IRS vulnerable to fraud with Obamacare health subsidies, audit says

December 4, 2013

The Internal Revenue Service has not proven it can prevent improper payments of subsidies promised to consumers who cannot afford health coverage on their own under the Affordable Care Act, according to federal auditors.

Obamacare, as the legislation is known, requires virtually all Americans to be enrolled in a  health-care plan by Jan. 1 or face a penalty. It provides financial assistance for individuals and families who fall below certain income thresholds.

(Andrew Harrer/Bloomberg)
(Andrew Harrer/Bloomberg)

The Treasury Inspector General for Tax Administration released a report on Tuesday that said the IRS, which will help administer the subsidies in the form of tax credits, “may not be capable of identifying ACA refund fraud or schemes” with its existing security controls and anti-fraud programs.

The agency said in response to the findings that it has improved its security systems since the review took place and that work continues on that front.

Acting IRS commissioner Danny Werfel added in a statement that the agency has a “strong, effective system in place” for administering the financial assistance, which will come in the form of tax credits.

“We have a proven track record of safely and securely transmitting federal tax information and we have a robust and secure process in place to deliver this important credit for taxpayers,” Werfel added.

Sen. Orrin Hatch (R-Utah), the top Republican on the Senate Finance Committee, described the subsidies as a “fraudsters dream come true.”

“The very nature of these credits — pay first, verify a person’s income later — will lead to potentially hundreds of billions of dollars of improper payments and could put millions of American’s personal information at risk,” Hatch said in a statement.

Hatch also suggested the IRS cannot fully address the vulnerabilities of the refund system because the problems are “deeply rooted in the law itself, referring to the health legislation. “I fear the IRS will never be fully capable of ensuring that these refundable tax credits got to those who are truly eligible,” he said.

Follow Josh Hicks on TwitterFacebook or Google+. Connect by e-mail at  josh.hicks@washpost.comVisit The Federal Eye, The Fed Page and Post Politics for more federal news. E-mail federalworker@washpost.com with news tips and other suggestion.

Josh Hicks covers the federal government and anchors the Federal Eye blog. He reported for newspapers in the Detroit and Seattle suburbs before joining the Post as a contributor to Glenn Kessler’s Fact Checker blog in 2011.
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Josh Hicks · December 4, 2013