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Oral Statement of Danny Werfel, Principal Deputy Commissioner, on the Affordable Care Act Before the House Ways and Means Committee

Aug. 1, 2013

Chairman Camp, Ranking Member Levin, and Members of the Committee, thank you for the opportunity to appear before you today to discuss the work the IRS has been doing to fulfill our responsibilities under the Affordable Care Act.

The IRS is charged with implementing the tax-related provisions of the ACA. Our most substantial implementation effort in this regard involves the delivery of premium tax credits that will help millions of American families afford health insurance starting in 2014, when the new Health Insurance Marketplace, also known as the Affordable Insurance Exchanges, will begin operating. The Department of Health and Human Services is the lead agency on defining the structure and operations of the Marketplace. Open enrollment for insurance purchased through the Marketplace will start October 1, 2013, with coverage beginning as soon as January 1, 2014.

When an individual seeks to purchase insurance through a Marketplace and seeks financial assistance, the Marketplace must determine what assistance, if any, the applicant may qualify for, such as Medicaid or the premium tax credit. To make that determination, the Marketplace will request federal taxpayer data from us, and we will provide, for each applicant, some limited tax data from the applicant’s most recently filed federal income tax return.

It is important to understand exactly how this information will be transferred from the IRS to the Marketplace. The ACA designates HHS as the conduit for information being shared with the Marketplace. The taxpayer data supplied by the IRS will be transmitted over secure, encrypted channels to the HHS Federal Data Services Hub, which was developed to facilitate these data transfers. This data hub will not be storing taxpayer information, but merely routing that information to authorized users. At no time is the tax data to be displayed to anyone outside of the Marketplace itself.

The IRS also is responsible for providing a computational service if the Marketplace determines that the applicant is eligible for, and interested in, advance payments of the premium tax credit, which are sent to the individual’s insurance company. Without identifying the applicant, the Marketplace will submit a few data elements, including income and family size, for the IRS computational service through the HHS data hub, and receive back a single figure. That figure represents the maximum advance premium tax credit resulting from those data inputs. Nothing in this computational process identifies individuals or contains tax data.

While the focus for October 2013 is on preparing for the Marketplaces to begin operating, the IRS has also been preparing for the 2015 filing season. Beginning with 2014 tax returns filed in 2015, eligible individuals will be able to claim the credit on their returns, and will be required to reconcile any advances already paid to their insurance company on their behalf. In regard to these taxpayers, the IRS must balance the need to promptly process accurate returns with the need to identify and stop any erroneous claims for the credit.

To facilitate this process, the Marketplaces will be sending to the IRS enrollment information for individuals purchasing coverage through those Marketplaces. This transactional information will be transmitted over secure, encrypted channels. It will include the fact and cost of coverage, and information on any advance payments of the premium tax credit made during the coverage year, to the taxpayer’s insurance company on their behalf. While certain identifying information, such as name and Social Security number, is required to support the processing of returns, no personal health information will ever be provided. The IRS will reconcile the information with what the individuals report on their tax returns so that the IRS can verify whether they received the proper amount of credit, are owed more, or must repay any excess advance payments. This information will help the IRS speed processing of returns and spot erroneous credit claims.

It is important to note that the IRS already routinely receives third-party information that helps it verify the accuracy of tax returns, and we have longstanding policies in place related to the safety and privacy of this information. We will use this experience to guide us in making sure that any ACA-related taxpayer information we receive is properly safeguarded.

In addition to the data, tools and systems that the IRS uses to battle tax fraud of all kinds, we have some particular tools for enforcing proper payments of the premium tax credit. As mentioned above, the Marketplaces will be providing the IRS with key 2014 transactional data prior to the beginning of the 2015 tax filing season. Having this pre-positioned enrollment data will allow the IRS to more effectively detect erroneous claims for the credit.

Chairman Camp, Ranking Member Levin, that concludes my statement. I would be happy to take your questions.



Page Last Reviewed or Updated: 14-Mar-2016