Obamacare Subsidies More Expensive than Expected – Data Inconsistencies Likely Indicate Overpayments

June 18, 2014

A new report from the Department of Health and Human Services on Obamacare exchanges suggests that the magnitude of the subsidies (administered through a refundable tax credit) will be larger than previously expected. The Los Angeles Times reports that the total cost of subsidies may be $16.5 billion this year.

These subsidies were projected to become the largest refundable credit – about as large as all other refundable tax credits combined. The HHS report indicates that this might happen sooner rather than later.

However, there is a potential confounding factor in this data: the subsidies for many consumers may be inaccurate. About two million enrollees reported personal data that contradicted information found in government records.

In general, most mistakes people make on forms tend to benefit them. Regardless of moral character, people are more detail-oriented when those details win them money, rather than when those details lose them money. See the alimony deduction for an example of this in practice.

As we mentioned in our report on refundable tax credits, a problem with the Obamacare subsidies is that they are paid out in advance, before users file their tax forms. This means that the mistaken refunds must be clawed back – but in some cases, not fully – in April 2015.

Some of the data may be unverifiable entirely. One of the most important eligibility requirements for using the exchanges is that you don’t already have an option through your employer. Employers are required to supply this information, but like many other rules in Obamacare, that reporting requirement has arbitrarily been delayed a year.

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