IRS Responsibilities Related to PTC

IRS is responsible for determining the final amounts of PTC that  taxpayers are entitled to receive based on household incomes and family  sizes reported on their tax returns. OMB guidance requires that agencies take into account the following nine  risk factors that are likely to contribute to significant improper payments:  1.  whether the program or activity reviewed is new to the agency;  2.  the complexity of the program or activity reviewed, particularly with  respect to determining correct payment amounts;  3.  the volume of payments made annually;  4.  whether payments or payment eligibility decisions are made outside of  the agency, for example, by a state or local government or a regional  federal office;  5.  recent major changes in program funding, authorities, practices, or  6.  the level, experience, and quality of training for personnel responsible  for making program eligibility determinations or certifying that  payments are accurate;  7.  inherent risks of improper payments because of the nature of agency  8.  significant deficiencies in the agency’s audit reports, including but not  limited to the agency inspector general or GAO audit findings or other  relevant management findings that might hinder accurate payment  certification; and  9.  results from prior improper payment work. CMS Assessed Its PTC Program as Susceptible to Significant Improper Payments but Has Not Estimated or Reported Amounts as Required

In fiscal year 2016, CMS concluded that its advance PTC program was  susceptible to significant improper payments. We determined that CMS  instituted a systematic, qualitative method for assessing risk that was  consistent with IPIA requirements and OMB guidance. IRS Did Not Determine Whether Its PTC Program Is Susceptible to Significant Improper Payments

In its fiscal year 2016 improper payments susceptibility assessment, IRS  did not assess the PTC program’s susceptibility to significant improper  payments in a manner consistent with IPIA requirements. Until IRS conducts an  appropriate assessment, it will continue to be uncertain whether IRS  should estimate the amount of improper PTC payments. CMS Control Activities Related to Preventing and Detecting Improper Payments of Advance PTC Were Not Properly Designed

CMS control activities were not properly designed and implemented to  help achieve management objectives related to preventing and detecting  improper payments of advance PTC. Without establishing proper  procedures to periodically check for changes in circumstances, such as  individuals’ eligibility for government-sponsored coverage or their deaths,  CMS is at increased risk of providing advance PTC on behalf of  individuals who are not eligible for it. CMS Properly Designed and Implemented Control Activities Related to the Accuracy of Advance PTC Payments Made to Certified Issuers and Qualified Health Plans

Based on our audit work, CMS has properly designed and implemented  procedures related to the accuracy of advance PTC to reasonably assure  that payments made to issuers and qualified health plans comply with  applicable requirements, including procedures to generate accurate policy-based payments to issuers based on properly review and approve of issuer payment calculations and perform compliance reviews to help ensure that issuers and qualified  health plans meet applicable requirements of the marketplace; and notify issuers of noncompliance and decertify those that do not meet  key requirements. Specifically, we found deficiencies in the  design of IRS control activities related to determining whether individuals met the citizenship or lawful presence requirement for PTC eligibility; had access to or enrollment in health care coverage that met  minimum essential coverage, which would allow individuals to obtain  PTC for the months that were not covered; properly assessed individual shared responsibility payments (SRP) on  their tax returns; and were properly notified of the requirement to file if they did not file their  tax returns. IRS faces several challenges that affect its ability to design and  implement control activities related to PTC. In 2015, we suggested that IRS seek legislative authority to correct tax  returns at filing based on the marketplace data. Under the proposals, Treasury  would be granted regulatory authority to permit IRS to correct errors in  cases where information provided by individuals does not match  corresponding information in government databases. As of the  completion of our audit, Congress has not yet granted this broad  authority. The effect of IRS’s lack of authority to correct PTC-related errors on tax  returns at filing was illustrated in our review of a statistical sample of 93  tax returns with PTC-related amounts during the first 9 months of fiscal  year 2016. Thus, without the ability to automatically  correct the tax returns, IRS is not able to fully collect excess advance  PTC overpayments and reimburse PTC underpayments. As a  result, HHS’s overall improper payment estimate will continue to be  understated. In addition, Congress and other stakeholders will continue to  lack key payment integrity information for monitoring HHS’s improper  payments. IRS did not properly design and implement certain key control activities  related to preventing and detecting PTC improper payments, including  recovering excess advance PTC overpayments. Finally, although IRS used  an ad hoc process for notifying nonfilers of the requirement to file tax  returns, IRS did not establish procedures for sending these notices  regularly during each filing season to facilitate compliance. Without  addressing these key deficiencies in control activities, IRS is at increased  risk of making improper payments to individuals and may not be fully  collecting excess advance PTC or reimbursing PTC underpayments. Recommendations for Executive Action

To improve annual reporting on PTC improper payments, control activities  related to eligibility determinations, and calculations of advance PTC, we  recommend that the Secretary of Health and Human Services direct the  Administrator of CMS to take the following 10 actions:  1. In  its comments, reproduced in appendix III, HHS concurred with seven of  our recommendations and neither agreed nor disagreed with the  remaining three recommendations. In its comments, reproduced in  appendix IV, IRS agreed with two recommendations, partially agreed with  two other recommendations, and disagreed with the remaining  recommendation. These actions, if  implemented effectively, would address our recommendations. IRS partially agreed with our first recommendation related to an improper  payment assessment for the PTC program. IRS disagreed with our fourth recommendation related to reviewing tax  returns to those who are not reporting SRP. GAO staff who made key contributions to this report  are listed in appendix V.

Appendix I: Objectives, Scope, and Methodology

The objectives of this report are to determine the extent to which (1) the  Centers for Medicare & Medicaid Services (CMS) and the Internal  Revenue Service (IRS) assessed the susceptibility of their premium tax  credit (PTC) programs to significant improper payments and, if the  programs were deemed susceptible, whether CMS and IRS took actions  required by the Improper Payments Information Act, as amended (IPIA),  and Office of Management and Budget (OMB) guidance; (2) CMS  properly designed and implemented key internal control activities related  to preventing and detecting improper payments of advance PTC; and (3)  IRS properly designed and implemented key control activities related to  preventing improper payments of PTC in processing federal income tax  returns, detecting and recovering advance PTC overpayments made to  issuers on behalf of policyholders, and reimbursing underpayments made  to policyholders.
Why GAO Did This Study

The Patient Protection and Affordable Care Act (PPACA) aims to expand health insurance coverage and affordability. PPACA provides eligible individuals with PTC to help cover the cost of premiums for health plans purchased through a marketplace. CMS maintains the federally facilitated marketplace known as HealthCare.gov. IRS is responsible for processing PTC-related amounts on tax returns. The estimated fiscal year 2016 net outlay for PTC that was refunded to taxpayers was about $24 billion, while the estimated revenue effect from PTC that taxpayers used to reduce their tax liabilities was about $2 billion.
GAO was asked to examine improper payments related to PTC. This report assesses the extent to which (1) CMS and IRS assessed the susceptibility of their PTC programs to significant improper payments; (2) CMS properly designed and implemented key control activities related to preventing and detecting improper payments of advance PTC; and (3) IRS properly designed and implemented key control activities related to preventing and detecting improper payments of PTC, including recovering overpayments and reimbursing underpayments of PTC.
GAO reviewed the improper payment susceptibility assessments completed by CMS and IRS; interviewed agency officials; reviewed policies and procedures; and tested statistical samples of (1) CMS applications with advance PTC transactions during the 2016 open enrollment period and (2) income tax returns with PTC transactions processed during the first 9 months of fiscal year 2016.

What GAO Found

In fiscal year 2016, the Department of Health and Human Services' (HHS) Centers for Medicare & Medicaid Services (CMS) assessed its advance premium tax credit (PTC) program as susceptible to significant improper payments. CMS instituted a qualitative method for assessing the susceptibility of its program that was consistent with requirements, including assessing each of the nine required qualitative risk factors. However, CMS stated that it may not report improper payment estimates for the PTC program as required until at least fiscal year 2022 because of the complexity and timing of the process for developing such estimates. As a result, HHS's overall improper payments estimate will continue to be understated, and Congress and others will continue to lack key payment integrity information for monitoring HHS's improper payments. The fiscal year 2016 Internal Revenue Service (IRS) assessment for its PTC program was not consistent with requirements nor did it demonstrate whether the program met applicable thresholds for susceptibility to significant improper payments. Until IRS conducts an appropriate assessment, it will remain uncertain whether IRS should estimate the amount of improper payments for its PTC program.
Although CMS properly designed and implemented control activities related to the accuracy of advance PTC payments, it did not properly design control activities related to preventing and detecting improper payments of advance PTC, such as verifying individuals' eligibility. As a result, CMS is at increased risk of making improper payments of advance PTC to issuers on behalf of individuals.
IRS did not design and implement certain key control activities related to preventing and detecting PTC improper payments, including recovering excess advance PTC overpayments. For example, IRS did not properly design procedures to routinely check for duplicate employer- or government-sponsored coverage. In addition, in 2015 and 2016, IRS used an ad hoc process for notifying nonfilers of the requirement to file tax returns; however, IRS did not establish procedures for sending these notices regularly during each filing season to facilitate compliance. Without properly designed control activities related to PTC, IRS is at increased risk of making improper payments to individuals.
IRS faces challenges that affect its ability to design and implement procedures related to preventing and detecting PTC improper payments, including recovering advance PTC overpayments and reimbursing advance PTC underpayments. For example, IRS maintains that reduced resources have impaired its ability to implement needed controls. Further, statutory limitations contributed to IRS's inability to fully collect excess advance PTC overpayments and reimburse PTC underpayments and to automatically correct errors in tax returns. GAO previously suggested that IRS seek legislative authority to correct tax returns at filing based on marketplace data. The Department of the Treasury, on behalf of IRS, has submitted proposals for congressional consideration to permit IRS to correct such errors where individuals' information on tax returns does not match corresponding information provided in government databases. Congress has not yet granted this broad authority.

What GAO Recommends

GAO is making 10 recommendations to HHS. Of these, 2 recommendations are related to complying with annual reporting of advance PTC improper payments estimates, including assuring that CMS expedites the process for reporting such estimates. The 8 remaining recommendations address improving control activities related to eligibility determinations and calculations of advance PTC based on incomes and family sizes. HHS concurred with 7 of the recommendations and neither agreed nor disagreed with the remaining 3 recommendations, which related to improving control activities for verifying identities of individuals, preventing duplicate coverage of individuals receiving minimum essential coverage through their employers, and verifying household incomes and family sizes. GAO continues to believe that actions to implement these 3 recommendations are needed as discussed in the report.
GAO is also making 5 recommendations to IRS. Of these, 1 recommendation focuses on properly assessing the susceptibility of the PTC program to significant improper payments. The remaining 4 recommendations address improving control activities related to processing PTC information on tax returns, such as recovering advance PTC made for individuals who do not meet the eligibility requirements for citizenship or lawful presence. IRS agreed with 2 recommendations, partially agreed with 2 other recommendations, and disagreed with the remaining recommendation. For the 2 partial concurrences, GAO continues to believe that actions to fully implement these recommendations are needed as discussed in the report. Although IRS disagreed with the 1 recommendation related to reviewing tax returns to those who are not reporting shared responsibility payments, the actions IRS described in its comments, if implemented effectively, would address the recommendation.