Great news: IRS hasn't got sufficient anti-fraud protection on ObamaCare systems

If you liked the security holes in the basic system that has experts warning consumers to stay away from the web portal, you’ll love what the IRS will have when their ObamaCare system goes on line. Politico reports that the Inspector General warned in July the IRS that its tax-credit disbursement system was at risk for fraud, and that the agency hadn’t even completed a fraud-mitigation plan:


The Internal Revenue Service has successfully finished testing systems to accurately calculate tax credits under Obamacare but needs to improve its controls to avoid problems with fraud as the agency begins doling out the credits in 2014, an inspector general report said Tuesday.

The Treasury inspector general for tax administration said in a report that IRS software has a system to verify tax credit calculations before it issues them to health insurers, but it said the agency may not yet have a system in place to stop tax cheats seeking to underestimate their incomes and fraudulently cash in on health subsidies.

“The ACA Program has not yet completed a fraud mitigation strategy,” the report said. “It is important for the IRS to thoroughly consider fraud threats and risks that could impact new ACA systems.”

One would think that the IRS would already know that.  They’re not exactly shy when it comes to pursuing fraud in any other context, after all. When Politico asked this week about the report, the IRS replied — we’re working on it. The White House didn’t bother to provide a response:

The IRS said it was addressing the issues identified in the TIGTA audit, which was completed in July. The White House referred questions to the IRS.


Sen. Orrin Hatch has blasted the IRS part of the system as a “fraudster’s dream come true.”  The plan is to pay the credits and then verify the information later, a necessity because of the failure to develop the online systems for ObamaCare on time, and that means the IRS and HHS will spend lots of time trying to catch up to the checks. Hatch also argues that the nature of the law itself lends itself to fraud:

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.

By the way, this isn’t actually a new story. It’s just that the media has noticed it now. Both Hatch and Sen. Tom Coburn warned about this TIGTA audit a month ago:


On the heels of a new Treasury Inspector General for Tax Administration (TIGTA) report that found the Internal Revenue Service (IRS) has failed to reduce improper Earned Income Tax Credit (EITC) payments, Finance Committee Ranking Member Orrin Hatch (R-Utah) and Homeland Security and Governmental Affairs Ranking Member Tom Coburn (R-Okla.) today pressed the IRS for additional answers on how the agency will manage ObamaCare’s premium subsidies, complex tax credits designed to defray the cost of purchasing health insurance, based on household income.

In a letter to Principal Deputy Commissioner Daniel Werfel, the Senators questioned whether the IRS was equipped to process the subsidies which are both advanceable and refundable – meaning pay out first and verify later – and asked for details on the policies that are in place to curb improper payments to taxpayers.

“This [TIGTA] audit raises serious concerns about the IRS’s unwillingness or inability to successfully prevent billions of taxpayer dollars being wasted on erroneous tax credit claims. We are particularly worried about these findings, given the IRS’s role generally as the primary agency administering a range of credits and specifically in overseeing and implementing the premium tax credits under the Patient Protection and Affordable Care Act (PPACA),” wrote the Senators. “Similar to the EITC, the Affordable Care Act offers refundable tax credits for certain eligible individuals. However, we believe that a range of provisions in federal law, regulations, and administrative practices actually leave the health care overhaul even more seriously susceptible to fraud or abuse than the EITC program already is.”


So the IRS has had at least a month’s warning that Congress had noticed the security gaps on their side of ObamaCare, and their answer now is still we’re working on it. After seeing the security gaps go live on the HHS side of the online infrastructure, does anyone have any confidence at all that the IRS will do any better?

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David Strom 5:00 PM | May 23, 2024