Considerable attention has focused on the Centers for Medicare & Medicaid Services’ (CMS) one-year suspension of employer penalties and reporting requirements under the Patient Protection and Affordable Care Act (ACA). Last week, the House passed a measure that would ban premium tax credits and cost-sharing reductions (subsidies) until HHS certifies that both income and “coverage” requirements for eligibility are being “successfully and consistently” verified.

Some worry that, without the new employer reports, consumers who fail to meet such coverage requirements and fraudulently claim subsidies could escape detection. These worries are exaggerated.

Legal background. To qualify for subsidies through new health insurance marketplaces (HIMs), or exchanges, one must be a citizen or lawfully present immigrant. In a state that expands Medicaid, income must generally fall between 138 and 400 percent of the federal poverty level. In addition, consumers must not be offered employer-sponsored insurance (ESI) that the ACA classifies as

  • “affordable,” which means that worker-only coverage costs no more than 9.5 percent of family income, and
  • offering “minimum value,” which means the plan pays at least 60 percent of the cost of services within categories covered by the employer.

Employer reporting was intended to verify these coverage requirements. Someone who falsely claims subsidies is liable for up to $250,000 in federal penalties. Like federal income tax returns, consumer attestations about ESI will be checked via audits, as has been proposed since April 2012.

Facts shown by research. In December 2012, the Urban Institute released a report for the California HealthCare Foundation that used the Urban Institute’s Health Insurance Policy Simulation Model to analyze the characteristics of consumers who will qualify for subsidies, assuming that states expand Medicaid. Among such consumers who are now uninsured or receive individual coverage:

  • At least 76 percent neither work nor have an immediate family member who works for a company that sponsors ESI for any of its employees; and
  • At least 98.9 percent are not offered ESI, either directly or through a family member. In other words, no more than 1.1 percent are offered ESI that the ACA deems unaffordable.

A few ESI recipients between 138 and 400 percent FPL—between 0.2 and 2.2 percent—have unaffordable insurance, as defined by the ACA. If each of them dropped their employer coverage to qualify for subsidies, the basic story would remain unchanged: at least 71.4 percent of all subsidy-eligible consumers would neither work nor have a spouse who works for a company that sponsors ESI for any of its employees; and 93.0 percent or more would qualify because they are not offered ESI.

The report also concluded that almost any firm offering insurance can meet the ACA’s “minimum value” requirement by redefining covered benefits to meet the 60 percent threshold.

Implications for verification. By far the most important fact for HIMs to establish is that neither the subsidy recipient nor the recipient’s spouse works for a firm that sponsors ESI. That simple point will verify eligibility for more than 7 in 10 subsidy-eligible consumers. Audits can then focus exclusively on subsidy recipients who work for companies that offer ESI.

Medicaid’s third-party liability system and Medicare’s coordination-of-benefits mechanisms already collect information showing which companies offer and which employees and dependents receive ESI. These systems cannot verify every aspect of ESI-related subsidy eligibility, but they can show which firms offer ESI. They may even show whether particular subsidy recipients previously obtained ESI from their current employers, making them especially good candidates for audits. The ACA gives HHS considerable authority to access data necessary to verify eligibility, which may allow HIMs to tap these information sources.

Given everything else facing HIMs, figuring out how to verify the affordability or minimum value of ESI offers should not be on anyone’s short-term to-do list. Our findings show that what matters most is whether consumers are offered ESI at all. And the government already has the information it needs to do two things: (1) identify the vast majority of eligible consumers who are not offered ESI; and (2) target audits at those subsidy recipients who are most likely to be ineligible because their employers offer them health insurance.