WASHINGTON - Although required by the Affordable Care Act (ACA) to do so, the Internal Revenue Service (IRS) did not issue notification letters to taxpayers without Minimal Essential Coverage (MEC) for Tax Year 2014 by the statutory June 30, 2015, deadline, according to an audit report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).
The ACA requires the IRS, in consultation with the Secretary of Health and Human Services, to send a notification letter to each individual who files an income tax return and who is not enrolled in minimal essential health coverage. These letters should be sent by June 30th each year. MEC is health insurance that contains essential benefits, including emergency services, maternity, and preventive and wellness services. The IRS's notification should contain information on the services available through the Health Insurance Marketplace (also known as an Exchange) operating in the individual's State of residence.
TIGTA initiated its audit to assess the IRS's processes for identifying and notifying individuals who file an income tax return and do not have the required MEC, and to determine whether the IRS complied with the ACA's Individual Shared Responsibility Provision. This provision requires taxpayers who did not have MEC or an exemption from this requirement to make a Shared Responsibility Payment (SRP) when filing their Federal income tax return.
TIGTA found that IRS management delayed its planning to implement the required notifications so it could focus on an analysis of Tax Year 2014 tax return information to better understand taxpayer behavior during the initial year of the implementation of the Individual Shared Responsibility Provision. The IRS focused its efforts on providing public outreach and education in lieu of sending notification letters.
In March 2016, the IRS began coordinating with the Department of the Treasury and the Centers for Medicare and Medicaid Services (CMS) to discuss issuing notifications to individuals who filed a Tax Year 2015 return that reported an exemption from MEC or an SRP. The IRS and CMS entered into a reimbursable agreement whereby the CMS would reimburse the IRS for costs associated with developing, printing and mailing the letters. The IRS issued more than 7 million notification letters from November 2016 to January 2017. However, TIGTA's review identified that the IRS did not send notifications to:
- Approximately 3.3 million taxpayers who did not report full-year MEC, an exemption from MEC, or a Shared Responsibility Payment, and are not claimed as an exemption on someone else's tax return. The IRS refers to these tax returns as "silent returns," and the CMS informed the IRS that they did not want letters mailed to these individuals.
- 1.9 million individuals who filed a TY 2015 return and reported an exemption from MEC or a Shared Responsibility Payment. The Department of the Treasury randomly selected these individuals to be a control group for the purpose of measuring the effectiveness of the letters.
Finally, TIGTA's analysis of 5.4 million taxpayers who enrolled in health coverage through an Exchange in Calendar Year 2015 identified that the cost, after financial assistance, for 3.4 million (62 percent) taxpayers exceeded the $75 a month cited in the letters mailed to taxpayers. The average cost to taxpayers was $168 a month after financial assistance.
TIGTA did not make any recommendations in the report.