Intentionally lying about income to boost your Obamacare tax credits could get you into hot water — $25,000 to $250,000 of hot water. That's a key takeaway from guidance recently released by the Obama administration.
The tax credits that subsidize insurance from the state exchanges operate on a sliding scale; people with lower incomes receive bigger tax credits. The administration previously made it clear that people who under-report their income and receive subsidies that are too generous will be required to refund the federal government at tax time.
Under-reporting is only part of the story, though. In states that don't expand Medicaid, there's a coverage gap for the uninsured living below the poverty line (about $11,670 for an individual). They're too poor to qualify for insurance subsidies, and without expansion, they're likely stuck without affordable insurance options.
This creates an incentive to over-report income in order to qualify for tax credits where Medicaid is not an option. Earlier regulatory guidance dealt with the problem of people accidentally overstating their income (maybe your hours got cut unexpectedly mid-year) and said the government would not try to recoup subsidies already paid under these circumstances. Last week's regulation, by contrast, is about people intentionally lying.
For that, there will be no special coverage gap exemption.
According to the regulation, the $250,000 penalty is for "knowingly and willfully" providing false information. The more modest $25,000 fine can apply in cases where people provide incorrect information without malicious intent. In both cases, these are the maximum penalties that the government can impose.
There is a process for imposing the penalty: the federal government must send the person accused a notice that offers a factual basis for the accusation, and that person has 60 days to appeal the penalty. The administration can also offer a corrective action plan instead of a penalty, or settle on a compromise penalty amount.
These regulations were just finalized, but the Obama administration did not design the penalties; they are spelled out in the text of the Affordable Care Act itself. But will the federal government actually take advantage of their legal capacity to prosecute offenders?
"I would be surprised if the government decides to spend a lot of government resources on this," said Timothy Jost, a law professor at Washington and Lee University. After all, if people are lying on their insurance applications because they can't afford insurance, it's not likely that they can cover these fines.
Nicholas Bagley, an assistant professor of law at the University of Michigan, agrees. "The money at stake in any given case is too small, and the process for imposing civil money penalties too cumbersome, to justify much in the way of governmental enforcement," Bagley said. "Think about the individual mandate: apart from withholding refunds, it's not enforceable except through civil proceedings brought by the IRS. But the IRS isn't likely to bring such proceedings to earn a pittance."