Monday, May 3, 2010

qotd: GAO report on IRS administrative burden of tax credits, and participation rates

Government Accountability Office (GAO)
April 30, 2010
Health Coverage Tax Credit: Participation and Administrative Costs

This report formally transmits the attached slides (at link below) in response to section 1899L of the American Recovery and Reinvestment Act of 2009. The statute required the Comptroller General to examine issues related to participation in and administrative costs associated with the Health Coverage Tax Credit program administered by the Internal Revenue Service (IRS) in the Department of the Treasury, and to provide the results to Congress by March 1, 2010.

The Health Coverage Tax Credit (HCTC) is a tax credit created by the Trade Adjustment Assistance Reform Act of 2002 that pays a share of health plan premiums for eligible individuals: certain workers who lost their jobs due to foreign competition and are eligible for Trade Adjustment Assistance (TAA) benefits, and certain retirees age 55 and over whose pensions were taken over by the Pension Benefit Guaranty Corporation (PBGC). 

Participation: fewer than 30,000 of the hundreds of thousands of potentially eligible individuals each year have participated

From 2003 through 2008, total annual HCTC participation averaged about 26,000 individuals, with declining participation since 2005.

HCTC participation increased after key Recovery Act changes took effect: The average number of advance participants per month increased by 36 percent. This was higher than the increase in the average number of potentially eligible individuals per month — 23 percent. 

Prior to the Recovery Act temporary increase, the HCTC covered 65 percent of health plan premiums.

Recovery Act changes to the HCTC in 2009 increased the credit from 65 percent to 80 percent of premiums.
 
The HCTC administrative costs to IRS averaged 17 percent of total HCTC-related costs, and most health plans reported that any additional administrative costs were minimal.

The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010 includes a tax credit to help individuals pay for health coverage. Like the HCTC, it will be administered by the IRS and available in advance as a payment directly to health plans or as a credit on participants' end-of-year taxes. A key difference between the administration of the new credit and the HCTC is that, under the new credit, participants will pay their share of the health plans' premiums directly to the health plans and IRS will only process the governments' share of the payment. 

HCTC Administrative Costs:

• From 2003 through 2008, HCTC administrative costs to IRS averaged 17 percent of total HCTC-related costs, with variation related to start up costs in early years. 

• Most HCTC health plan and TPA officials that provided information reported that any additional administrative costs for HCTC participants compared to the typical costs incurred for non-HCTC participants were minimal.  

• A share of the $793 million in health plan premiums paid from 2003 through 2008 covers the health plans' administrative costs. 

• Industry estimates of health plans' typical administrative costs for all enrollees vary greatly, from 5 to 26 percent for group plans, such as employer-sponsored plans, and 25 to 40 percent for individual, nongroup plans.



Comment:  An important feature of the Patient Protection and Affordable Care Act (PPACA) is the provision of a tax credit to help individuals purchase private health plans. A similar tax credit is already available for eligible displaced workers and certain retirees. This report from the Government Accountability Office (GAO) provides insight to anticipated participation levels, and to the administrative burden placed on the IRS which has administered the current tax credit program and will be administering the tax credits under PPACA.

Regarding participation levels, only tens of thousands, out of hundreds of thousands eligible, participated in the HCTC (Health Coverage Tax Credit) program, even though the tax credit was increased to 80 percent of premiums. Under the PPACA, tax credits are much more modest for average-income individuals and families (35 to 44 percent at 300 to 400 percent of the federal poverty level). Although PPACA differs because there is a mandate to purchase insurance with penalties for non-compliance, the poor response to a much more generous program should raise concerns about the inadequacy of the PPACA premium subsidies, which will likely result in lower than anticipated levels of participation. We will still be seeing far too many individuals who will remain uninsured.

Regarding the administrative costs, the burden of HCTC on the IRS has been quite high, adding 17 percent in administrative costs to the already high administrative costs of the private insurers (5 to 26 percent for group plans and 25 to 40 percent for individual plans). Although greater participation would spread the IRS's fixed costs more broadly, any program that requires continuing reassessment of eligibility determination for each individual is bound to perpetuate administrative complexity.

What a waste. It would be so much simpler and much less costly to automatically include everyone in a single health care program, and fund it separately through equitable tax policies. The extra burden for the IRS would be essentially nil, not to mention that we would eliminate the profound administrative excesses of the private insurance industry.

We can still do it right.

No comments:

Post a Comment