Exchanges to Use Honor System for Income Reporting

Posted on Jul 9, 2013

Another important delay was announced last week closely following the report that the employer mandate would be postponed for a year. (Read about the delay of the employer mandate here.) It was originally planned that there would be a verification system in place for people whose reported income differed significantly from what the federal government had on file. The government will now largely rely on self-reporting from enrollees regarding their income until 2015, when it plans to have a verification method ready for use across the country.

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This change will affect states that created their own exchanges more significantly than those whose exchanges will be run by the federal government. States with their own exchanges will not be required to check if an applicant is already covered by an employer sponsored plan. However, it is planned that states where exchanges are supervised by the federal government will have an audit system in place for this reason.

Timothy S. Jost, a professor of law at Washington and Lee University said, “It is not unprecedented for the government to use the honor system in situations in which it collects data on millions of individuals.” Jost also explains that since much of the US economy is cash, it would be very difficult to verify everyone’s stated income. There will be a penalty up to $25,000 for those found to have reported their income falsely to an exchange. Additionally, the offender would be forced to repay any subsidy received unlawfully.

The reasons for these delays are multifaceted. The Affordable Care Act is quite complex and Jost describes the federal government as running in “triage mode,” trying to prioritize the most important parts of the law and defer what can be put on hold until later. Working with low resources as well as legislative and logistical barriers, we may well see more changes before the new regulations go into effect in January. Check back here often for the latest updates.

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