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Chairman's Message

Using the “Honor System” System is No Way to Distribute Government Benefits

Posted: July 21, 2013 at 8:16 am   /   by   /   comments (0)

markUncaphernewThe Obama Health and Human Service Department tried slipping a very significant announcement through the cracks of a quiet July 4th holiday weekend when were few were paying attention to Washington. Days after more publicly announcing that they were delaying the employer mandate for a year, they quietly revealed that their new health insurance marketplaces cannot check income claims. Instead, the Administration will trust self-reported information until 2015, when they hope to finally have a verification system in place.

Verification systems are essential to determine who qualifies for benefits. Obamacare offers tax subsidies to purchase health insurance for Americans who earn less than 400% of the poverty line, about $45,000 for an individual. Those earning less than 133% of the poverty line – about $15,000 – will qualify for Medicaid coverage in the District and 23 states, such as Maryland, that have accepted the program.

Verification is also needed to check on individuals are receiving employer health insurance coverage. Employees do not qualify for funding support if they get health insurance from their company with a policy that costs less than 9.5% of their income.

Whether the Obama Administration can have an income verification process will be in place even by 2015 remains an open question. The Administration has already had three years to develop one and failed to do so.
Ample recent evidence exists of the consequences of relying on “self-certification” by people claiming government benefits. The government loses because benefits are claimed by unentitled people.

Start with the so-called “ObamaPhone” program. This is in fact the Lifeline program begun in 1985 to give discounted phone service to qualifying low-income consumers. Your monthly phone bill contains a charge per line to pay for this.
This was expanded beginning in 2005 to cover mobile phone service. Lifeline customers were required to re-register with their wireless provider every year to as being eligible, but recipients were allowed to simply “self-certify.” The cost of the Lifeline program has exploded from $819 million in 2008 to over $2.2 billion last year.

Closer scrutiny of eligibility estimates that as many as 40% of Lifeline phone recipients either cannot demonstrate their qualification or failed to respond to requests for certification. Among the problems is that households are also supposed to have only one phone each. Based on these numbers, it is projected that a program that cost less than a billion dollars five years ago, it now costs as much in fraudulent claims alone.

These numbers are mere rounding error compared with the eligibility problems associated with the Earned Income Tax Credit (EIC).This program is a refundable tax credit for low- and medium-income individuals and couples, primarily for those who have qualifying children. For tax year 2012, the maximum EIC for a single person or couple filing without qualifying children is $475. The maximum EIC with one qualifying child is $3,169, with two children is $5,236, and with three or more qualifying children is $5,891.

The IRS Inspector General regularly produces an estimate of improperly claimed EIC. They project that over the past decade improper payments have been made of between $112 billion to $133 billion.

The Food Stamps or “SNAP” is another program with eligibility challenges. And the state of Maryland in particular stands out as a weak administrator.
Our state ranks second in the nation in the amount of taxpayer dollars wasted on food stamp fraud. For every $100 in benefits, Maryland gave out $6.11 to people who were not eligible, amounting to about $60 million. Maryland ranks second in the United States for losses from improper payments, according to fiscal 2010 data from the U.S. Department of Agriculture. Our state’s fraud rate is just over twice the national average of $3.05 for every $100 spent on food stamps.

Of the nearly 1,300 Maryland cases that were investigated, 25% contained evidence of fraud and another 17% revealed overpayments, according to information from the Maryland Department of Human Resources. Yet in Maryland, only seven recipients were prosecuted in a single year while another 113 cases were settled outside the courts. That there were seven prosecutions sends a powerful message that the state is not concerned about benefit fraud.

In short, we already know how the movie turns out if Obamacare lacks a process to screen who should receive subsidies. Billions will be lost to ineligible recipients. And if Maryland’s prosecution rate is any guide, few who lie in order to get benefits will ever face any legal consequences.

Short of repealing Obamacare altogether, at an absolute minimum the individual mandate and the premium subsidies should never go into effect until a credible process is in place for verifying eligibility.

Mark Uncapher
Montgomery County Republican Chairman