IRS overpaid billions in Obamacare subsidies and can't recover it

A Treasury Department watchdog says that the IRS overpaid Obamacare subsidies for taxpayers by $3.5 billion in 2015 alone, and because of constraints built into the law at the time it was passed, cannot recover the money.

How much of the overpayments were due to fraud? The basic problem appears to be taxpayers underestimating their income for the year. And it didn't matter to the agency whether the extra subsidies were the result of an honest mistake or an effort to defraud the government. 

Incredibly, the overpayments amounted to more than 25% of all subsidies paid out in 2015 - $5.8 billion out of $24 billion paid out.. The agency was able to recover about $2.3 billion leaving $3.5 billion in unrecoverable subsidies. It is estimated that the 2017 amount of overpayments is 5 times the number from 2015.

Washington Times:

The amount they receive is based on their expected earnings. At the end of the year, they are supposed to reconcile what they anticipated with what they actually earned. Because some received higher incomes — through raises, promotions or better jobs — they have to repay the IRS.

But authors of the 2010 law were afraid that the threat of a big tax bill would discourage people from buying Obamacare coverage altogether, so they set limits on the amount of money the government could claw back.

Those limits have been tweaked over the years because Congress feared it was giving away unearned money.

The $3.5 billion figure told lawmakers that they are still leaving a lot of money on the table. The 2017 figure is more than five times the number from 2015, which was the first tax year after Obamacare was fully operational.

Assuming similar overages for the rest of the decade, the $35 billion would be more than enough to pay for President Trump’s border wall trust fund, with money left over to cover an anti-opioid effort.

Congressional backers of Obamacare were perfectly willing to give a large number of taxpayers cash they didn't deserve so as not to "scare" them away from buying Obamacare insurance. I would prefer that the IRS put the fear of God in taxpayers so they don't try to cheat the rest of us. How many of those receiving the extra subsidies intentionally low balled their income? We'll never know. The government literally invited people to cheat and keep cheating year after year.

Even today, Obamacare defenders want the government to go easy on those who receive the extra subsidies:

“There may be some strategic behavior involved, with some people intentionally underestimating their income with the expectation that they will not have to pay back excess credits beyond the cap,” said Timothy Jost, a law professor at Washington and Lee University. “But estimating income for people with seasonal or hourly pay jobs is very difficult, and expecting people to revise their income estimates every month, with corresponding revisions in their premium payments, is not realistic.”

For that reason, Obamacare defenders warn against being too harsh on customers. They say it doesn’t make sense to repeal the caps and demand full repayment of excessive subsidies.

“There are tips people get that are hard to predict, there’s holiday pay — there are many reasons people might have done their best but gotten an overpayment,” said Cheryl Fish-Parcham, director of access initiatives for Families USA, a consumer group that advocates for affordable health care.

Under Obamacare, the subsidy money goes straight to insurers, though the customers are responsible for returning overpayments. Once they hit the repayment cap, however, the extra money amounts to a taxpayer-funded benefit they don’t deserve.

No doubt some of that extra cash to taxpayers was unavoidable. But there is also no doubt a large number of taxpayers gamed the system - a system easy to game and easy to get away with fraud.

The only way to fix this problem is to end Obamacare which will end the subsidies. But that isn't likely to happen anytime soon. 


If you experience technical problems, please write to