GOP questions IRS about fraud, taxes in Obamacare

As the IRS attempts to administer the new aspects of Obamacare, it could hit taxpayers with unexpected tax bills or end up doling out subsidies to frauds, Republicans warned in a House committee hearing Thursday.

Officials from the IRS and the Centers for Medicare and Medicaid Services told members of the House Ways and Means Committee that the Obamacare rollout is proceeding as planned, insisting that the GOP's concerns about fraud and unforeseen taxes are misguided.

Rep. Paul Ryan, R-Wis., countered that he wasn't misguided -- the IRS is.

"I don't think you understand the law you're in charge of implementing and overseeing," Ryan told acting IRS chief Daniel Werfel.

Ryan warned that once uninsured Americans can start applying for health insurance on the state-based exchanges this October, they may mistakenly apply for subsidies even if they're not eligible for them. The IRS will be responsible for distributing those subisidies once the exchanges are up and running but may not be able to fully verify if an individual qualifies for tax credits until he files his tax returns the next year. One the IRS realizes that person didn't qualify for that assistance, Ryan said, the IRS will have to collect "thousands of dollars in taxes, clawing back the subsidy they were not eligible for."

Werfel told Ryan that the IRS will "help the individual at the front end" of the process to ensure they're aware of the subsidies they are eligible for. Additionally, he said, the agency will attempt to verify income levels and other factors that would make a person eligible for subsidies ahead of time.

The Health and Human Services Department will also verify the income of every person who applies for subsidies, Gary Cohen of Centers for Medicare and Medicaid Services told the committee. HHS will have to rely on IRS information from a year prior, but will also check an applicant's reported income levels against information from the Social Security Administration and the company Equifax.

"If we can't verify, then we're going to ask for further information and documentation such as paystubs from every applicant," Cohen said.

While Ryan questioned the officials about back-taxes, House Ways and Means Committee Chairman Dave Camp, R-Mich., had questions about the prospect of fraud. Camp noted that the Treasury Department Inspector General reported last year that the IRS will pay out more than $21 billion in fraudelent tax refunds over the next five years. The inspector general also testified that the IRS's existing fraud detection systems may not be capable of identifying fraudulent schemes targeting the tax credits available through Obamacare.

"Obviously, this is completely unacceptable," Camp said to Werfel. "How do you expect the American people to believe that their hard-earned tax dollars are going to be protected?"

Werfel pointed out that, unlike other tax refunds, the subsidies doled out for Obamacare go straight to the health insurer, not consumers. While consumers won't see the money directly, they will get "an economic benefit, access to insurance and less expensive premiums," Werfel said.

Democrats on the committee charged that their GOP colleagues were stirring up false controversies over the law.

"This is not a hearing, this is a battle," Rep. Jim McDermott, D-Wash., said. "One side is throwing up dust and trying to confuse people all over the country... crafting a scandal narrative to support their truly relentless agenda" of repealing the Affordable Care Act.

The GOP-led House votes for the 40th time this week to roll back the law, this time by stripping the IRS of its ability to enforce it.