IRS underestimated the cost of individual ACA coverage

Register now

The Internal Revenue Service did not always send out notifications to taxpayers who did not have health coverage, as required by the Affordable Care Act, according to a new report – and the notices it did send out underreported the cost of coverage.

The report, from the Treasury Inspector General for Tax Administration, noted that the ACA requires that, each year by June 30, the IRS send out a notice to taxpayers who have filed a tax return but not enrolled in “minimal essential health coverage” that would give them information about the health insurance marketplace in their state.

TIGTA’s analysis found that the average cost for health coverage for those who enrolled through an exchange was $168 a month after financial assistance – not $75, as cited in the letters.

Moreover, the audit found that the IRS didn’t send the notices at all in 2015, deciding instead to analyze tax return information to learn more about the taxpayer response to the individual mandate in its first year.

In 2016, the IRS coordinated with the Centers for Medicare and Medicaid Services to create the notification letters and identify the taxpayers to whom they would be sent. It mailed more than 7 million letters between November 2016 and January 2017.

TIGTA found, however, that the IRS did not send notifications to approximately 3.3 million taxpayers who did not report that they were covered, exempt from coverage, or claimed as an exemption on someone else’s tax return. According to the report, the Centers for Medicare and Medicaid Services told the IRS not to send letters to taxpayers who filed so-called “silent returns.”

The IRS also did not send notifications to a group of 1.9 million taxpayers who had filed a return and reported an exemption, but were selected as a control group for determining the effectiveness of the letter.

“Minimal essential health coverage,” as defined by the ACA, is health insurance that contains essential benefits, including emergency services, maternity, and preventive and wellness services.

A full copy of the report is available online.

TIGTA made no recommendations as a result of its investigation.

For reprint and licensing requests for this article, click here.