ObamaCare delay may encourage false tax reports, experts say

The Obama administration's decision to roll back reporting requirements under ObamaCare could lead to false tax reports in certain GOP-led states, health policy experts said.

The administration announced Friday that it would soften rules designed to ensure that people seeking insurance through ObamaCare's new exchanges are telling the truth about their income.

The administration said it would not require state insurance exchanges to verify the income statements of people seeking to buy insurance through the exchanges. The exchanges will take applicants at their word.

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The new marketplaces will have "temporarily expanded discretion to accept an attestation of projected annual household income without further verification," the Health and Human Services Department said in a new regulation.

Typically, looser income verification would raise concerns about people under-reporting their income to avoid paying taxes. But some health policy experts say the opposite could be true in this case.

In states that did not expand Medicaid under the Affordable Care Act, people might over-state their income to become eligible for subsidized private coverage through the exchanges.

"The latest curious possibility is that red-state residents with incomes below 100% of the federal poverty line might seek to over-report their incomes to qualify for credits on the new health insurance exchanges," economist Harold Pollack wrote at the Incidental Economist blog.

Conservative healthcare analyst Avik Roy raised the same issue in a column for Forbes.

"Effectively, states no longer need to expand Medicaid, because this newly Medicaid-eligible population can now sign up for the exchanges, at no cost to the state, and know that their incomes won’t be verified by the IRS (because their incomes are too low to file tax returns)," Roy wrote.

Pollack said that for now, the risk of over-reporting doesn't seem especially high.

"I’d put this on the list of possible concerns that bear watching, but that don’t seem massively concerning. One conducts random audits and statistical analyses to try to determine the prevalence of such behavior," he wrote. "If it’s widespread, the IRS will need to impose tighter requirements."

Significant over-reporting would raise red flags at the IRS, Pollack said, and would come with other consequences — potentially including higher taxes and a loss of eligibility for other government programs. Those factors could make widespread over-reporting less likely, he said.