THE GRAND HYPOCRITICAL PARTY
So Republicans these days are all [insert TV Show gif that repeatedly flashes the statement "GET IRS OUT OF HEALTH CARE LOLOLOL"]. Representative Tom Price and Senator John Cornyn have introduced legislation in their respective chambers of Congress to prevent the IRS from enforcing any aspect of the Affordable Care Act.
This call to arms is funny, because the IRS has long been the favored venue of the Republican Party for health care reform!
As a matter of party principal, Republicans tend to oppose health care expansion that is stage managed by Health and Human Services (HHS) or the Center for Medicare & Medicaid Services (CMS). Either of those options results in more federal employees and more regulation coming out of Washington DC. Republicans, you may have heard, disfavor public sector Washington DC bureaucrats! (As for some private sector health insurance bureaucrats in Louisville, that's a different story.) The point here, though, is that when Republicans talk about their favored health care reform they talk about "patient centered reform" and don't plan on hiring a bunch of people in DC to achieve that goal.
So what do they do? They use the government agency that already has access to every potential patient in the country: the INTERNAL REVENUE SERVICE!
Outside of Ron Paul and Rand Paul, Republican health care reform tends to rely on a backhanded expansion of government. As opposed to dramatically spending more through new government agencies, Republicans favor providing "advanceable refundable" tax credits to purchase health insurance. Outside of government speak, this is known as calling in the IRS to save the day.
THE IRS AND HEALTH CARE
Let's get out of the way that the IRS was involved in health care long before the Affordable Care Act. During World War Two, the imposition of wage controls led to the creation of a tax exemption for employer provided health coverage. The assessed value of that coverage would not apply to the total level of a worker's income for the purposes of calculating the payroll tax. Experts say this exemption has led to increasingly generous employer provided health insurance plans, indirectly fueling the rise in health care costs.
Since then, Congress has instituted numerous tax exemptions, deductions, and credits for health care recipients and providers. The changes were usually made with the support of Republicans, who favor using the tax code to subsidize activity, as opposed to direct spending. Medical Savings Accounts; Flexible Spending Arrangements; High Deductible Health Plans insurance plans; nonprofit status for health care providers of uncompensated care; any time congress proposes any specific tax benefit related to health care, they are asking the IRS to audit, regulate, and intervene.
It was only in 2006, with bipartisan support, that the IRS investigated hundreds of non-profit hospitals to determine if they were actually providing uncompensated care to uninsured patients. In a now familiar complaint, many hospitals said they were subject to intrusive and lengthy questionnaires from the IRS to prove their status as providers of care meriting a tax exemption. Asking the IRS to consider health care for any purpose is permitting the IRS to get involved in the American medical system.
REFUNDABLE TAX CREDITS
A refundable tax credit is a credit that reduces tax liability dollar for dollar, and every dollar beyond the liability is refundable to the taxpayer. For example, let's say that after you owe $2,500 after taxes, and you have a $5,000 refundable credit. After applying the credit, the government actually owes you $2,500. With substantial enough credits, a person can be refunded more in federal taxes than they actually paid throughout that year.
The largest refundable tax credit is the Earned Income Tax Credit or (EITC). This credit was a conservative alternative to the specific idea of a negative income tax and to the idea of social welfare spending in general. The EITC allows a recipient to apply the credit against their lax liability stemming from earned income, such as wages, salary, or tips. The more you earn, the more you receive, with the benefit gradually phasing out the more you earn beyond a certain income. The maximum level of eligible income and benefit you receive is capped depending on the size of a recipient's household. For tax year 2011, over 27 million filers received nearly $62 Billion in EITC.
The EITC, the thinking goes, incentivizes employment because you need to generate an income of some amount to claim the EITC. Evidence shows that it has been very successful in compelling single mothers in particular to join the workforce, which makes me curious how much the EITC offsets increased child care costs on average for recipients.
So that's a refundable tax credit, of which there are several varieties with the EITC as by far the largest. Refundable tax credits are interesting because their cost is actually the sum of lost revenue and increased outlays for refunds. MAKE NO MISTAKE: there is very little difference between a refundable credit and the government writing a check, other than the lexicon of the tax code. For those interested, the CBO actually put out a fantastic summary and analysis of refundable tax credits this January.
I want to highlight a few things from that report:
Administering refundable tax credits, unsurprisingly, is an operation of the IRS, and the more tax credits you have them administer, the more resources are required by the IRS to do so. Or as the CBO puts it:
"Administering refundable tax credits also strains the limited resources the IRS has to provide services to taxpayers and to enforce the tax code. The number of tax returns increases as people who do not have to file returns do so in order to claim benefits. Complicated rules for refundable tax credits increase the number of telephone calls to the IRS from confused taxpayers and contribute to the tax gap (the difference between the amount of taxes that should be paid in a timely fashion and the amount that is actually paid)."
The flip side of the coin is that it can be far simpler to use the IRS to deliver welfare payments, because the IRS can easily determine eligibility and is already is a point of contact for taxpayers. The IRS actually has an administrative advantage in that its reporting requirements, far from being Orwellian, are much LESS onerous and intrusive than other government agencies. Here's the CBO:
"In contrast, other government agencies have usually relied on more burdensome means to validate applicants' claims, such as in-office meetings between applicants and caseworkers, up-front requests for documentation (such as pay stubs), and phone calls to employers and others to confirm applicants' statements (which also alerts those third parties to the applicant's need for assistance from the government). As a result, the application process is time-consuming and may be perceived as intrusive by the claimants. Those factors, and any additional stigma that applicants may associate with being in the program, tend to reduce participation. Studies of Medicaid and the Supplemental Nutrition Assistance Program (SNAP, formerly known as the Food Stamp program) show that participation declines as the complexity of the application process increases."
Let's re-emphasize that point. The IRS is LESS INTRUSIVE and LESS CAPABLE OF DUE DILIGENCE than those government agencies dedicated to providing welfare. Because the EITC eligible population is more likely to be high school drop outs or not speak English as their native language, the IRS puts an emphasis on application simplicity and ease to effectively administer the program. Most recipients of EITC still require private tax return preparation assistance in order to apply and receive their credits. In 2006, 71% of EITC recipients paid a tax preparer, compared to 57% of other filers. This process, however, is still less intrusive for a recipient than being assigned an individual caseworker and undergoing a lengthy interview process.
In a development no doubt lamented by conservatives, Medicaid and SNAP have begun emulating the IRS in many states using a simplified online application with less rigorous due diligence. This hands-off approach of the IRS routinely leads to overpayment of tax credits, but no one seems to mind for whatever reason. The same cannot be said of Medicaid or SNAP!
THE HEALTH COVERAGE TAX CREDIT
Since 2002, the IRS has administered what's known as advanceable refundable tax credit in the Health Coverage Tax Credit (HCTC). Congress created the HCTC as part of a Trade Act of 2002, which was passed with Republican approval, including Paul Ryan. Workers who became eligible for Trade Adjustment Assistance (TAA) through losing their jobs due to international trade also became eligible for the HCTC. The same was true of workers between 55 and 64 whose pension plan was being managed by the federal Pension Benefit Guaranty Corp (PBGC). The worker can opt to receive the HCTC annually, or they can use it on a monthly advanceable basis. The IRS advances the credit, alongside the worker's portion of the premium, directly to the approved provider of an HCTC compliant insurance plan. The HCTC has historically covered between 65% and 72.5% of a premium while the worker pays for the remainder.
So before we even get to the ACA, it's important to acknowledge that the IRS, alongside its private contractors and in partnership with state agencies, ALREADY MANAGES a health insurance provider program. To participate on an advanceable basis, recipients pay their share of the premium directly to the IRS, who channels the combined credit directly the HCTC plan manager. Because premiums and credits are forwarded on a monthly basis to compliant insurance companies, the IRS maintains a PERSONAL DATABASE of all plan participants, which includes scary things like their income level and other eligibility criterion shared from various federal agencies. Sound familiar?
Eligibility and benefits for the HCTC have been expanded since 2002, but the program is plagued with low participation, less than 30,000 among the total eligible population of over 500,000 workers. The low participation is mostly blamed on the confusion dealing with multiple agencies to receive the HCTC, and the fact that some displaced workers cannot afford either the 25% of their premium or fronting the full premium for several months before the HCTC kicks in. Hopefully the IRS learns from these problems! The HCTC, it should be noted, is being phased out as part of the Affordable Care Act.
THE ACA AND THE IRS
In lieu of the HCTC, the ACA creates the premium support tax credit. These credits, available on a sliding scale for those earning between 100% and 400% the Federal Poverty Level (FPL), are paid directly to health insurance companies on the newly established exchanges. Individuals still pay some portion of a premium directly to the health insurance company, while the IRS delivers the credit to subsidize the purchase of health insurance. As you will see, much of the IRS' staffing up for the ACA has been to administer the delivery and maintain the electronic infrastructure needed to connect these credits to the Exchanges.
Because of ACA, the IRS has requested hundreds of millions of dollars to implement legislative changes to the tax code and prepare/engage with taxpayers because of those changes. Lots of these changes involve hiring more agents to administer and enforce a variety of revenue raisers (ie; new taxes). That is certainly not something Republicans like, but the IRS collecting taxes can hardly be considered a staggering innovation in the annals of Government oppression.
Below you can see a sampling of the budget requests made by the IRS over the past few years as part of the ACA. Specifically, I wanted to compare the resources requested by the IRS to implement these new tax credits compared to the those requested to deal with the mandates or just general interaction with taxpayers as part of the law.
As you can see, the largest single new duty taken on by the IRS by the ACA is the administration of those new tax credits. The IRS has requested hundreds of millions of dollars and hundreds of new employees to deal with this task alone. Most of this money and staff is connected to the back end of creating and maintaining electronic infrastructure to verify taxpayer income eligibility and forwarding credits to health insurance companies. The individual mandate actually requires relatively fewer resources, possibly because this boils down to another box to check for the IRS on all filers. Anti-government freedom mongers, remember: you can avoid the mandate as long as you avoid filing any tax return whatsoever. If you're already off the grid, you're going to stay there.
Despite loopholes in the mandate, you may have heard that the IRS is creating the "largest personal database" in government history: that's not exactly true! The IRS is participating in the Federal Data Services Hub, whose creation is the result of all those sticky rules like "link benefits to income level" and "no illegal immigrants allowed." This database is the inevitable product of a broad advanceable refundable tax credit, where participation is determined by eligibility through income and citizenship. Take a look at the prospectus and tell me this isn't something that wouldn't be needed under any similar plan or that different from what has been used as part of the HCTC.
PAUL RYAN’S PLAN TO PUT THE IRS IN CHARGE OF HEATH CARE
So what does this all have to do with Republicans and wanting the IRS in health care? I've already pointed out how the HCTC program was created with broad republican support. Fast forward to 2008, when Paul Ryan is busy creating the Roadmap to Prosperity 1.0. As America was entranced by a Democratic Primary that served as a pleasant distraction from the Bush Administration's death rattle, Paul Ryan was quietly shopping the first version of his famous budget. This initial version of his budget was by far the most radical and the least polished by the court of public opinion. Which is why, in 2008 of all years, the budget proposed privatization of Social Security, and yet that's still not its most head turning proposal.
The Ryan Budget of 2008 (as well as version 1.1 introduced in 2010), proposed the widespread introduction of an ADVANCEABLE REFUNDABLE TAX CREDIT for all Americans. This tax credit could be used to obtain "Qualified Health Insurance," which was "determined under regulations prescribed by the Secretary." And by Secretary, they mean the Secretary of Treasury or his designated representative, which would be the IRS. So the Ryan plan quite literally planned to deal with the 47 million uninsured by turning it over to the IRS, who would maintain detailed records of every recipient of the tax credit and require recipients to file regularly with the IRS. Oh, and of course, only legal residents and non-incarcerated individuals were eligible, so there would have to be some federal government mechanism (A PERSONAL DATABASE MAYBE!!??) to determine that status.
But wait, it gets better! Two common criticism of the ACA are that it raises taxes and employers will dump employees from their health insurance coverage. The Ryan Budgets of 2008 and 2010 do this on steroids! Every individual eligible for the health insurance tax credit would no longer receive the tax exclusion on employer provided health benefits. Gone! In other words, Paul Ryan's early budget raised taxes on nearly every single employee receiving employer provided health care. If that wouldn't force lots of people from their employer provided health insurance, I don't know want will! Eliminating that tax exemption has long been a wonky fixation as a means to stop subsidizing expensive health plans. (Incidentally, the ACA imposes an excise tax on these plans to accomplish this goal indirectly.) The Ryan plan of totally eliminating the exemption also has the positive effect of boosting Social Security, due to the dramatic increase in taxable income for most workers. Thanks Congressman Ryan!
But that's not all. The Ryan Budgets of 2008 not only replaces Medicaid with block grants, but gives the States the option to use advanceable refundable tax credits in lieu of Medicaid entirely. So the original Ryan plan for Medicaid? Replace it with the IRS! Congressman Ryan assumes that this idea will work so well that he creates a defined timescale for the elimination of Federal DSH payments use to compensate states for care of the uninsured. The ACA also gradually eliminates DSH payments, but that money is theoretically replaced with the increased Federal funding as part of Medicaid expansion. The Ryan budget just eliminates DSH and hopes that Tax Credits/Block Grants work out for the poor. This isn't health care reform, this is health care Darwinism.
The Ryan Budgets also get the IRS all up in Medicare. While CMS and HHS would still be charged with maintaining Medicare and likely would be the source of the new premium subsidies Congress Ryan wanted to introduce, the definition of "qualified health insurance" would still rest with the Secretary of Treasury! And a whole slew of new means-testing would necessitate increased involvement of the IRS in monitoring all Medicare recipients, because what federal agency do you think is best suited to judge income levels?
Lastly, and this has nothing to do with the IRS, I want to highlight that the Ryan Budget of 2008 proposes reductions to hospital market basket increases. In plain English, this is a reduction in the annual percentage increase to a broad range of payments to different Medicare providers. You may have heard of these as OBAMA CUT MEDICARE!!! These same market basket indices had their growth slowed as part of the ACA. This is a significant chunk (some $112 billion over 10 years) of the slowing the growth in Medicare spending imposed by the ACA. Many commentators on the left have repeatedly noted that Paul Ryan has shamelessly adopted those 'cuts' as part of his budget. It's probably because he proposed them before there was an ACA!
TOM PRICE’S EMPOWERING PATIENTS FIRST ACT
In July of 2009, as the great health care debate heated, Republicans introduced what would become their alternative vision of reform. Introduced by Rep. Tom Price, who had co-sponsored Paul Ryan's earlier 2008 bill, the Empowering Patient's First act was endorsed by such conservative luminaries and friends of the IRS such as Americans for Tax Reform, the Family Research Council, and the Heritage Foundation. It also got glowing write ups in conservative publications such as Human Events and American Thinker. Here was a plan for the 47 million uninsured that could rally conservatives in opposition to what would become Obamacare. How did it address the working poor? It should come as no surprise at this point, but Rep. Price used ADVANCEABLE REFUNDABLE TAX CREDITS.
For those earning up to 300% of the Federal Poverty Line, Price made refundable tax credits (not generous ones, notably!) available on a sliding scale. You know the rest of the story from here. To receive these credits, you have to file and report regularly to the IRS, which would need to determine citizenship status alongside income level for eligibility purposes. And yes, the Secretary of Treasury or his designated representative (the IRS) was empowered to request information as needed from recipients and share their information with health insurance companies, as well as promulgating all necessary rules and regulations for the functioning of the program. Once again, the Price legislation would require massive intervention of the IRS into the health care of the working poor.
Price clearly thought this was going to be a great idea, because he proposed tying DSH cuts directly to what he assumed would be a significant drop in the uninsured rate. Hooray IRS! The Price bill doesn't go as far as the Ryan budgets in eliminating tax benefits for employer provided health care, but it allowed employers to provide a pre-tax monetary contribution for employees to purchase health coverage, as opposed to health coverage itself. How would this work? I can't tell you for sure, but you can bet it would involve the IRS. Workers opting for this contribution would then direct the money from their employer to a different qualified plan of their choice. Given the pre-tax nature of this contribution, this change would at the very least require more and new paperwork with the IRS for all involved.
CONCLUSION: GOP HEARTS IRS
The ways the IRS is involved in health coverage and health care goes well beyond what was discussed in this piece. Tax deductions, exclusions, credits, etc etc etc – both parties have been using the IRS as a means of social spending for decades. Republicans actually tend to favor using the IRS more than the direct spending favored by Democrats, because it reduces the need to expand the social welfare bureaucracy at the local, state, and federal level. Of course, it does require the expansion of the IRS bureaucracy at all levels.
In a very real and literal way, mainstream Republican policy has been, and continues to be, the expansion of the role of the IRS in health coverage and care in the United States. It requires increasing the oversight of IRS bureaucrats over the heath decisions of every day Americans. It would require the establishment of massive personal databases that kept track of ordinary American citizens whose only crime was wanting health insurance. And, as has been made thoroughly clear, it would require HIRING MANY MORE IRS EMPLOYEES. Republicans know this, but they don't care, because hey, "IRS out of Health Care!" probably tests through the roof.
As for all the money being requested by the IRS due to the ACA, I wouldn't sweat it: in what was probably Democrats' worst oversight as part of the ACA, they only included a portion of implementation costs in the legislation and assumed further budget requests for new duties assumed by agencies like the IRS could be fulfilled later on as part of the standard budget process. After Republicans retook the House, this dream died, leading the Administration to cannibalize different funds appropriated by the ACA to fund the basic implementation of the new law. Because Republican refuse to play any ball whatsoever on the ACA, health care reform has less dedicated funds for implementation than the far smaller Medicare Part D did during the Bush Administration. Kathleen Sebilius has been reduced to literally begging for implementation money from the private sector.
To stress how extraordinary this situation is, where the executive branch is being actively obstructed in implementing a law passed by the legislature, you need to go back to 2007. That's when Democrats promised to use the power of the purse to force the Bush administration to withdraw from Iraq. Republicans cried foul, and claimed Democrats were holding our troops hostage to politics. Democrats folded and the Bush Administration was free to double down on Iraq and Afghanistan. Remember, the defining insanity of our current political system is that it's far less controversial to spend over a trillion dollars imperfectly, without paid-fors, on catastrophic money-and-blood-pits like Iraq or Afghanistan, than it is to spend such money imperfectly, with paid-fors, on making sure getting sick in America doesn't result in bankruptcy or death.
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