C O N T E N T S

                               __________

                                                                   Page

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

                               WITNESSES

Douglas Holtz-Eakin, President, American Action Forum, Testimony.     9
Ryan Ellis, Tax Policy Director, Americans for Tax Reform, IRS 
  Registered Tax Return Preparer, Testimony......................    20
Katie W. Mahoney, Executive Director of Health Policy, U.S. 
  Chamber of Commerce, Testimony.................................    24
Bryan C. Skarlatos, Partner, Kostelanetz & Fink, LLP, Testimony..    40
Ron Pollack, Executive Director, Families USA, Testimony.........    49
 
 VERIFICATION OF INCOME AND INSURANCE INFORMATION UNDER THE AFFORDABLE 
                                CARE ACT

                              ----------                              


                         TUESDAY, JUNE 10, 2014

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                 Subcommittee on Oversight,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The subcommittees met, pursuant to call, at 10:33 a.m., in 
Room 1100, Longworth House Office Building, the Honorable Kevin 
Brady [Chairman of the Subcommittee on Health] presiding.
    [The advisory of the hearing follows:]

HEARING ADVISORY

 Boustany and Brady Announce Hearing on the Verification of Income and 
          Insurance Information Under the Affordable Care Act

1100 Longworth House Office Building at 10:30 AM
Washington, June 3, 2014

    House Ways and Means Oversight Subcommittee Chairman Charles 
Boustany, Jr., M.D, (R-L(A) and Health Subcommittee Chairman Kevin 
Brady (R-T(X) today announced that the subcommittees will hold a joint 
hearing on the verification system for income and eligibility for tax 
credits under the President's health care law. The hearing will take 
place on Tuesday, June 10, 2014, in 1100 Longworth House Office 
Building, beginning at 10:30 A.M
      
    In view of the limited time available to hear from witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing. A list of invited 
witnesses will follow.
      

BACKGROUND:

      
    The Affordable Care Act (ACA) created an income-based premium tax 
credit for certain individuals who purchase health insurance through 
the new Exchanges. The accuracy of these tax credits, which began this 
year, 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 
has further complicated the government's ability to verify an offer of 
``affordable employer-sponsored insurance.''
      
    Without accurate income and insurance information, the government 
is unable to guarantee the accuracy of the tax credits, which are paid 
directly to insurance companies. The consequences of this failure may 
result in overpayments, which the ACA requires the IRS to recoup 
directly from individuals during the 2015 tax-filing season.
      
    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 
difficulties in the launch of the Exchanges and healthcare.gov, on 
January 1, 2014, Health and Human Services Secretary Kathleen Sebelius 
provided Congress with such certification. Subsequently, reports have 
indicated that the Department of Health and Human Services and the 
Exchanges are in fact having difficulty verifying income. For example, 
on May 17, The Washington Post reported, ``The government may be paying 
incorrect subsidies to more than 1 million Americans for their health 
plans in the new federal insurance marketplace and has been unable so 
far to fix the errors.''
      
    The hearing will explore the sufficiency of government's procedures 
to verify income and insurance information and ensure the accuracy of 
premium tax credits. The hearing will also examine the challenges 
employers and individuals are likely to face in the 2015 tax-filing 
year due to new employer-reporting requirements and unexpected tax debt 
for individuals because of subsidy recapture.
      
    In announcing the hearing, Chairman Boustany stated, ``As with many 
other problems - from stimulus to healthcare.gov--the Administration 
prefers to spend taxpayer dollars first and ask questions later. The 
White House took a poorly written law and implemented it incompetently. 
At the end of the day, employers and individual taxpayers will pay the 
price. The Committee has been warning about this problem for some time, 
and has an obligation to continue holding the Administration 
accountable.''
      
    In announcing the hearing, Chairman Brady stated, ``It's clear the 
ACA income and eligibility verification system is not ready and not 
complete. I'm deeply concerned about the fairness of imposing the risk 
and burden onto individual taxpayers for the disastrous implementation 
of this poorly designed law. Millions of Americans could be hit with a 
large and surprising tax bill on April 15th, and the White House 
doesn't appear to be doing much to fix the problems.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on the government's ability to verify income 
and insurance information, ensure accuracy of premium tax credits, and 
the likely effect of these challenges on the 2015 tax-filing season.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
written comments 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 June 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) 225-3625 or (202) 225-5522.
      

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

                                 

    Chairman BRADY. Good morning, everyone. This hearing will 
come to order.
    Before we start, I would like to recognize the ranking 
member, Dr. McDermott, for a statement.
    Mr. MCDERMOTT. Thank you, Mr. Chairman.
    Before we start today, I want to acknowledge the service of 
Jennifer Friedman.
    Jennifer has been with the Ways and Means Committee for 7 
years and has handled Medicare things on a variety of levels, 
and this is her last week of service. She is on her way to 
Japan. Her husband is in the State Department, and she going to 
take a Council of Foreign Relations fellowship there, and we 
want to thank her for her service. Jennifer, please stand up.
    Chairman BRADY. Jennifer, you will be missed, and best 
wishes.
    As we begin this hearing, you may remember then Speaker 
Nancy Pelosi famously warned Congress and the American people 
about the Affordable Care Act: We have to pass the bill so we 
can find out what is in it. Over 4 years later, the American 
people continue to learn and continue to be surprised.
    Today the Health and Oversight Subcommittees will hear 
testimony about yet another surprise. Today, 8 months after the 
start of open enrollment and well over a month after the 
extended open enrollment ended, the income and eligibility 
verification system is not yet completed and the burden and the 
cost of that failure will fall on the American people. That is 
simply unfair and unacceptable.
    What we will hear today from our distinguished panel is 
trouble. Potentially millions of Americans are currently 
receiving the wrong tax credits and cost-sharing subsidies, 
including some people that are completely ineligible to receive 
any at all. As required by the Affordable Care Act, individuals 
who receive subsidy overpayments must repay the government. 
Americans who tried to do the right thing could be hit with 
unexpected tax bills from the IRS next April.
    For many, this could mean thousands of dollars and while 
the cost of the loss failures fall on the individual, the blame 
for this mess falls squarely on the White House. Time after 
time Republicans on this committee raised concerns with the 
administration witnesses sitting in these chairs, including 
cabinet officers and IRS commissioners, and we said the 
website, the exchanges, the eligibility verification systems, 
were not ready to go, but the White House pushed ahead, 
focusing on the advertising campaign, launching healthcare.gov 
instead of the steps to make the system actually work.
    As a result, according to the Washington Post, piles of 
unprocessed proof documents are sitting in the Federal 
contractor's Kentucky office while incorrect subsidies continue 
to be paid. Because the system isn't ready, these 
inconsistencies have to be resolved manually one by one, and 
there are over 1 million related to income alone, and the 
contractors haven't even started.
    As we will hear, for the verification system to work as 
designed, a massive amount of reporting data is required from 
employers, data the Government has never collected before. The 
amount of data is so massive, that around this time last year, 
the White House gave up and delayed reporting requirements for 
2014, after legitimate complaints from businesses about the 
cost of compliance.
    We are not here to revisit the controversy that decision 
set off, but it is important to understand that decision meant 
very plainly and very clearly that for 2014, there is not a 
working verification system.
    In order to effectively manage the Affordable Care Act, the 
administration either needs to employ a reporting information. 
Why else would you impose such a high cost on employers? The 
information is needed to enforce the so-called firewall, that 
prohibits an individual with an offer of affordable employer 
insurance from receiving tax credits, and yet it does not exist 
for 2014.
    All that is left is for the American people to verify their 
eligibility for themselves. They need to understand the rules 
around the offer of affordable health insurance. They need to 
know it is on them to notify the Government if they have 
received a raise or had a child or lost a loved one. If they 
don't understand this, they could be hit with a tax bill for 
thousands of dollars, and that is not fair.
    Democrats and Republicans came together and passed a law 
last October that stated very clearly that before any tax 
credit went out, the secretary of HHS had to certify to 
Congress that the verification system was working. Clearly 
Secretary Sebelius erred in sending that certification. It 
wasn't working then and it isn't working today, and the burden 
and cost of that failure will fall on the American people. It 
isn't fair and it isn't right.
    Before I recognize Health Subcommittee Ranking Member Dr. 
McDermott for the purposes of an opening statement, I ask 
unanimous consent that all members' written statements be 
included in the record. Without objection, so ordered.
    I now recognize Mr. McDermott for his opening statement.
    Mr. MCDERMOTT. Thank you, Mr. Chairman.
    Our Republican colleagues have called us here this morning 
once again to try to tear down the Affordable Care Act, to find 
all the defects they possibly can before the election. They 
have staged this political event, really, to blow another 
implementation issue out of proportion. What is more, they have 
decided that one subcommittee isn't enough. They needed to put 
together two subcommittees to prove a purely partisan political 
point.
    It really is a disappointing choice on my Republican 
colleagues' part, because they should accept that the ACA is 
working. Seven million people have joined. Many states have 
accepted Medicare expansions. Access to quality health care 
coverage has expanded dramatically since we enacted the law. 
Eight million people have bought insurance through the 
exchanges. Six million middle class people have saved money 
through tax----
    [Audible alarm.]
    Mr. MCDERMOTT. There is a flash flood warning.
    Mr. THOMPSON. Roll up your pants.
    Chairman BRADY. Republicans did not make that announcement.
    Mr. MCDERMOTT. They did not.
    The success of this act, though, is really unquestionable 
and you can see it in the New York Times yesterday where they 
had the story about Texarkana, Texas, on the border with 
Arkansas, and people on one side of the street had health care, 
and on the other side, they don't. You can see that this 
information is seeping out across the country.
    But access isn't everything, and we still have plenty to do 
with the ACA even today. We must control the cost. I am hand in 
hand with the chairman on that issue. That is why I have been 
working to combat the fraud, the waste and the abuse in the 
system and to promote shared savings programs that save 
providers, taxpayers and patients money.
    Reforms such as these will reform the ACA and provide 
better health security to American families, but instead of 
working on that issue and building on the success of the ACA, 
we are called here today to talk about a distorted view of the 
premium tax credit verification system.
    Virtually none of the criticisms are sincere and there is 
little or no facts to support their claims. Everybody knew that 
when you tried to enroll 30 million people, you would have 
errors. We might even look to ourselves in the mirror and 
remember how many times we have filled out something wrong and 
it was not considered fraud or abuse or waste, just human 
error.
    When my Republican colleagues talk about inconsistencies, 
they are not telling the full story. Although there have been 
inconsistencies, only a fraction actually impact anyone's tax 
credits. In fact, many inconsistencies relate to applications 
that were never even completed.
    Now, just think about what the solution to the issue is. A 
letter was written to Secretary Lew to stop all tax credits. 
Now, you have got seven million people out there enrolled, and 
suddenly we are going to put a blanket stop on everything. That 
is trying to kill the law. If my colleagues on the other side 
had their way, no middle class families, even those without 
inconsistencies, would benefit from the tax credits for the 
foreseeable future.
    And when we hear the other side pretend that these 
inconsistencies are unprecedented, let's look at the facts. 
Medicaid, CHIP and other highly successful programs have 
handled similar data inconsistencies before. We saw this 
morning when we wrote the ACA--we saw this coming when we wrote 
the ACA, which is why we included provisions to correct the 
inaccuracies. It is important to get this right, and designed 
the system to make sure that we did.
    The more data that comes out, the more stories we hear of 
people getting coverage, the more we can ensure the ACA is 
working. Just this past Thursday, a new Gallup Poll showed that 
the uninsured rate in America is at its lowest point since 
Gallup began selecting such data. That is not political spin or 
fuzzy math to say that the ACA has been a success. The 
Republicans should join Democrats in discussing how to make it 
even better and for that reason, I am glad we are having the 
hearing, but it ought to be about how we control costs, not 
about inconsistencies, which ultimately we will have a hearing 
on this.
    A year from now, if we haven't got a better system than we 
have got today, that would be one thing, but when you take 3 
months in and say you are going to have everything perfect, you 
simply have never tried to do anything, whether it is build a 
car, build a missile. How many failures do we have in the 
missile system? Did we have them in every week to say, how many 
failures have you had? That is what we are doing here. We are 
jumping before it really needs to be done.
    I yield back the balance of my time.
    Chairman BRADY. I now recognize the Oversight and 
Subcommittee Ranking Member, Mr. Lewis, for his opening 
statement.
    Mr. LEWIS. Thank you very much.
    Thank you very much, Mr. Chairman, Mr. McDermott.
    In my heart of hearts, I believe that health insurance or 
health care is a right. When President Obama signed the 
Affordable Care Act into law, a new day began, one that was 
free of worry about what would happen if someone in their 
family got sick. The Affordable Care Act has opened the door 
for millions of Americans to access this sacred right for the 
first time in our country's history.
    Let us take a moment to review the many accomplishments of 
the Affordable Care Act. Eight million people now have health 
insurance coverage; 3.1 million young people are able to stay 
on their parents' health plan instead of being uninsured; and 
129 million Americans, including 17 million children, with pre-
existing conditions are no longer denied coverage or charged 
high premiums.
    Sometimes I think we forget what it is like to get sick and 
not be able to go to the hospital or see a doctor. We forget or 
maybe we do not know what it is like to look at the face of 
your sick son or your sick daughter and know that you cannot 
afford the treatment they need. The Affordable Care Act changed 
that reality for millions of people.
    Today women can now no longer be charged high premiums just 
because they are women and 105 million Americans no longer face 
a dollar limit on their coverage. This means that if faced with 
an expensive disease like cancer, they know their treatment 
will be covered and their family will not go bankrupt.
    The Affordable Care Act did that. This is a law that has 
literally saved people's lives by giving them health insurance 
for the first time. We will not and must not return to the dark 
days when many of our fellow citizens could not afford health 
care and the Federal Government did nothing.
    Republicans have voted 52 times to repeal the Affordable 
Care Act. Whenever a topic about the ACA is on the table, it 
seems to be a code for one thing: repeal, destroy, go back. We 
have come too far, we have made too much progress, and we are 
not going back. After 52 votes to nowhere, I think it is very 
clear that we will not go back. Instead of focusing on repeal, 
we should encourage improvement. For the good of all of our 
citizens, we need to look forward and put an end to the 
political games.
    Realizing the dream of health care has meant a new 
challenge for the Federal Government. It has not been easy, it 
is not a light task. We must ensure that the agencies have the 
resources, the staff, training and technology that they need to 
help our citizens, our people to get the health care services 
they need and deserve.
    I hope that we can put our differences aside and come 
together to make the transition smoother for our citizens, for 
the most vulnerable people in our society and for those trying 
to serve them.
    Thank you, and I yield back, Mr. Chairman.
    Chairman BRADY. Thank you.
    I now recognize the Chairman of the Oversight Subcommittee, 
Mr. Boustany.
    Chairman BOUSTANY. Thank you, Chairman Brady, for convening 
this really important hearing.
    In recent years, the Ways and Means Subcommittees on 
Oversight and Health have held numerous hearings on the 
implementation of the Affordable Care Act, including the new 
tax burdens under the law, the improper administration of tax 
credits, and taxpayer rights.
    This morning's hearing will explore the Affordable Care 
Act's income and eligibility verification system, which lies at 
the nexus of all three of these concerns. What is increasingly 
clear is that even if this system works as intended, there is a 
potential nightmare scenario developing for the 2015 tax filing 
season.
    Under the Affordable Care Act, the Internal Revenue Service 
will distribute over $1 trillion in new premium subsidies over 
the next decade, $1 trillion. To administer these subsidies 
accurately, the Federal Government requires precise and timely 
information about income, family status, the availability of 
employer-sponsored insurance, and other eligibility 
information. Yet after implementation delays, failures of 
healthcare.gov, and other poor administration, the Federal 
Government lacks this information, but has nonetheless begun to 
pay out billions of dollars in potentially incorrect premium 
subsidies. We know from experience where this story leads, and 
it does not end well for the American taxpayers.
    The rate of improper payments across the Federal Government 
is 4.35 percent. The rate of improper payments for the earned 
income tax credit, which like premium subsidies is paid based 
on income calculations, is approximately 22 percent, the worst 
error rate in Government. If this new subsidy is implemented 
with the average degree of improper payment, the low end for 
the IRS, the Federal Government will pay out over $44 billion 
in improper payments.
    If premium subsidies are administered with the same degree 
of accuracy as the earned income tax credit, the Federal 
Government will pay out a whopping $220 billion in improper 
payments over 10 years. We have to get a handle on this and we 
haven't gotten a handle on the EITC, and yet we have this whole 
new area of implementation.
    Although these subsidies are going correctly to insurers 
next year, the IRS will be in the position of recouping 
overpayments directly from individuals. Many of these 
individuals will end up with unexpected tax debt through no 
fault of their own, but from simply not understanding the 
quirks and complexities of the President's health law.
    The rules regarding employer-sponsored insurance, for 
example, can leave a taxpayer owing the IRS the entirety of 
their subsidy payments. These are not hypothetical problems in 
the distant future. These are problems developing now and ones 
that will haunt taxpayers and businesses during the next filing 
season. I hope today's hearing will cast new light on these 
issues.
    And I want to thank our guests for joining us in this very 
important discussion.
    I yield back.
    Chairman BRADY. Thank you.
    Today we will hear from five distinguished witnesses: 
Douglas Holtz-Eakin, president of the American Action Forum; 
Ryan Ellis, tax policy director for the Americans For Tax 
Reform, an IRS registered tax return preparer; Katie Mahoney, 
executive director of health policy for the U.S. Chamber of 
Commerce; Bryan Skarlatos, a partner of Kostelanetz & Fink law 
firm; and Ron Pollack, executive director of Families USA.
    Welcome to all of you. I look forward to your testimony.
    Mr. Holtz-Eakin, we will begin with you. As usual, we have 
preserved 5 minutes for the statement and questions as well and 
because we are holding a joint hearing, we are going to stay 
close to the limits today. Mr. Holtz-Eakin.

 STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, AMERICAN ACTION 
                    FORUM, WASHINGTON, D.C.

    Mr. HOLTZ-EAKIN. Well, thank you, Chairman Brady, Chairman 
Boustany, Ranking Member McDermott, Ranking Member Lewis. It is 
a privilege to be here today to talk about the income and 
subsidy verification systems in the Affordable Care Act.
    I want to make three basic points in my testimony. Point 
number one is that the system itself is very complex in its 
best circumstances, if it worked exactly as designed, and that 
the series of waivers and delays that have been implemented 
over the past several years have made the system essentially 
unworkable, in my view, and we will see more about that.
    The second is that it complicates an already far too 
complicated tax system. The Ways and Means Committee has spent 
a considerable amount of time on tax implication and reforms. 
Many of the features of the Affordable Care Act verification 
system make things much, much worse.
    And then the third is that the combination of the 
complexity really does expose the taxpayer to additional 
unwarranted burdens and the likelihood of spending above what 
would be anticipated from the Affordable Care Act itself.
    The first point is that it is just very complicated. There 
is a graphic which we had hoped to show which my staff put 
together, which shows the verification system. It is in my 
written testimony. Yeah. That is a good faith effort to 
replicate the sequence of decisions and rulings that would take 
place in trying to verify the income and subsidies as the 
system stands at the moment.
    Just a glance at that tells you this is a system that is 
going to overwhelm taxpayers. In particular, this is a tax 
filing population that may not in fact be used to file tax 
returns at all and will have to begin to do so only because of 
the Affordable Care Act and to satisfy they verification. So it 
is a very, very complex system. It adds new information 
requirements, it adds new forms to reconcile to the actual 
subsidies in the Tax Code, they are required to report 
quarterly changes in their family status, changes in custodial 
relationships with children, kids who graduate from college and 
move out of the house, divorces. An enormous amount of personal 
information must be reported quarterly and on a timely basis to 
get the reconciliation right. This is all going to prove to be 
quite complicated for this population to comply with.
    It will complicate the Tax Code. We do not yet know for 
sure how the IRS will do a lot of the implementation, but there 
is a very real chance that many of these taxpayers will no 
longer be able to file a 1040EZ form, for example, be forced 
into a more complicated filing status, something with which 
they are completely unfamiliar and will probably have to appeal 
to paid tax preparers for low income individuals. It doesn't 
make a lot of sense.
    And the recapture itself will be very complicated. Many 
people have finally begun to understand how the child tax 
credit works or how the EITC works, and the recapture will 
interfere with their receipt of their normal refunds and they 
will find the system harder to manage.
    And my concern is the one that Chairman Boustany mentioned 
in his opening remarks, is that in the end, we have a system 
which will have individual eligibility requirements that look 
very much like the EITC, and these are layered--layered on top 
of this are employer requirements for affordable insurance, 
where the reporting is not yet in place but which in principle 
they would have to provide.
    That complicated system is likely to lead to error rates in 
payments and as you mentioned, if we have a 20 percent error 
rate, we are looking at $150 to $200 billion in inappropriate 
payments over the next decade. It is not a trivial problem, it 
is a serious budget problem at a time when the U.S. faces 
chronic budget deficits and long-run spending problems, so I am 
concerned about that.
    If you step back, I think it would be important for the 
committee to focus on two different things. The first is there 
are a set of issues which really are about the startup and what 
will a filing season look like next year, what will a 
population that is not used to receiving a, you know, a form 
1095A which says, this is what your subsidies were, they may 
just throw those in the trash, will the error reconciliation 
process work effectively, we have no idea, but a bunch of 
startup problems.
    And then there is the longer-run problem, which is that 
this system is like the EITC, it is like Medicare. This is a 
pay-and-chase policy: pay people and then go find inappropriate 
payments. We have not proven capable of doing that in a very 
efficient fashion. We worry about the $60 to $80 billion a year 
in inappropriate payments to Medicare, we worry about the 20 
percent error rate in the EITC. This is another program that 
has the same fundamental character, and I worry about whether 
it will be effective in the long-run.
    But I am pleased to have the opportunity to be here today 
and I would look forward to answering your questions.
    Chairman BRADY. Great. Thank you.
    [The prepared statement of Mr. Holtz-Eakin follows:]
    
    
    
    

                                 

    Chairman BRADY. Mr. Ellis, you are recognized.

STATEMENT OF RYAN ELLIS, TAX POLICY DIRECTOR, AMERICANS FOR TAX 
  REFORM, IRS REGISTERED TAX RETURN PREPARER, WASHINGTON, D.C.

    Mr. ELLIS. Chairman Brady, Chairman Boustany, Mr. 
McDermott, Mr. Lewis, Members of the Committee, thank you for 
inviting me to testify today.
    My name is Ryan Ellis. I come here today as a small 
business owner of a tax preparation firm, in the Commonwealth 
of Virginia and also as an IRS enrolled agent. I am also tax 
policy director at Americans For Tax Reform, which is a non-
profit here in Washington, D.C.
    Now I am here today to tell you that the upcoming tax 
filing season has the potential to be one of the most chaotic 
in years. One of the key elements of the Affordable Care Act, 
popularly known as Obamacare, is the creation of advanceable 
tax credits for the purchase of exchange health insurance 
plans. Taxpayers applying for credit assistance must be 
evaluated by government entities ranging from the SSA, to CMS, 
to the IRS.
    The goal is to have an educated estimate based on the most 
immediately available government documentation, e.g., prior 
year tax returns, et cetera, of the taxpayer's probable income 
for the year, which in turn determines the size of the tax 
credit. In an effort to get this tax benefit out quickly, the 
estimated credit is advanced to the insurance company by the 
IRS, which applies it to customer premiums. This is an 
important point. The money has left the IRS's hands up to over 
a year before the taxpayer actually calculates his final credit 
amount. The insurance companies have collected it, and they are 
not required to give it back.
    Press reports this month indicated that the Government was 
having a hard time doing all this, with 1.2 million of the 6 
million Federal exchange applicants having to be asked for 
additional income verification information from CMS. That is 
not surprising. Applicants are asked to complete a detailed, 
confusing 12-page application, which asks for income, family 
size, et cetera. It is rather like trying to fill out a 1040 on 
the fly. Added to this is the lack of employer reporting 
requirements and the failure to complete the back end of the 
website properly.
    Inconsistencies, some of which are the results of failures 
of the healthcare.gov system, some of which are poor records 
from the government, and some of which are mistakes from the 
individual are not surprising, but they are a problem.
    Here it is the middle of June, and many people have now 
been receiving inaccurate subsidies for 6 months. To the 
public's knowledge, not a single advanced tax credit has been 
adjusted this year.
    So what happens if the flawed, confusing process results in 
a tax credit larger than what the law calls for? A hypothetical 
example might help illustrate. A health exchange customer 
selects an Obamacare exchange plan, the Government estimates 
that this taxpayer will earn $30,000 this year, which makes her 
eligible for a $2,000 tax credit. This $2,000 is paid to the 
taxpayer's insurance company to help with premiums. The next 
spring, our customer slash taxpayer is filling out her tax 
return. Unfortunately, the Government estimated the taxpayer 
earned too little and paid out too large a credit. She actually 
earned $40,000 and so only had a $1,500 credit coming to her.
    Depending on the taxpayer's income level and availability 
of verified affordable workplace insurance, she will have to 
pay back much or all of the $500 overage to the IRS. This means 
skinnier refunds and maybe even a tax liability, and it won't 
be the taxpayer's fault, it will be the Government's fault. It 
is also inevitable that many people are receiving tax credits 
which they are completely ineligible.
    The firewall of the offer of employer-sponsored insurance 
is a new concept. Tax preparers will have difficulty figuring 
out how it works in operation. There is virtually no way to 
catch it on the front end, but come tax filing season, many 
people will end up owing thousands of dollars and it will be a 
complete surprise to them and to their tax preparer.
    The burden of explaining why the Government allowed 
individuals to accept too large a subsidy will fall on the tax 
preparer community.
    It is in the interest of the Congress to make sure that the 
entirety of the Obamacare sign-up system is fully functional; 
not just the front-end website, which got all the headlines, 
but the really important back end, where this complex income 
verification system must be able to work.
    Thank you for allowing me to testify today, and I look 
forward to your questions.
    Chairman BRADY. Thank you.
    [The prepared statement of Mr. Ellis follows:]
    
    
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   Chairman BRADY. Ms. Mahoney, you are now recognized.

  STATEMENT OF KATIE W. MAHONEY, EXECUTIVE DIRECTOR OF HEALTH 
       POLICY, U.S. CHAMBER OF COMMERCE, WASHINGTON, D.C.

    Ms. MAHONEY. Thank you, Chairman Boustany and Brady. 
Ranking Members Lewis and McDermott, and other Members of the 
Subcommittees for the opportunity to participate in today's 
hearing.
    We appreciate this hearing's focus on the challenges in 
verifying income and insurance information, given the delay of 
the reporting requirements under the health reform law, 
hopefully by examining the law's interrelated provisions and 
how they were intended to work, we may be able to identify and 
advance solutions to alleviate the challenges that remain.
    My name is Katie Mahoney. I am the executive director at 
the U.S. Chamber of Commerce. While the Chamber opposed the 
health reform law during the legislative debate, we are moving 
forward to do whatever we can to help our member companies 
understand and comply with the law. We continue to work with 
the regulators to mitigate the burdens and challenges of 
implementation and with members of Congress to provide relief 
to business. We have made some progress, but much more work 
needs to be done on both fronts.
    Since the law was enacted, the Chamber has filed 77 comment 
letters, many of which were in response to items issued to 
implement the employer mandate. While today's hearing is on the 
verification of income and insurance information, I have been 
asked to testify specifically on the two reporting requirements 
contained in Sections 6055 and 6056. These sections were 
designed to provide the IRS with the data and information 
necessary to implement at least three other major provisions in 
the law: the employer mandate provision, the premium tax credit 
provision and the individual mandate provision.
    6056 requires employers subject to the employer mandate to 
report information to the IRS and to their employees to 
demonstrate compliance with the employer mandate. This 
information is necessary to determine which employers may be 
penalized and which individuals may be eligible for a premium 
tax credit.
    6055 requires those entities that insure individuals with 
minimum essential coverage to report to the IRS and those 
individuals the information necessary to demonstrate which 
individuals are covered and what that coverage looks like. This 
information is necessary for the IRS to know which individuals 
have met the requirement to obtain minimum essential coverage 
under the individual mandate and which individuals may be 
subject to a penalty.
    Even when described as simply as possible, the complexities 
are striking. Clearly the challenge of drafting regulations to 
implement these provisions is immense, but it is one that we 
have found the Treasury officials to take very seriously and 
approach very carefully. Efforts to promulgate regulations to 
implement 6056 and 65 specifically began in 2012 in conjunction 
with other efforts to promulgate regulations on the employer 
mandate, which began in 2011.
    At least ten regulatory items were issued in nearly 2 years 
between May of 2011 and April of 2013. We had many exchanges 
with Treasury during this process and filed numerous comments. 
In addition to responding to Treasury's specific proposals, we 
repeatedly asked for transition relief, safe harbors and 
compliance assistance rather than strict enforcement of the 
provisions. As I shared with the House Energy and Commerce 
Subcommittee nearly a year ago, businesses needed more time.
    On July 2nd of 2013, Treasury announced that the reporting 
requirement regulations were not ready. As a result, transition 
relief for 2014 was provided to allow additional time to comply 
with the reporting requirements and the employer mandate, 
delaying compliance with these provisions. It would not have 
been possible to enforce the employer mandate provision without 
the information that the reporting requirements would collect.
    Following that announcement, Treasury continued its work, 
soliciting feedback and issuing eight more items in roughly 9 
months, including the NPRM's on 6055 and 6056. We have worked 
with Treasury officials for the past 4 years as they labored to 
implement these requirements. We found their commitment to 
minimize the cost and burden to business while implementing the 
law as intended to be commendable.
    Many of the concerns and recommendations that we raised 
were explored and incorporated into the final rule, including 
several simplified reporting methods that will help ease the 
burden for some business and reduce reporting of statutorily 
specified but unnecessary data points.
    We applaud the officials at Treasury for their efforts, 
however, the extensive costs and time necessary to comply with 
these reporting requirements continues to be daunting.
    Many companies offer exceptional benefits, for which 
employees pay only a small portion of the premium. These 
businesses, like many others, are committed to improving the 
health of their employees and offering coverage that is highly 
valued. It is unfortunate that because of the way the statute 
is written, these businesses must direct resources to report on 
the coverage they offer rather than use those resources to pay 
for a greater portion of the cost of that coverage.
    Even more unfortunate is the extreme expense of these 
reporting requirements and the challenges in identifying 
precisely which month's coverage is offered to which employees 
may incent employers to stop offering coverage all together. 
Clearly this is not what was intended and it is not what is 
best for employers or employees.
    In conclusion, what is to be done? Well, enacting the 
legislation passed by the House earlier this year to restore 
the long-standing definition of full-time employment to 40 
hours would be helpful. We urge you to consider legislation to 
permit businesses greater flexibility and protection, and work 
with stakeholders to identify possible ways to provide further 
relief.
    Thank you.
    Chairman BRADY. Thank you.
    [The prepared statement of Ms. Mahoney follows:]
    
    
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    Chairman BRADY. Mr. Skarlatos.

 STATEMENT OF BRYAN C. SKARLATOS, PARTNER, KOSTELANETZ & FINK, 
                      LLP, NEW YORK, N.Y.

    Mr. SKARLATOS. Good morning, Chairman Boustany, Chairman 
Brady, Members of the Committee.
    Thank you for inviting me here this morning. My name is 
Bryan Skarlatos. I am an attorney in New York, and my practice 
focuses in large part on tax procedure issues.
    I am here to talk to you today about how the IRS collects 
taxes, and you may find that relevant to how the IRS may 
collect overpayments of credits. When we talk about how the IRS 
collects taxes, it is important to remember the IRS is not an 
ordinary creditor like you or me. If somebody owes me money, I 
have to go to court, start an action to invoke the authority of 
the court to give me a judgment that I can use to collect the 
property to pay the debt. I can't just take somebody's car or 
take somebody's bank account.
    It is different for the IRS. Because the IRS has a need to 
collect taxes, Congress has given the IRS super creditor 
powers. The IRS doesn't need to go to court. It can act 
unilaterally, using its powers of lien and levy to collect 
taxes. Those are the two main tools it has.
    A lien is the first and most important concept. It is an 
intangible concept. It is not something the IRS does; it is a 
thing that arises by operation of law and the lien is what 
gives the IRS the right to collect somebody's property, or to 
take somebody's property. It is sort of like a string that the 
IRS can pull to take property from someone.
    A levy, is distinct from a lien. The levy is the actual 
procedure it uses to take the property. It can go in and take 
things that the taxpayer has an interest in, like a bank 
account, a car, wages or something like that.
    Now, the IRS can't just do this without first having an 
assessment. It needs an assessment of taxes. Most taxes get 
assessed on the tax return and taxpayers themselves say, I owe 
a thousand dollars. That is a self-assessment and we indeed 
have a self-assessment system. If the taxpayer doesn't pay the 
taxes that they say they owe, then the IRS has these collection 
powers, or if the IRS later comes in and says, you owe more 
money, you owe $2,000, not a thousand dollars, then the IRS has 
these collection powers, because the assessment arises.
    Once the assessment arises automatically, it doesn't arise 
automatically. Excuse me. What happens first is that the IRS 
has to say, hey, you owe money, there is an assessment, and 
demand payment. If the taxpayer then fails to pay the tax, the 
assessment arises automatically and then the lien arises 
automatically upon the assessment, giving the IRS rights to the 
property.
    The lien is the important concept, as I mentioned, because 
it is very broad. It affects anything that the taxpayer owns or 
anything that the taxpayer could have an interest in. It also 
includes things like after-acquired property. So if the 
taxpayer buys a car or receives an inheritance after the 
assessment, the lien will attach to that after-acquired 
property.
    The IRS can also file a notice of tax lien. It does this in 
order to give itself priority over other creditors. It files 
the notice in the local county clerk's office or in the local 
court office. That notice of tax lien by mere filing can have 
an impact on the taxpayer's credit standing and it can affect 
certain agreements it has, credit agreements, mortgages, it can 
trigger events of default simply by filing the notice of lien.
    But the lien itself, as I said, is not the thing that takes 
the property. The thing that takes the property is the levy. 
The levy and the seizure, and levy and seizure are basically 
the same words for, similar words for two same concepts, is 
when the IRS goes in and takes things. It can go to the 
taxpayer or it can go to third parties like a bank or like an 
employer or a customer who owes the taxpayer money.
    The levy, though, unlike the lien, does not attach to 
after-acquired property, so if a levy hits on a certain day and 
somebody deposits money into a bank account the next day, the 
levy does not attach to that. There is one exception, however, 
and that is for a levy on wages. A levy on wages continues, and 
continues on the taxpayer like a vacuum cleaner, continuing to 
take the wages as they are earned.
    The IRS has to give the taxpayer notice, 30-days' notice 
before it is going to levy and take the property and at that 
time the taxpayer has the right to request a collection due 
process hearing to contest the levy or the underlying 
assessment of taxes.
    Now, the IRS doesn't just take things without giving some 
notice and demand, and there are a series of notices that come 
out in the usual case and in that case, the taxpayer can try to 
negotiate an installment agreement or an offer in compromise 
where they pay less than the full amount due, depending on the 
taxpayer's current assets and ability to pay.
    One other factor you should consider is that if there is an 
overpayment of tax in another year, the IRS can offset an 
underpayment simply by reducing the overpayment in another 
year.
    So those are some of the tools that the IRS has at its 
disposal to collect taxes. Thank you.
    Chairman BRADY. Thank you.
    [The prepared statement of Mr. Skarlatos follows:]
   
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    Chairman BRADY. Mr. Pollack, you are recognized.

  STATEMENT OF RON POLLACK, EXECUTIVE DIRECTOR, FAMILIES USA, 
                        WASHINGTON D.C.

    Mr. POLLACK. Thank you, Chairman Brady and Boustany, 
Ranking Members McDermott and Lewis, Members of the Committee.
    Today's hearing is important, because it is essential that 
tax credit premium subsidies be provided based on good and 
accurate information. This is needed to ensure that there are 
neither underpayments or overpayments of such subsidies.
    In undertaking today's examination, it is crucial to single 
out two important words, both with very separate meanings. 
These words are ``inconsistencies'' and ``inaccuracies.'' The 
two words should not be confused with one another, because they 
are not synonymous, and conflating those two words, like some 
in this Congress have done, does an enormous disservice to 
today's inquiry. For example, two sets of data may be 
inconsistent, one depicting a situation 2 years ago and another 
depicting the situation today, and they both may be accurate. 
It is crucial, therefore, to underscore the differences between 
inconsistencies and inaccuracies as we examine the 
discrepancies that appear to exist in application submissions 
versus Government data files among 2.1 million people enrolled 
in affordable care-related coverage.
    Of the 2.1 million discrepancies, over half concern 
discrepancies about applicants' income. This should not be 
surprising, because applicants are supposed to provide 
information about their current 2014 income, while the 
Government's data reflects such households' income based on 
their 2012 tax returns. Many significant changes occur in 
income status over those 2 years.
    Many people change jobs, resulting in gains or losses of 
income; many people receive differences in compensation, again, 
up or down; many people experience differences in real or 
expected overtime. Changes in family composition significantly 
impact income, and some families move from jobs to becoming 
students, and vice versa. And many other factors cause incomes 
to change over the course of 2 years.
    These 2-year differences should be reviewed, but there is 
little reason to surmise that these differences are 
inaccuracies in applications that should cause reductions in 
premium subsidies.
    The same is true with the almost 1 million discrepancies 
with respect to immigration and citizen-related information. 
Keep in mind, people eligible for marketplace coverage include 
citizens and nationals and others lawfully in the United 
States. The only persons disqualified for coverage are those 
who are not lawfully in the country, and those individuals are 
hardly likely to contact an exchange or other governmental 
entity.
    The kinds of discrepancies that do exist in this area 
involve matters that are innocuous and do not affect 
eligibility for or the size of premium subsidies. They include 
the precise Social Security Number, whether a person does or 
does not have a hyphenated name, whether the person has a 
permanent resident card or a green card, whether they are 
missing a digit in an address.
    There are other reasons to believe that the number of 
inaccuracies are small, and when we see verification, that they 
would be rectified, four reasons: one, similar verification 
systems exist in programs like Medicaid and CHIP, and the vast 
majority of instances consumers' information is found to be 
accurate; second, Serco, which is the contractor responsible 
for obtaining information from beneficiaries to address ACA 
enrollment inconsistencies, briefed the House Energy and 
Commerce Committee last week, and what they said, they 
indicated that upwards of 99 percent of the inconsistencies 
would be in, quote, ``innocuous'', end quote, or benign, and 
easily resolved without impact on beneficiaries' costs or 
coverage; third, consumers attest in their application form 
under penalty of perjury, and that is not taken lightly; and 
lastly, if a review shows a household's initial subsidy is 
inaccurate, the marketplace will adjust it for the remainder of 
the year, and places like the District of Columbia have 
actually suggested to people that they only take 85 percent of 
their subsidy so that they are on the conservative side of 
this, and, of course, then there is true up and reconciliation.
    The bottom line in all this is that it makes sense to 
complete the examination of discrepancies as soon as possible, 
but with respect to the number of inaccuracies, to borrow from 
William Shakespeare, this is much about very little.
    Chairman BRADY. Thank you.
    [The prepared statement of Mr. Pollack follows:]
    
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    Chairman BRADY. While some today try to dismiss this, this 
as no big deal, the truth is Republicans and Democrats have 
been concerned about this for some time, with the risk to 
taxpayers by inadvertently committing taxpayer funded fraud, 
unfortunately, if this is not fixed.
    Mr. Holtz-Eakin, on the screen, in barely readable type, is 
the income verification system of the Continuing Appropriations 
Act 2014. This was passed Republicans and Democrats, signed by 
the President, includes language principally by Representative 
Black of Tennessee, an important section reads this way: Prior 
to making such credits and reductions available, the Secretary 
shall certify to the Congress that the exchanges verify such 
eligibilities consistent with the requirements of such act. And 
Secretary Sebelius made that certification January 1.
    One, was that certification in error, and two, as of today 
as it currently stands, does this system meet the requirements 
of the law?
    Mr. HOLTZ-EAKIN. In my opinion, it does not meet that 
requirement and the Secretary clearly made the certification 
for reasons that she can defend, but by delaying for 1 to 2 
years depending on the size of the firm any collection other 
than voluntary of information from the employer side, you 
cannot know if someone has an offer of affordable insurance. 
That is a key piece of the eligibility requirement.
    Second, there are essentially different rules for Federal 
exchanges and state exchanges, and my understanding is that the 
administration is going to treat differently those states that 
did and did not expand Medicaid. You cannot make a sweeping 
statement that there is an overall certification system in 
those circumstances.
    Chairman BRADY. As of today----
    Mr. HOLTZ-EAKIN. Yes.
    Chairman BRADY. As of today. Here we are June 10th, we have 
not even begun to resolve, even begun to resolve income-related 
inconsistencies. CMS acknowledges there is well over a million 
of these. They hope to get through them by the end of the 
summer; not yet known if that will happen or not. Obviously 
everyone acknowledges there is a long way to go in this.
    Some will say this is all working out, no problem, this 
will work itself out, but even if they fix all the technical 
items, will HHS and the IRS really ever have a working income 
verification system? Doesn't the law, based on a very poor 
design, really prevent any agency from verifying income 
information before sending out the tax subsidy?
    Mr. HOLTZ-EAKIN. There is no existing program that does 
what you described effectively. My concern is from experience 
with the earned income tax credit, from experience with the 
Medicare payment programs that this is yet another program that 
will, in fact, place a premium on getting money out the door, 
it will then make a good faith effort to identify errors in 
payment and recapture, but we have as a Government never done 
that particularly successfully.
    And so, I understand the folks who point to particular 
details that can be fixed and done better, but as an overall 
track record, these kinds of programs have large errors in 
payment, and those are large taxpayer sums of money.
    Chairman BRADY. So the problems that we will see won't 
merely fix themselves. The design of the system really makes 
it, as you indicated in your testimony, creates that pay-and-
chase process, again, where we will always be paying out 
incorrect subsidies, chasing them down with some degree of 
success or not.
    Mr. HOLTZ-EAKIN. Absolutely. And indeed, this law, in fact, 
exacerbates that slightly by making it the case that the 
recapture comes from taking money out of refunds. If there is 
no refund from which to take the overpayment, the taxpayer 
has--the recipient of the payment has no obligation to repay 
the Federal Government and thus the taxpayers.
    So, you know, you have designed it so as to not get back 
all the overpayments. There is no doubt about that. It is going 
to be in particular, people like Mr. Ellis in a bad position. 
If you are a tax preparer, you can have an individual sitting 
in front of you saying, I am not going to pay what I owe, and 
will he sign off on that as a tax return? I won't answer for 
him, but I wouldn't want to be in that position. This is really 
a poorly designed system from that perspective.
    Chairman BRADY. And in your testimony, you made the case 
that many of these individuals may not be as familiar with the 
tax preparation system. You are asking them to follow a very 
complex set of rules that they may have really no experience in 
dealing with?
    Mr. HOLTZ-EAKIN. Yes. I mean, there are two people on this 
panel that can speak to this better than I can, but I worry 
about what happens next February. There are going to be people 
who have not traditionally filed returns who are going to get 
an information form in the mail, it is a 1095A, and my guess is 
half of them will toss it, they will have no idea what that is.
    They will then have an obligation to file a return and 
reconcile the information on that form through another form, an 
860--890--8962 form, and if they don't put that form in, the 
IRS will reject the filing and send it back to them. They won't 
get their earned income tax credit, they won't get their child 
care, they won't get anything.
    I think there is going to be enormous amount of confusion. 
This population is not used to this process, the forms are new. 
The way error checking and reconciliation is going to happen 
is, in fact, not clear.
    You know----
    Chairman BRADY. And if I understand it correctly, because 
of the way Ms. Maloney talked about, if taxpayers don't catch 
it this next tax season, with the reporting requirements put in 
place in 2015, they will be caught in the 2016 tax system, 
which means they could be on the hook for 2 years of either 
overpayments or ineligible subsidies; is that correct?
    Mr. HOLTZ-EAKIN. That would be my reading of the law and 
the practice. I would encourage you, you know, to have the IRS 
commissioner come up and explain how they do in fact plan to do 
that. I think there is some uncertainty about that at the 
moment.
    Chairman BRADY. Thank you very much.
    Mr. Ellis, to sort of follow up, there is really a second 
group of taxpayers we are concerned about, and you identified 
them in your testimony. And so if an individual, if I go to my 
employer and ask, is the insurance you offer me affordable 
according to the Affordable Care Act, will that employer 
necessarily know what that means?
    Mr. ELLIS. No, because the employer doesn't have all the 
information that it needs in order to make that judgment. The 
definition of affordable insurance from the workplace is nine 
and a half percent of someone's adjusted gross income, of an 
individual's adjusted gross income, but, of course, individuals 
if they are part of a family unit don't file taxes as 
individuals. That only happens if they are single.
    If you are married or if you have dependent children and 
all these other things that come into a more complicated tax 
return situation, the employer is not necessarily going to have 
all that information.
    That is why the employer community was so insistent upon 
having this waiver of reporting, I think, for 2014, because 
they knew that they didn't want to make an attestation to the 
Government based on information that was incomplete.
    Chairman BRADY. So if I have asked that question of my 
employer, they may not necessarily know what that means. So 
Serco, the Government contractor hired to process all the paper 
applications, resolve the conflicts of data, contact taxpayers 
and all, if they ask an employer today, is the insurance you 
offer John Q employee affordable, is the employer going to know 
that answer?
    Mr. ELLIS. Probably not, because that employer probably 
doesn't have any more information than he did at any point this 
year.
    Chairman BRADY. So, the Government can supposedly check, 
and they are doing this manually, so doubt they are doing much 
checking right now, but can they check and get the wrong 
answer?
    Mr. ELLIS. Absolutely, they can get the wrong answer, and 
they will.
    Chairman BRADY. And then, who pays that back if the answer 
is wrong? Is it the individual?
    Mr. ELLIS. Ultimately the final liability lies with the 
taxpayer himself or herself that has received this advanced 
credit.
    Chairman BRADY. Okay. Final point. Mr. Ellis, in his 
testimony, Mr. Pollack stated the Affordable Care Act 
envisioned a modern, streamlined application system for health 
insurance and premium tax credits that would avoid the need for 
people to bring shoeboxes full of documents into Government 
offices. The Washington Post reports, piles of unprocessed 
proof documents are sitting in a Federal contractor's Kentucky 
office. Quite literally there are millions of documents, much 
of which presumably came from someone's shoebox.
    As the tax preparer, does the Affordable Care Act meet the 
goal envisioned by Mr. Pollack, and do you expect it to be 
overwhelmed by the contents of these shoeboxes next April?
    Mr. ELLIS. I expect it to be overwhelming, in that 
taxpayers will not know what they don't know when they walk 
into a tax preparation meeting. I think tax preparers are going 
to have to learn themselves what it is taxpayers are going to 
need to bring. We are probably going to have to send them back 
home, send them back to the Government agencies that maybe they 
threw away forms from and come back and do follow-up meetings. 
So it is going to be burdensome on the entire process next 
filing season.
    Chairman BRADY. The purpose of the hearing is not to 
minimize the problem, it is to shine line on it. So both 
individuals, employers, others who could be caught up in this 
can take action now to try to prevent it, and the Federal 
Government can actually do the job it was supposed to do under 
this law.
    So I now recognize the Health Subcommittee ranking member, 
Dr. McDermott, for 5 minutes.
    Mr. MCDERMOTT. Thank you, Mr. Chairman.
    God, it sounds like the game is over, it is all--it is 
hopeless.
    Mr. Pollack, the ACA--doesn't the IRS have a process at the 
end of the year that will take the income that you report that 
year and match it up with what you said you were going to have?
    Mr. POLLACK. Yes, of course they do and, you know, what is 
really important in this inquiry is not to confuse two 
different sets of things.
    One is verification of information that looks 
retrospectively, which is really the issue that is currently 
being considered when they say there are a couple million 
inconsistencies. The other is prospectively. When people 
provide the best information which is accurate at the time they 
provide that information, you and I don't know, they don't know 
whether in the middle of the tax year their employer is going 
to give them a bonus, whether their employer is going to 
increase their salary, whether there is going to be a 
difference in overtime pay. Those are the kinds of things that 
will be checked later on at the end of the tax year. That does 
not mean that the application that has been filed has current 
inaccuracies.
    I am concerned that the retrospective effort--I am sorry, 
that the effort at trying to adjust tax credits in the 
following year, which may have to look at things that nobody 
predicted and that are not contrary to what the information 
that was provided in good faith could result in a tax 
liability, but that is very different than saying that there 
are current inaccuracies.
    Mr. MCDERMOTT. It sounds to me like the testimony of some 
of the other witnesses is fear mongering to make people afraid 
to say, I think my income this year is going to be $30,000, and 
therefore I would be eligible for X amount of subsidy, and to 
take it, because it may turn out that something changes during 
the year and suddenly they are faced then with, it was $40,000 
you made, you owe $500 back. Is that a fair statement of what 
the----
    Mr. POLLACK. Yeah. There is no question that those who have 
opposed the Affordable Care Act have tried to deflate the 
number of people who apply for coverage and seek subsidies.
    Thankfully, the Affordable Care Act did better than anyone 
predicted. Over 8 million people actually enrolled in private 
coverage, about 5 million people enrolled in Medicaid coverage, 
another 1 million enrolled in Medicaid coverage in April after 
the first enrollment period expired, but thankfully people, 
when they get counseling--and they are receiving counselors. 
There are navigators and assisters that are providing 
information to people so that those who are unfamiliar with the 
form and have difficulties with the form can fill it out 
accurately.
    Mr. MCDERMOTT. And was there anything in that process when 
they were filing that said, give us your income for 2 years ago 
so we can match what you tell us with what you received 2 years 
ago? Was that the earliest--the best data available to the IRS?
    Mr. POLLACK. Yeah. Well, of course when we move away from 
this shoebox mentality that we have had with social welfare 
programs where people have to come in with W-2's and 1099's and 
a host of other data, now we are doing it digitally, and what 
we then do is verification digitally. What we can only do with 
the best data that we have, and the best data that we have with 
respect to income is income in the tax files of a couple years 
ago.
    Mr. MCDERMOTT. So if I am making $30,000 now, maybe I was 
making 27 when I--the last time, in 2012. So when I report 
$30,000 as my income today, it will be matched against that 27 
of 2012, and it will look like an inconsistency, right?
    Mr. POLLACK. Yes and especially any inconsistency that 
exceeds 10 percent, and that--from $2,700 to--$27,000 to 
$30,000, that is an increase a little above 10 percent, that 
will appear to be an inconsistency, but it doesn't mean that 
the $30,000 response was inaccurate.
    Mr. MCDERMOTT. So what is being created here is the 
impression that there are thousands of people sitting out there 
saying, I think I will put my income down real low so I can get 
a big subsidy and see how far I could get with it. Is that a 
fair way to characterize?
    Mr. POLLACK. Well, I don't think people----
    Mr. MCDERMOTT. And I yield back the balance of my time.
    Mr. POLLACK. I don't think people are looking at it that 
way.
    Chairman BRADY. If you would like to answer in a later 
question or submit it in writing, that would be perfect.
    Mr. POLLACK. I would be happy to do so.
    Chairman BRADY. Chairman Boustany.
    Chairman BOUSTANY. Thank you, Chairman Brady. The Oversight 
Subcommittee of Ways and Means has had multiple hearings 
looking at improper payments in various areas of the Tax Code, 
and we have tried to focus on this nexus of complexity in the 
Code and how it leads to improper payments, what is the IRS 
trying to do to deal with all this, and the compliance burden. 
We know that improper payments come about from identity theft, 
honest miscalculation, or the government's inability to 
administer credits properly. We know that refundable credits 
are very difficult from an administration standpoint, and that 
is based on multiple conversations I have had with the IRS 
Commissioner, privately as well as in hearings. And I 
referenced government-wide, just under 5 percent improper 
payment rate. EITC is more problematic, and we still have not 
gotten a full handle on this. But Mr. Holtz-Eakin and Mr. 
Ellis, comment on the vulnerability that this premium tax 
credit is going to pose in terms of creating significant 
improper payment, and what can the Federal Government do 
better, if we are going to have this system, and I would 
submit, I think, the policy prescription is pretty flawed, and 
we are seeing the implementation flawed as a result; but given 
that scenario, what can we do?
    Mr. HOLTZ-EAKIN. I guess the thing I would like to 
emphasize is that the reason I am concerned is because of the 
EITC experience, and this committee has looked at it for a 
number of years I know. There is no income attestation in the 
EITC. This is not about inaccuracies in attestations. It is 
about correctly delivering the right amount of a refundable 
credit to a deserving individual, and we get that wrong at 
alarmingly high rates, 1 in 5, hundreds of billions of dollars. 
And that track record is the focus of my concern.
    It can be improved by effective electronic information 
sharing, and there is, you know, great efforts by the IRS to do 
that. I think at the startup of the ACA, there is going to be 
big problems there. We know that, in fact, the States have 
simply not been asked to do that. If you are on a Federal 
exchange, there was an attempt to check the records a few years 
ago; but I think for a number of years, until the employers are 
fully in the system and the matching and error checking is done 
effectively, it is going to be impossible, regardless of 
attestation, to simply line up the records and give the right 
amount of money out, and that is my concern.
    Chairman BOUSTANY. This level of complexity, especially 
with the problems they are having with the employer mandate and 
the reporting is significant. Ms. Mahoney laid out a number of 
major concerns in that regard. And I know we have talked, I 
think you have testified before about the additional $30 
billion in regulatory compliance on taxpayers because of the 
Affordable Care Act. How does this situation with the subsidy 
eligibility process, employer reporting as we know the status 
today, these requirements, how will they really add to the 
compliance cost, and what is the effect going to be both on tax 
compliance and economic growth?
    Mr. HOLTZ-EAKIN. I have been concerned for quite some time 
that the Affordable Care Act does not cost you anything like a 
pro-growth policy at a time when the U.S. is recovering poorly 
from a very deep recession. And so as a whole, it goes in the 
wrong direction. This is not what you would do to stimulate 
economic growth. The particulars of the compliance costs are 
quite troubling because the number is high, the paperwork and 
self-reported compliance cost--these are all figures from the 
agencies themselves--look like $300 billion over a 10-year 
horizon. Much of it is going to be visited upon a very low 
income population, the deserving targets of the exchange 
subsidies. They are the ones who are going to have to report 
every change in their personal lives quarterly to these 
exchanges. They are the ones that are going to have to identify 
the information statements that come in the mail, file new tax 
forms that they did not previously have to file, do the 
reconciliation, perhaps be denied their EITC until a second 
filing confirms the appropriateness of their subsidy. Those 
compliance costs are going to visit on that population, and 
that is not going to improve their economic lives.
    Chairman BOUSTANY. Mr. Pollack quoted Shakespeare earlier 
to the tune of much about nothing, but I would submit that $220 
billion over 10 years is significant; and this is just one 
piece in a budget problem that we have. I would like you to 
comment. I mean, this $220 billion estimate, give us a little 
more insight into where that figure might have come from?
    Mr. HOLTZ-EAKIN. How big is that? I mean, where it came 
from, if we spend $1 trillion in exchange subsidies over the 
next 10 years at roughly 20 to 22 percent inappropriate payment 
rate, that is a $220 billion taxpayer finance mistake. And that 
is not entirely hypothetical because we have had that 
experience in the EITC, which is a smaller program. For 
perspective, right now the gap between payments coming in, 
payroll taxes and premiums, and spending going out in Medicare 
is $300 billion. Crucial piece of the social safety net, $300 
billion deficit every year, that is the size of the mistake 
that we are potentially making that could be applied to 
legitimate taxpayer goals like funding programs they want and 
reducing taxes they don't think they need.
    Chairman BOUSTANY. Do you think the error rate, we are 
basically, for the sake of calculation, using a 20 to 22 
percent error rate, do you think it is going to be higher? This 
strikes me as being actually more complicated than the EITC and 
suggests to me that the error rate could be higher.
    Mr. HOLTZ-EAKIN. Well, the EITC asks you to provide at the 
individual level, household level, your income, family size, 
the parameters of qualification for your credit. This is that, 
plus the employer side on affordable insurance, and it is by 
definition more complex and leads the situations that Mr. Ellis 
talked about where you might decide something is unaffordable 
for an individual, send them off to the exchanges, look at the 
family unit as a whole, decide it was affordable, they got the 
subsidies inappropriately. They are now in a very bad position 
of owing the entire amount back, perhaps with quite large 
penalties. It is going to be difficult to operate effectively.
    Chairman BOUSTANY. Ms. Mahoney, do you want to add anything 
to this? You focused a little bit on the employer reporting 
requirements and the complexity there. Is there anything that 
you would like to add?
    Ms. MAHONEY. I think that one thing to consider is that 
businesses are very different in terms of their population of 
employees, in terms of the size of their company, in terms of 
whether they self-insure or do not self-insure. And so one of 
the things that we would like to continue to see is flexibility 
in terms of what compliance means for the reporting 
requirements because there are so many different types of 
businesses and different types of employees with variable 
hourly employees as opposed to seasonal employees as opposed to 
a population that you anticipate their hours very clearly. So I 
think that adds a huge layer for the employer.
    Chairman BOUSTANY. To put all this back into perspective, 
some very disturbing trends have already emerged, and as a 
physician, I know what the impact of this will truly be. We are 
now seeing more people in the emergency rooms across the 
country. This means that a lot of people who need medical care 
are getting their first line care in the emergency room where 
it is more expensive, typically later in the process, and it is 
certainly not the best way to establish a high-quality doctor-
patient relationship. I don't think this was the intent of this 
law, but this is the consequence of a flawed policy. With that, 
I will yield back, Mr. Chairman.
    Chairman BRADY. Thank you, Chairman. Ranking Member Lewis.
    Mr. LEWIS. Mr. Pollack. It is good to see you again. Thank 
you for being here. Thank you for continuing to fight the good 
fight. Almost 50 years ago you were down in Mississippi in the 
heart of the Delta trying to help people get registered to 
vote. Fifty years later you are still fighting, standing up for 
what is fair. Just thank you for being here. As you travel 
around the country, what do you see? What do you hear about the 
Affordable Care Act? What are the American people saying about 
it? And I want you to take your time, and if you want to 
respond to anything, I want you to use my 5 minutes to say what 
you want to say.
    Mr. POLLACK. Thank you. Thank you, Mr. Lewis. You know, the 
last Census Bureau report tells us something that is truly 
extraordinary. What the Census Bureau reports said was that 
there were 48 million people in our Nation who are uninsured. 
You know, it is hard to put your arms around that number, 48 
million. So think about it this way: Take the entire population 
of Oregon, and then Oklahoma, and then Iowa, and New Mexico, 
and Mississippi and Utah, Nebraska, Montana, North Dakota, 
South Dakota, Connecticut, Arkansas, Kansas, Nevada, West 
Virginia, Idaho, Hawaii, Maine, New Hampshire, Rhode Island, 
Delaware, Alaska, Vermont, and Wyoming, 24 States, and you 
aggregate the population together and throw in the District of 
Columbia, and you have fewer than 48 million people.
    What the Affordable Care Act does is it changes that, and 
we have seen some significant improvements already. For 
example, we just learned from the Gallup Survey that the number 
of people who are uninsured has reduced very significantly, and 
that is very important. But the Affordable Care Act is doing a 
whole lot more. It is providing peace of mind to people, people 
who had preexisting health conditions like asthma or diabetes 
or high blood pressure or history of cancer, they no longer 
have to worry whether they can get health insurance from an 
insurance company. Young adults who can't afford insurance are 
now getting coverage, over 3 million of them, through their 
parents' policy. And a lot of people who could never afford 
health insurance before are now receiving significant subsidies 
that makes premiums affordable and that make out-of-pocket 
costs affordable. And community health centers are receiving 
more money to serve more people.
    So the Affordable Care Act has taken some very important 
steps that are long overdue, and in the process, it is also 
doing something about health care costs that Mr. McDermott 
talked about. It is aligning payments so we pay for quality 
rather than quantity of care. It is improving quality 
effectiveness research to make sure that the care we get is the 
best care possible. It is improving coordination of care. Those 
are all very important steps, so I am really thankful that the 
Affordable Care Act, which is by no means perfect, but it is an 
extraordinary step in the right direction.
    Mr. LEWIS. Thank you very much. Mr. Chairman, I yield back.
    Chairman BRADY. Thank you. Mr. Johnson is recognized.
    Mr. JOHNSON. Thank you, Mr. Chairman. I can't say what I 
want to say. You know, defenders of the President's health care 
law claim the problems we are talking about today are 
predictable challenges in implementing new programs, the 
administration is working out the kinks and the problems will 
go away. I don't think that is true, is it? Mr. Holtz-Eakin, 
are the problems of income reconciliation, unexpected tax debt 
or potential waste, fraud, and abuse issues of implementation, 
or do they go to the very core of how this law operates?
    Mr. HOLTZ-EAKIN. As I said in my opening statement, I think 
there are lots of issues that will arise in the first filing 
season due to the deferral and waiving of some of the 
provisions, but the fundamental issue is much like the EITC and 
other programs and will not disappear. It is a problem in the 
design.
    Mr. JOHNSON. Well, I guess we have to wait and see. Mr. 
Ellis, as a tax preparer, what are your biggest concerns about 
the 2015 tax filing season?
    Mr. ELLIS. My biggest concern is that there is a lack of 
education that is happening on both the preparer side and on 
the taxpayer side, that there is going to be a completely 
different dynamic in the tax interview for many of these 
clients next spring than we have had up until this point. We 
are going to have an added dimension of having to deal with 
this, and really everyone I think is going to be caught flat-
footed in this. Taxpayers are not going to expect it coming. 
They, frankly, come in with a big pile of paper and have no 
idea what they are bringing to a tax meeting. That's the honest 
truth. This will simply be added to that pile.
    They won't be prepared to answer the type of questions that 
we are going to have to ask as tax preparers, tax preparers 
having to deal with a completely new set of forms and a 
completely new process to interview taxpayers are also ill-
prepared for this.
    So my biggest concern is that we are going to have a lack 
of information all around, and then that doesn't even bring 
into account the agency, the IRS, and their ability to educate 
both taxpayers and preparers in that regard.
    Mr. JOHNSON. Well, and they are going to be unable to 
fathom all the facets of this law I think ultimately. Thank 
you, Mr. Chairman. I yield back.
    Chairman BRADY. Thank you. Mr. Davis.
    Mr. DAVIS. Thank you. Thank you very much, Mr. Chairman. I 
want to thank the witnesses. You know, I was in church Sunday, 
and I was kind of touched with the message that the pastor 
gave, and he was trying to figure out why it is that sometimes 
we see things and just refuse to believe it, that he was 
pushing the fact that what the eyes see, the heart must 
believe. And so it amazes me that we continue to hear that ACA 
is not working when we can see, if we put in perspective, more 
than 8 million people have marketplace health insurance plans, 
including more than 6 million who are receiving tax credits. 
Approximately 6 million lower wage individuals have enrolled in 
Medicaid coverage, 6 million young adults have been able to 
stay on their parents' health plan; 129 million Americans with 
preexisting conditions, including 17 million children, can no 
longer be denied coverage or charged higher premiums because of 
their conditions; and more than 100 million Americans no longer 
have a dollar limit on their coverage, providing them and their 
families with peace of mind that they will not go bankrupt if 
they are diagnosed with an expensive disease.
    The bottom line is that the ACA helps people with 
preexisting conditions, those who are between jobs wanting to 
become self-employed, and obviously this is a tremendous amount 
of improvement.
    Mr. Pollack, you have indicated that as you have talked to 
people and get the impressions from them how they see this, if 
they see it one way, I am wondering, why do so many other 
people seem to see it another way? Or if their hearts just 
refuse to believe what their eyes see. How would you respond to 
that?
    Mr. POLLACK. I think there are three words that really 
reflect what has happened to people who are gaining coverage 
through the Affordable Care Act. Those three words are "peace 
of mind." People now know that when they or a family member 
need care, they will be able to receive it, and I think that if 
you take a look at the surveys of those people who have 
enrolled, you will find that by an extraordinary margin, people 
are very happy with that. And I think as more people get 
enrolled, and more people will get enrolled over the course of 
the next year and the following year, I think you are going to 
see that the American public understands that the Affordable 
Care Act provides a very significant contribution to the 
improvement of America's health care system. It is by no means 
perfect, and we are still going to have to make some changes to 
it, but it is a big step in a positive direction.
    Mr. DAVIS. Thank you very much, and I just hope that their 
hearts will catch up to their eyes, and they too will see that 
the Affordable Care Act is what America needs, and I yield 
back, Mr. Chairman.
    Mrs. BLACK. [Presiding.] Mr. Roskam.
    Mr. ROSKAM. Thank you, Madam Chairman. Mr. Holtz-Eakin, I 
noticed the first point that you made in your opening remarks I 
thought was interesting, and you cited the complexity of the 
Affordable Care Act, and I want to follow up on that. You know, 
one of the reasons that we have this hearing today is because 
it is so complicated that the administration is calling upon an 
honor system that just basically says, you know, you all just 
report in, and we will attribute, give that the imprimatur of 
actuality on it. We will just assume that what you say is true 
because it is so big and it is so complex and it is so 
difficult that the administration can't deal with it. We know 
that the Congressional Budget Office recently came out, and 
they said, in part, that some of these elements of the 
Affordable Care Act are so complicated and so difficult to 
discern that the Congressional Budget Office can't get its arms 
around the totality of this impact, and not to indict the CBO, 
they are just saying this is the reality, and the footnote in 
part says that CBO and Joint Committee on Taxation can no 
longer determine exactly how the provisions of the ACA that are 
not related to the expansion of health insurance coverage have 
affected their projections of direct spending and revenues. 
Then it goes on, isolating the incremental effects of those 
provisions on previously existing programs and revenues 4 years 
after enactment of the ACA is not possible.
    In other words, it is so big and it is so complicated and 
it is so overwhelming that a few months ago they were able to 
estimate that the 10-year cost was $1.3 trillion, and now they 
have said it is too big, there is no way to get our heads 
around this.
    One of the remedies, I believe, and I am interested in your 
insight in this, is legislation that I have introduced along 
with 80 Members of the House calling for a Special Inspector 
General to monitor the Affordable Care Act. The thinking is 
this incredibly complicated piece of legislation that 
implicitly is so complicated that the administration can't get 
its heads around it is implementing the honor system.
    Explicitly, the Congressional Budget Office says it is so 
big and complicated, we can't get our heads around this thing, 
that I think it is time for us to enact similar to what 
happened with the Troubled Asset Recovery Program, similar to 
Inspectors General on Iraq and Afghanistan, and an overall 
Inspector General to get the information to report back and to 
get our arms around these big questions. Can you give us any 
insight or thoughts you have, particularly on a large Inspector 
General and how the need for that? Am I overstating this? Am I 
overcharacterizing it? How would you think of that.
    Mr. HOLTZ-EAKIN. Well, first of all, I would, you know, 
issue the caveat that I haven't read your bill.
    Mr. ROSKAM. It is really good reading. You would love it.
    Mr. HOLTZ-EAKIN. I am remiss, I know I should have. The 
Inspector Generals have been very valuable additions to 
agencies, they have, and I think the track record of their 
bringing to light inefficiencies, outright malfeasance, things 
like that is superb. What is unique about this law is really 
its breadth, the number of agencies it encompasses. I wouldn't 
even be able to list them all. You have got DHS, IRS, Treasury, 
you have got HHS, you have got the Social Security 
Administration, the list goes on. Each of the IGs in those 
agencies is probably very good and looking as carefully as they 
can at the operations, but they are not going to see the big 
picture, they are not going to ask the question, are we seeing 
an efficient, good-faith implementation of the law that the 
Congress passed and the President signed. It makes sense to me 
to put someone in that position, particularly for such a very, 
very large amount of money. This is an extraordinarily 
important and large program. It makes perfect sense from that 
perspective.
    Mr. ROSKAM. Let me just direct you specifically to three 
questions that we prepared in advance. Is there any entity 
today that could give us an accurate report of how taxpayer 
dollars are being spent for this law across the entire Federal 
Government, the interactions with State government and the 
private sector?
    Mr. HOLTZ-EAKIN. No.
    Mr. ROSKAM. Do you agree that SIGMA would bring, that is 
this Special Inspector General Monitoring the Affordable Care 
Act, as you have come to understand it would bring much needed 
clarity to the law that has been haphazardly implemented, and 
where there are strong concerns about waste, fraud, and abuse?
    Mr. HOLTZ-EAKIN. Yes, because the implementation is now 
more important than the law. It has been so uneven.
    Mr. ROSKAM. And regardless of someone's perspective on the 
Affordable Care Act, isn't it a rational thing to say more 
information as it relates to the implementation of the law is a 
better thing?
    Mr. HOLTZ-EAKIN. Absolutely.
    Mr. ROSKAM. I yield back.
    Mrs. BLACK. The gentleman from Nebraska, Mr. Smith, is 
recognized.
    Mr. SMITH. Thank you, Madam Chair. Mr. Ellis, can you 
explain the difference between inconsistencies, that is, the 
difference between information entered on an application and 
government records, and then ineligibility based on an offer of 
affordable employer-sponsored insurance? Now, in the case of 
inconsistency the applicant will receive a notice of 
inconsistency; is that correct?
    Mr. ELLIS. That is correct.
    Mr. SMITH. And then they will have the opportunity to 
rectify those inconsistencies, would that be accurate?
    Mr. ELLIS. That is accurate.
    Mr. SMITH. So in the case of an applicant, I would say 
someone acting in good faith who receives a tax credit not 
realizing or fully understanding they are ineligible because 
they or a family member were offered employer-sponsored 
coverage will receive an inconsistency notice. What will they 
owe when the error is identified?
    Mr. ELLIS. If the taxpayer in question was eligible for 
affordable employer-provided insurance, they would owe the 
entirety of their advance tax credit back. If they were simply 
given an overage, they would owe back the extra amount 
presuming that they make more than a certain amount of income 
as set in law by statute.
    Mr. SMITH. Now, if they did not have a refund coming, what 
would happen in that case? In that case they would have a 
straight liability to the IRS. They would have to do a payment. 
That payment could potentially have interest, and also if 
payment does not happen, the liens and levies that were 
discussed earlier could also come into play.
    Mr. SMITH. Okay. Mr. Pollack, would you agree with that 
analysis?
    Mr. POLLACK. Yes, I do.
    Mr. SMITH. So that a taxpayer acting in good faith could 
see a lien coming as a result of the complexities of the Tax 
Code?
    Mr. POLLACK. Is that a hypothetical potential? Of course 
there is. But the real issue here is really not the error 
scenario that we are focusing on right now. The real potential 
is for liability is not significantly in errors as we talked 
about errors before. It is because when people honestly, 
accurately portray their current circumstances, and they 
receive a tax credit subsidy accordingly, where the potential 
for liability is significant is that despite the fact that the 
response was honest and accurate, things change over the course 
of the year. Someone may have gotten a bonus in terms of their 
compensation. They may have received an increase in their 
salary. They may have had more overtime than they had expected.
    There are a variety of factors like that which mean that 
the accurate, not error, information provided by an individual 
changes over the course of that year. And that will result in a 
potential liability. That is what I think may very well happen 
in April of 2015. I do not believe that we are going to see 
liability to any significant degree because of errors as we 
have been talking about it in this hearing. It is what happens 
prospectively that was unpredictable, rather what happened 
retrospectively that was reported inaccurately.
    Mr. SMITH. My concern is that the Tax Code was already very 
complicated before we added more complications as a result of 
this healthcare issue, and my concern is that a taxpayer acting 
in good faith and wishing to do the right thing could see a 
pretty significant penalty. Thank you. I yield back.
    Mrs. BLACK. The gentleman yields back. The lady from 
California, Ms. Sanchez, is recognized.
    Ms. SANCHEZ. Thank you. I want to thank our chairmen and 
our ranking members for this hearing. I want to begin by 
pointing out that the Affordable Care Act is working. Gallup 
recently found that the percentage of uninsured Americans has 
dropped to 13.4 percent, which is the lowest recorded rate 
ever. More than 8 million people have signed up for exchange 
plans, with 6.8 million of those receiving an average tax 
credit of $4,400 to provide the peace of mind of having health 
insurance, many for the first time.
    Another 6 million have enrolled in Medicaid thanks to the 
ACA's Medicaid expansion, including 1.4 million people 
enrolling in California's medical system, and I could go on and 
on with numbers, but the bottom line is that the ACA is helping 
people, people with preexisting conditions, people between jobs 
and many, many others.
    Now is the law perfect? Well, no law is, but a tremendous 
improvement over the discriminatory, dysfunctional, and 
irrational market that existed prior to its enactment, it is 
doing much better. And we can agree that some of the issues 
that HealthCare.gov have encountered are unacceptable. However, 
it is not the first time that we have seen a troubled rollout. 
The implementation of Medicare Part D was riddled with false 
starts and complaints, but we didn't defund it and we didn't 
repeal it. We didn't throw our hands up in the air and woe is 
me because it is complex or it is a little bit difficult or it 
could change.
    So let's just all stop kidding ourselves and admit that 
there will be glitches with the ACA, but if we spend our time 
working together to ensure that the law worked, maybe we could 
make it easier for families to buy affordable health insurance. 
But the hearing today unfortunately does very little to 
accomplish that goal. It is clear that this hearing is just 
another attempt to bash the ACA and play politics with 
Americans' livelihoods.
    Like most Republican hearings we have had recently, this is 
meant to produce a lot of noise and some crocodile tears but 
very few solutions moving forward. The majority is playing up a 
false sense of populism and claims that they are worried about 
people owing a huge tax bill to the IRS during the 2015 filing 
season. Well, I think that is ironic given that the Republicans 
eliminated improvements made by Democrats, and they want 
Secretary Lew to halt all tax credits that make health 
insurance more affordable.
    I think it is unconscionable, and that kind of demand 
demonstrates that Republicans are out of touch with everyday 
American families. Life is complicated, yes. And it is full of 
surprises. People get new jobs, they get married, they have 
children, they move from State to State. The verification 
system known as true-up ensures that tax credits accurately 
reflect the changing nature of people's lives, and I am one of 
those examples.
    I have a biological son and I have stepchildren. I come 
from an immigrant family, and I use an accent over my last 
name. And my life, like so many southern Californians, could be 
considered complicated, but the ACA will recognize those 
complexities through the verification process during next 
year's tax filing season. HHS has been transparent about the 
process and has tried to be proactive in its outreach. We 
shouldn't deny Americans the assistance they need to buy 
affordable health care just weeks after they have received it. 
So if we spent a little more time really caring about the needs 
of real people instead of trying to tear down the law and 
defund it or repeal it, we might be able to work together in a 
constructive way, in a bipartisan way, to help ensure that 
Americans receive quality, affordable health insurance, and I 
am sorry for stepping on my soap box just now, but I felt it 
was important to point that out through this entire hearing.
    What I would like to do is I would like to ask Mr. Pollack 
what happens if we repeal or defund the Affordable Care Act as 
Republicans have suggested time and time again? What happens?
    Mr. POLLACK. Ms. Sanchez, I don't think we are going to 
repeal the Affordable Care Act. We are not going to defund the 
Affordable Care Act. There are 8 million people who are now 
receiving subsidies, who are receiving coverage. Most of them, 
85 percent are receiving subsidies. Five million people are 
receiving coverage through the Medicaid program, or CHIP. Three 
million kids are getting coverage through their parents' 
policies. We are going to see those numbers increase 
substantially. I don't think that this Congress, I don't think 
any Congress is going to take away these benefits that are so 
important that make health coverage affordable for the first 
time.
    Ms. SANCHEZ. Let me ask you what I hope is a constructive 
question, which is how can we work to improve the application 
process for immigrant families in particular?
    Mrs. BLACK. Mr. Pollack, the lady's time is expired. We 
will ask that you submit the answer to this question in 
writing. Thank you.
    The gentlelady from Kansas, Ms. Jenkins, is recognized.
    Ms. JENKINS. Thank you, Madam Chairman. Thank you for 
holding this hearing and thank you all for joining us today. A 
month ago, our Oversight Subcommittee was able to host IRS 
Commissioner Koskinen at a hearing on the IRS filing season. At 
that hearing, I asked Mr. Koskinen about the administration of 
the Affordable Care Act's premium tax credit reconciliation 
process. As we have already covered at today's hearing, the 
ACA's premium tax subsidy will be based on folks' income 
estimates, and these estimates will often use the prior year's 
tax returns. Taxpayers will eventually have to reconcile the 
premium subsidies they received with the amounts they were 
eligible to receive based on their actual income. In many 
cases, whether it is due to a salary increase, move across 
State lines, or other change in situation, they could find 
themselves owing thousands of dollars back to the IRS.
    Recently CMS data indicated that 1.2 million enrollees had 
discrepancies related to income, and this is before we begin to 
factor in life changes that will occur throughout this year. I 
have asked Mr. Koskinen if he believes that taxpayers fully 
understand the risk that comes with failure to report a life 
change to the exchange and how they will handle the 
reconciliation process. He responded that the IRS is concerned 
that taxpayers need to understand the risk, and they are 
beginning to publicize this so that taxpayers have various 
modes of outreach, including their Web site and that he hopes 
that taxpayers will notify the exchange so that they will not 
be surprised.
    Mr. Ellis and Mr. Skarlatos, would you be willing to answer 
a few questions for me? Do you think that taxpayers are at all 
aware of their obligation to notify the exchange with their 
good news of getting a raise or marriage throughout the year, 
and do you believe that taxpayers understand their risk of 
failing to do so? Mr. Ellis.
    Mr. ELLIS. No. Because if there is one constant in the tax 
preparation industry, it is that people forget about the IRS as 
quickly as they can once they file their tax return, and they 
don't think about it again until the next January.
    Ms. JENKINS. Mr. Skarlatos.
    Mr. SKARLATOS. I don't think taxpayers are aware. I think 
that is what tax preparers should be doing with them. They 
should be educating them as much as they can.
    Ms. JENKINS. Okay. Thank you. Do you believe the IRS' 
efforts to publicize this information, either through a YouTube 
account or their Website, will make taxpayers understand their 
obligation?
    Mr. ELLIS. That requires taxpayers to have the interest to 
go to IRS.gov or to be recipients of the information in some 
other way that they would actually see it. Based on my 
experience with real world people that actually file their 
taxes, I think that is incredibly unlikely.
    Mr. SKARLATOS. I agree. I think it is unlikely. I think the 
burden again should be on the tax return preparers to educate 
the taxpayers. Ms. Jenkins. And as someone who has prepared tax 
returns and has had to deliver bad news to taxpayers regarding 
refunds, are you concerned the tax preparers will be the real 
frontline of taxpayer education at a time when it is too late.
    Mr. ELLIS. There is a joke inside the tax preparer world 
that it is always the taxpayer's fault when you are in a 
meeting with a client, and I think that is probably going to be 
exacerbated here. I think the tax preparers themselves are 
going to be very unprepared for this. They are going to be 
talking to people who make a modest amount of income by 
definition. The 400 percent of Federal poverty line is not a 
very high level of income. These are not people that have a lot 
of liquidity to be able to deal with surprises. So, yes, I 
think it will be very tense, those conversations between 
preparers and clients.
    Mr. SKARLATOS. I agree. The Tax Code is very complex. The 
tax return preparers are the gatekeepers to the system, and it 
will be difficult for them to educate taxpayers in this way, 
but it is really the only way it can be done.
    Ms. JENKINS. Thank you. I yield back.
    Mrs. BLACK. Mr. Paulsen from Minnesota, you are recognized.
    Mr. PAULSEN. Thank you, Madam Chair, and thank you also for 
presiding over the hearing today.
    Just to recap, when the President's health law was passed 
back in 2010, the law called for verifying individuals' income 
in order to determine if they are eligible to receive a 
subsidy. The administration said we are not going to enforce 
that provision. So Congress moves in, re-passes legislation, 
the President signs into law that includes the provision once 
again that we require income verification. But then today now, 
we know that there are over 2 million people of the 8 million 
that are in the exchanges, these applicants, have unresolved 
inconsistencies. So that means 25 percent of applicants in the 
exchanges had discrepancies. This isn't a glitch. This is 
clearly a systemic issue, and so the May 17 Washington Post 
report showing that as many as 1.5 million people; there are 
cases of significant inaccurate subsidy payments now due to 
incorrect income data.
    In other words, there is no verification resulting in 
millions of taxpayers, families being on the hook potentially 
for billions of dollars in waste and fraud, and some of those 
cases bear out, I think, with Mr. Holtz-Eakin had mentioned 
earlier in terms of the EITC. So we are no longer talking about 
hypothetical problems regarding the new healthcare law. We are 
talking about real risks that are in place now, and this harm 
is happening as we speak, and during next year's tax filing 
season millions of Americans are going to find out that they 
owe the IRS money because their premium credits were paid 
incorrectly.
    And the IRS and the administration in general is going to 
have to face a choice. One, they can go after innocent 
taxpayers creating financial hardship and confusion for those 
millions of families; or two, just and choose to once again 
ignore the law and force other taxpayers to cover billions of 
dollars in excess premium credit payments. Those are both very, 
very bad choices, and it didn't have to be that way. That is 
what comes when you pass just a one-sided partisan law without 
bipartisan buy in. Mr. Ellis, is this really how the law was 
supposed to operate?
    Mr. ELLIS. Well, if you look at the actual letter of the 
law, it is operating the way it is supposed to operate. That 
speaks more to think the process not having been thought 
through properly when the law was drafted. As you point out, if 
the IRS implements the law as written, it is going to face that 
very difficult choice between going after people who have very 
modest levels of income and savings in order to pay this 
overage or simply ignoring their mandate to carry out the laws 
as written by the Congress.
    Mr. PAULSEN. Let me just follow up because as a tax 
preparer, you know what questions to ask when people seek your 
services. But what about the people who don't seek your 
services? Typically how are they going to know? How are they 
going to know what they are responsible for as a part of 
verification, and aren't those typically lower income Americans 
or individuals or families that aren't seeking your services 
that are going to be trapped in this situation?
    Mr. ELLIS. Well, by definition if you look at the upper 
band of who is going to be affected by this, people that are 
receiving premium credits at all, 400 percent of the Federal 
poverty line is about $44,000 for a single person. It is about 
$90,000 for a family of four. So it is everybody between that 
and below all the way down to Medicaid eligibility. So many of 
those people are not today using tax preparers. They will 
continue to file their tax returns or not as they have up until 
the past. When they are going to find out about it is when they 
are going to get a notice of deficiency from the IRS after they 
file.
    Mr. PAULSEN. Mr. Holtz-Eakin, I just want to give you a 
chance to respond too real quick maybe to that or a couple of 
those points if you could.
    Mr. HOLTZ-EAKIN. I think that's exactly right, and my 
concern is that for this population, they are going to be in 
uncharted waters. There is a question about whether some of the 
State exchanges will be able to get the information statements 
to the recipients, their subsidy payments. Once people receive 
it, will they know to hold on to it, this is something they 
need or it was about that health thing they already did. Do 
they know to go to a preparer and thus send a reconciliation 
form? If they don't send in a reconciliation form, my 
understanding is the IRS is simply going to reject the tax 
return and tell them to start over. That will be a shocker, 
particularly if they are used to getting an EITC. It can be a 
bumpy ride in 2015.
    Mr. PAULSEN. Thank you, Madam Chair. I yield back.
    Mrs. BLACK. The gentleman yields back. The gentleman from 
New York, Mr. Crowley, is recognized.
    Mr. CROWLEY. Thank you, Madam Chair. It is really a 
remarkable hearing today. It is unbelievable in many respects 
to me that my colleagues are willing to say and do just about 
anything to tarnish the Affordable Care Act and undermine 
access to health care in this country. Let me be very clear 
about a few things: One, the vast majority of what we are 
talking about when we hear inconsistency isn't fraud. It isn't 
malicious or a sign of anything bigger. These are expected, 
anticipated issues that happen with any Federal program 
checking various items of data.
    Two, there is, in fact, a verification system. It happens 
now as we speak and it is clearing the majority of 
inconsistencies. And three, there was a backup verification 
process that happens at the next tax filing when we know what a 
person's actual income was for that filing year. This 
reconciliation process is necessary and helpful because 
people's incomes, as has been stated over and over again, and 
family circumstances change over the course of a year, 
hopefully for the better. Some people maybe didn't get all the 
tax credits that they were entitled to, in fact. But what's 
shocking to me is all the fake outrage from my colleagues on 
the other side of the aisle about this reconciliation process 
when they have voted time and again to make this process harder 
on working families.
    After passage of the Affordable Care Act, Democrats worked 
to improve this reconciliation process, so families wouldn't 
see their income taxes raised if they received even a small 
end-of-the-year bonus. But opponents of this law in their 
unending zeal to undermine the Affordable Care Act and to scare 
away people from accessing health insurance went back to this 
again and again to undo all the improvements we made and 
actually made it worse than before.
    I guess using Speaker Boehner's metric of judging this 
majority based on what the undo rather than what they do, they 
consider what they have done a success.
    And that is not even enough for them. Twice more, they put 
forward proposals to completely repeal all protections for 
families to repay tax credits that turned out to be more than 
they needed. So when you hear them now crying crocodile tears 
about the burden on people to pay back some or all of their tax 
credits, remember that they themselves have themselves to thank 
for increasing this tax burden.
    Madam Chairlady, I would like to ask unanimous consent to 
enter into the record each of these Republican attempts to 
force a tax increase on working families, H.R. 4, H.R. 5652, 
and H.R. 436.
    Mrs. BLACK. Without objection.
    [The documents follow: Rep. Joseph Crowley 1, Joseph 
Crowley 2, Joseph Crowley 3]


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Mr. CROWLEY. We tried to get our colleagues on the other 
side of the aisle to see what they were doing. We told them it 
was a tax on working families. Mr. Ellis, even your boss, 
Grover Norquist, admitted as much in his letter he sent to 
Chairman Camp back in 2011, calling this a gross tax increase 
but then saying never mind. It is okay because it is tucked 
into a bigger bill. Every time, and they brought it back up 
repeatedly. We asked them to not put this burden on American 
families. What did we hear in response? Crickets. We heard 
nothing. Last summer right around the point that these same 
colleagues were beginning to change their tune to the so-called 
sympathy that is on display today, one of my colleagues on the 
other side of the aisle said that they had been told, and I 
quote, in a pretty loud tone that this would be a tax increase.
    I think that was aimed at me. I, from time to time, use a 
bellowing Queens accent, and I am proud of it. Because you know 
what I will say is this; I will speak up in a pretty loud tone 
when my constituents and hardworking Americans across the 
country are being targeted for baseless attacks.
    Mr. Ellis, I see that you are concerned about the, quote, 
liability the taxpayer will have at the time of tax filing. I 
share your concern, and that is why each of the numerous times 
my colleagues on the other side of the aisle tried to scale 
back or remove altogether protections for working families on 
how much they would have to pay back, I tried to stop it. Did 
your organization ever raise this concern to members of the 
majority? No. In fact, I have a letter here from your boss, as 
I mentioned earlier, to Mr. Camp reassuring him that your 
organization was okay with raising taxes on families as long as 
they also cut taxes and created loopholes for businesses. Your 
boss may be okay with raising taxes on individuals to cut them 
for businesses and industry, but my constituents in Queens and 
in the Bronx are not okay with that. But maybe I am just using 
too loud a tone, and I yield back, Madam Chair.
    Mrs. BLACK. The gentleman yields back. The gentleman from 
New York, Mr. Reed, is recognized.
    Mr. REED. Thank you, Madam Chair. And being from New York, 
I don't share that Queens accent. I am from the real part of 
New York, the country lawyer section of New York. I thank the 
gentlemen, Mr. Crowley, from New York. His friendship has 
always been appreciated. I just want to bring this down to day-
to-day folks, being that country lawyer from western New York 
and being an area that is very rural, and I can tell you I 
remember first getting out of college, getting out of law 
school, being with my wife, filling out my returns, filling out 
my tax returns, and, you know, I got a refund check. And like 
millions of Americans, you know, I got that refund check, and 
we did a little something with it. My wife and I would go on a 
trip for the weekend. We would maybe buy something, maybe a new 
stove or something like that that we needed around the house.
    Just so I clearly understand what is going to happen here, 
and I get a lot of Americans aren't going to do this 
intentionally. It is not going to be done fraudulently. What is 
going to happen is someone is going to misreport their income, 
they will go to fill out their return, their 1040EZ just like I 
did with my wife, and they are going to get a notice saying you 
know what, that refund check that you thought you were going to 
be able to rely on that millions of Americans have grown 
accustomed to getting every year, they are not going to get it. 
Is that correct, Mr. Ellis?
    Mr. ELLIS. It will at least be smaller because they are 
going to have to somehow some way, assuming their income is 
over a certain level, pay back any overage, yeah.
    Mr. REED. So they get an excess credit, tax credit, premium 
support payment, something of that nature, and that is equal to 
the calculated refund that they would typically get in their 
tax refund check; they are not going to get that check. Is that 
fair to say?
    Mr. ELLIS. Yes.
    Mr. REED. That is going to happen. And that is where, Mr. 
Pollack, with all due respect, when you say this is much about 
nothing, I remember those days. I remember those days. And I 
know millions of Americans are going to be looking at that 
saying wait a second. I was going to take my kids on a 
vacation. I was going to take them maybe to the zoo or 
something like that and spend a weekend with their families. 
You say, you know, to us this is much about nothing.
    Mr. POLLACK. That's not what I said.
    Mr. REED. That was your testimony.
    Mr. POLLACK. What I said, Mr. Reed--let's get it correct. 
What I said, Mr. Reed, is that the number of inaccuracies are 
going to be small, and that is much about very little. I didn't 
say----
    Mr. REED. Sir, with all due respect, I don't appreciate you 
pointing at me, and I will tell you, you said much about 
nothing.
    Mr. POLLACK. But you are misquoting what I was referring 
to.
    Mr. REED. Why aren't we telling them about it? No one wants 
to talk about this. All my colleagues on the other side, if you 
want to stand with the law, I stand for the repeal of the law. 
I disagree with it. Doesn't mean I don't care about Americans. 
I care about Americans. That is why I ran for this job. That is 
why I am doing this. If they want to stand with this law, why 
don't you tell Americans what is coming. Why don't you tell 
them what is coming down the pipeline. What is coming down the 
pipeline is Americans don't understand what this is going to do 
to them. What is going to happen in 2015, when they get that 
notice from the IRS? Are they going to say, oh, I should have 
seen that coming?
    This is what my home State of New York did. The health 
exchange circulated a notice saying during the following year's 
tax season you are expected to pay back whatever actual amount 
you took in the form of health insurance subsidies that you 
weren't eligible for after your income change. Depending on 
your situation, this can be a huge amount of money. That is 
like buried on the health exchange. I can tell you, Americans 
are working hard, just like me and my wife were. So is this the 
best that we can do to warn Americans as to what is coming? Mr. 
Holtz-Eakin, I have a lot of respect for you. Is this the best 
we can do?
    Mr. HOLTZ-EAKIN. No. I think there is a real place for an 
IRS taxpayer advocation effort in this regard. I think it has 
not happened so far and it would be time to get going.
    Mr. REED. I have to also make a comment in response to my 
colleague from New York, that somehow by waiving this 
overpayment, and that is essentially what he is talking about. 
He is just saying we are going to just waive it. You don't have 
to pay it back. What kind of responsible leadership is that? 
They have developed a system. They have stood by a law that is 
potentially going to overpay taxpayer dollars to people, and 
the best solution they can offer is, well, what we are going to 
say is don't worry about paying it back. Well, someone's got to 
pay it. That is one of the things I am frustrated in 
Washington, D.C., about. This is taxpayer dollars. It is not 
free money. This is their money. Somehow it is their money that 
they can say wave their magic wand and say we are just not 
going to pay it back. We are going to waive it. Is that the 
responsible, sensible solution that you would recommend us to 
pursue when we deal with this situation in 2015, Mr. Holtz-
Eakin?
    Mr. HOLTZ-EAKIN. Absolutely not.
    Mr. REED. That is why I am frustrated. I am frustrated, and 
this isn't much about nothing. This is a real problem. I am 
interested in solutions, but I am interested in responsible 
solutions that stand up for the hardworking taxpayer and not 
just say don't worry about it. We are not going to pay it back 
because your taxpayers are going pay it back. With that I yield 
back.
    Mrs. BLACK. The gentleman's time is expired. The gentleman 
from Georgia, Mr. Price, is recognized.
    Mr. PRICE. Thank you, Madam Chair. And I want to commend 
these two subcommittees and the committee for holding this 
hearing. I want to thank the witnesses, and I apologize for not 
being here earlier. I had a conflicting hearing. I want to draw 
attention to what title of this hearing is: Verification System 
For Income and Eligibility For Tax Credits Under the 
President's Healthcare Law. We are not talking about the health 
consequences of the healthcare law. As a physician we can go on 
and on about that. This is about the financial aspect of the 
healthcare law to real people. I want to associate myself with 
Mr. Reed's remarks. This is real stuff for real people. We are 
going to be harmed in big, big ways. Not just on the healthcare 
side, but on the financial side personally as well.
    Mr. Holtz-Eakin, I had a chance to read part of your 
testimony, and in your testimony you likened the ACA premium 
tax credits to the EITC, Earned Income Tax Credit. I wonder if 
you would explain how the two are the same and how the two are 
dissimilar?
    Mr. HOLTZ-EAKIN. As I mentioned earlier, the EITC is a 
refundable credit, as are the premium tax credits from the ACA. 
They are based on family size and earnings in the same way that 
the ACA has subsidies up to 400 percent of the Federal poverty 
line, different amount, bigger for lower income individuals. 
The key difference is that is where the EITC stops. It is based 
strictly on the household's tax return, and you could do it 
based on that information. To fully implement the ACA, you need 
to have employer information as well, particularly the offer of 
affordable insurance or not, the value of that insurance, and 
its characteristics. It is a much more complicated system than 
the EITC for that reason. The matching that will go into 
multiple employers during a single year, different work hours, 
all of that complexity will become clear as time passes.
    Mr. PRICE. And the error rate in the EITC is, I think, 1 in 
5, or about 20 percent?
    Mr. HOLTZ-EAKIN. In the ballpark of 20, 23 percent, 
somewhere in that range.
    Mr. PRICE. So you have got a system that is much more 
complicated than the EITC. We already see how the Federal 
Government is doing on an error rate for the EITC, which is a 
simpler system at 20 percent; so what would you estimate the 
error rate to be for this verification system?
    Mr. HOLTZ-EAKIN. We have no track record, so I think it is 
always important to be conservative. So if you apply the 20-odd 
percent to the $700 trillion of insurance subsidies, you are 
looking at $200 billion, something in that range.
    Mr. PRICE. Hundreds of billions of dollars.
    Mr. HOLTZ-EAKIN. Yes.
    Mr. PRICE. And, of course, the systems are set up already 
to verify the income eligibility and the like, are they not, or 
the ACA, the subsidies?
    Mr. HOLTZ-EAKIN. No.
    Mr. PRICE. The systems aren't set up?
    Mr. HOLTZ-EAKIN. No, sir.
    Mr. PRICE. So we have already started this program. We have 
got an error rate on a program that is similar in some ways of 
20 percent; and the systems aren't even set up to provide the 
income and eligibility verification?
    Mr. HOLTZ-EAKIN. Again, I think there is going to be two 
very big sets of problems that are different. One is the 
fundamental character of the system, which we have talked 
about. The second is next year, and the startup when 
information sharing is incomplete, the employers are not yet 
required to provide information, and the taxpayers are not yet 
understanding their obligations under the new law.
    Mr. PRICE. So let me take it in a little different 
direction, if I may. I serve on the Budget Committee as well. 
This appears to be a huge potential liability to the budget 
itself, does it not?
    Mr. HOLTZ-EAKIN. Yes.
    Mr. PRICE. So the amount of money that is projected to have 
been required to be spent by the American taxpayers to fund 
this program may, in fact, be expanding significantly; is that 
correct?
    Mr. HOLTZ-EAKIN. That is a concern, yes, sir.
    Mr. PRICE. And any quantification of that? Any way to know 
how much that would be?
    Mr. HOLTZ-EAKIN. Well, I mean, the 20 percent error rate is 
the best estimate that we have at the moment. From your time on 
the Budget Committee you know that in systems of this type, and 
the two other great examples are the EITC and then in Medicare 
where we have set up a system of pay and then go find 
inappropriate payments. Those estimates are on the order of 10 
percent, 60, $80 billion a year. So $800 billion over 10 years. 
You start adding up $800 billion there, $200 billion here, 
another, you know, $100 billion out of EITC, you can make 
significant progress on some of our problems.
    Mr. PRICE. So at a time when we continue to run significant 
deficits, at a time when we have an overall debt for the 
country of over $17.5 trillion, the spending increases in 
Washington continue, we have got a program in front of us where 
we don't even have the systems in place that will continue to 
add to the national debt?
    Mr. HOLTZ-EAKIN. The decision has been made to add to the 
national debt. My hope is that we would run it efficiently 
enough to keep it as small as possible.
    Mr. PRICE. Mr. Ellis and Mr. Skarlatos, I wonder if in my 
brief seconds remaining, what tools does the IRS have to 
provide income and eligibility verification set up right now 
for this, Mr. Ellis?
    Mr. ELLIS. That is still not clear at this point in the 
middle part of the year. To the extent that they do it 
retroactively, it is going to have to use the W-2 system, and 
that is going to have to be a lag system because as you know 
that goes to the Social Security Administration first. So that 
remains to be seen.
    Mr. SKARLATOS. I am not aware of any other tools, sir.
    Mr. PRICE. Sounds like a real headache, Madam Chair. Thank 
you.
    Mrs. BLACK. The gentleman's time has expired. Mr. Pascrell 
from New Jersey is recognized.
    Mr. PASCRELL. Now here is the real headache. Let me tell 
you what the real headache is. You are sitting over there and 
talking about taxpayers and liability when you just voted on 
$600 billion, $600 billion in tax relief which is unpaid for. 
You got a problem. You got a serious problem, and it is not 
just inconsistency. So I have heard the term ``inconsistency,'' 
and I have heard the term ``premium tax credits'' over and over 
again. Mr. Pollack, you have some friends here. I have heard 
that over and over again. Here is the problem. Flashback like 
they do on television at a sporting event, flashback 10 years 
ago. The Prescription Drug Bill. Do you remember that, Mr. 
Pollack?
    Mr. POLLACK. I do.
    Mr. PASCRELL. Do all of you remember that? Mr. Ellis, do 
you remember it?
    Mr. ELLIS. Absolutely.
    Mr. PASCRELL. Good. Then you will follow what I am saying. 
Do you remember what happened in the passage of that bill? 
Democrats, for the most part, did not accept it, voted against 
it. We were here until 3:00, 4:00 in the morning, if you will 
remember that. It passed. And what did Democrats do after the 
passage? Democrats, after the passage, went back to their 
districts--I will speak for myself--went to towns which were 
not Democratic, spoke so the seniors about, yes, I was against 
this, but now we have to make it work. Here is the equalizer. 
And you don't understand it. Here is the equalizer, Mr. Ellis.
    Instead of sour grapes and instead of burying our heads in 
the sand, we said we only have one country here. We have been 
talking about helping seniors out with the prescription drug 
plan, Plan D, for a long time, and while it wasn't the plan 
that I voted for--I voted against it--we got to make it work. 
Here is how it works. Here is how you register for it. Here is 
how you get involved.
    In fact, it was so terrible, talk about a rollout. You guys 
got short memories. You really do. You really do. You got a 
major problem here. Not only was it a poor rollout, but you had 
to depend upon the States to bail you out of the plan, to make 
it work. The States had to come up with the money.
    Mr. PASCRELL. That is only 10 years ago. I am not talking 
about ancient history. I am talking about the United States of 
America 10 years ago.
    Mr. Pollack, let me ask you this question. This is 
especially interesting. We have twice tried to repeal a 
provision in the ACA, the Affordable Care Act, that would place 
limits on the premium tax credit reconciliation, once as a way 
to pay for the repeal of the medical device tax and another to 
pay for the Republican plan to replace defense sequestration 
cuts.
    Mr. Pollack, can you discuss the impact that repealing this 
provision, the one we are talking about today, would have on 
consumers?
    Mr. POLLACK. Well, there really is an irony. I have heard 
from on both sides of the aisle concern that people may have a 
liability in April of 2015 and that liability, mind you, is 
most likely to come not because of an error, it is more likely 
to occur because there have been changes of circumstances over 
the course of this calendar year that were unpredictable. 
Somebody got a raise, somebody got a bonus, somebody had more 
overtime pay. And I challenge us on both sides of the aisle, 
let's work to try and ease the difficulties that people will 
experience, who provided information with no errors, no fraud, 
but changes occurred.
    And for those changes that occurred where somebody was 
conscientious, let's try and ease the burden of reconciliation. 
Let's go in the opposite direction and I think that makes a 
great deal of sense. It reflects the concerns that people 
expressed on both sides of the aisle, and I hope this is 
something we can do in a bipartisan way.
    But in response to your question, if we eliminate the 
protections, particularly for lower income folks, it is going 
to mean they are going to experience significant hardship.
    Mr. PASCRELL. Mr. Eakin--can I have a quick question of Mr. 
Eakin?
    Mrs. BLACK. Your time has expired.
    Mr. PASCRELL. What is time?
    Mrs. BLACK. I would like to now ask Ms. Mahoney and Mr. 
Holtz-Eakin a question.
    During the regulatory writing process, the E-FLEX 
Coalition, made a specific recommendation to the administration 
of the tax credits, to make the tax credits more accurate, and 
this is what they suggested, and I am going to quote, ``giving 
employers the option of prospectively filing information with 
the IRS about coverage available to employees through an annual 
certification process.'' Their letter went on to say that ``we 
believe that this is in the collective best interests of 
individual Americans, employers and the administration to 
ensure that the accuracy of such upfront determinations to 
avoid subjecting individuals to unexpected repayments of tax 
credits for which exchanges incorrectly deemed them to be 
eligible.''
    Now, the Treasury rejected this recommendation. Do you 
believe that was a mistake and should be revisited, and 
further, would it help employers and would it help more 
accurately administer the tax credits if this were put into 
place? Ms. Mahoney?
    Ms. MAHONEY. Thank you. I have very high regard for the 
members of the E-FLEX Coalition and their efforts. We are not a 
member of that coalition, but I would imagine that proposals 
that they put forth have viability and value to different types 
of employers. Again, it is a coalition that focuses on a 
certain segment of types of employers, and we continue to 
believe that there are a variety of different scenarios that 
employers are looking at and need a variety of different 
solutions.
    Mrs. BLACK. Mr. Holtz-Eakin, do you have an opinion on 
that?
    Mr. HOLTZ-EAKIN. I have no great detail of the specifics. 
It sounds like the kind of approach that says let's give prior 
approval before you start sending out payments. There is a lot 
of merit to those kinds of situations. You can always do audits 
and other checks to make sure that it has been done in good 
faith on a regular basis and see how that system works.
    Mrs. BLACK. Thank you for that.
    Mr. Holtz-Eakin, I want to ask you, do you know how much 
taxpayer funds that we estimate are being issued every month 
without a verification system in place? Do you have an idea 
about that?
    Mr. HOLTZ-EAKIN. Off the top of my head, no, but I would be 
happy to get a number for you.
    Mrs. BLACK. Okay. Well, on the estimated number that I have 
seen in some of the reports is $10 billion a month, $10 billion 
a month and I might say that when this law was initiated, there 
were two major planks to this law: one is that if someone did 
not have employer insurance, that they would be eligible for 
the exchanges and the subsidies, and two, that they would also 
have to have verification of their income to ensure that 
whatever those subsidies were accurate.
    We have now seen, this was the law, that neither one of 
these really is in place. One, the employer mandate has now 
been delayed until 2016. So there is really not a way other 
than attestation to say that someone does not have employer-
sponsored insurance or that what is employer-sponsored 
insurance that they are unable to afford; and, two, we see a 
verification system that is not properly in place, yet we have 
been told by this administration on several occasions and the 
attestment of the Secretary of HHS as of the first of last year 
that there were--or first of this year that this verification 
process was in place.
    We now see that either they were incompetent in believing 
that it was, or we see that perhaps that was a malicious 
statement to convince us to just get off their backs. 
Regardless, it is clear that the implementation of the 
President's health care law under this administration is 
harming Americans, we have heard that today, placing billions 
of taxpayer dollars at risk as well.
    Now that we know that 1.2 million applicants have 
inconsistencies on their basis of income, it is time that we 
put a temporary halt to the issuance of these taxpayer-funded 
subsidies until HHS can get their act together.
    And I specifically want to say that there is a bill out 
there, a bill that I have offered, H.R. 4805, the No Subsidies 
Without Verification. It was passed originally by the House and 
not taken up in the Senate and I do believe if we were to put a 
stop on this right now, it would protect taxpayers from getting 
a tax bill that they did not expect.
    In addition to that, it would also protect the American 
taxpayer from subsidies that were inappropriately given to 
folks either inappropriately because the verification wasn't in 
place or because there was fraud.
    I want to just ask one last question of Mr. Holtz-Eakin, 
because I know that you have certainly been in the forefront of 
Government and the monetary piece of what we do here at the 
government level. What have you seen in other programs where 
there potentially were fraudulent dollars given out, and in 
specific in programs like the EITC? Can you tell us what you 
have seen in the past about when those dollars are fraudulently 
given out, how much of that money is ever brought back into the 
Treasury?
    Mr. HOLTZ-EAKIN. It is very difficult to recapture funds 
once they have been inappropriately paid, and the things that 
have happened with EITC, for example, is it is a refundable 
credit but there were also efforts to make it advanceable, 
arrive on a monthly basis. Those proved to be fraught with even 
more in the way of payment errors and the potential for fraud.
    Again, if you look at the Affordable Care Act, its basic 
intent is to identify, out of 310 million Americans, those who 
are eligible for subsidies, calculate the subsidy correctly, 
deliver it in advance each month to the exchange in the state 
of the residence and the insurance company that has the plan of 
their choice. It is an extraordinarily difficult task in the 
best of circumstances, and it will be difficult to do well.
    Mrs. BLACK. Thank you very much.
    I also want to thank all of our witnesses for their 
testimony today, and I appreciate their continued assistance in 
getting answers to the questions that were asked here at 
committee that you may not have had time to answer.
    As a reminder, any member wishing to submit a question for 
the record will have 14 days to do so. If any questions are 
submitted, I ask that the witness respond in a timely manner.
    Mrs. BLACK. With that, this subcommittee is adjourned.
    [Whereupon, at 12:43 p.m., the subcommittees were 
adjourned.]

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