Health Coverage Tax Credits Strain IRS Capacity

Washington, D.C.
(October 19, 2010)

By WebCPA Staff

The Internal Revenue Service's ability to process the growing number of Health Coverage Tax Credit claims under the 2009 stimulus bill is doubtful,leading to questions about the agency's ability to handle its new responsibilities under the new health care reform law.

A new report by the Treasury Inspector General for Tax Administration concluded that the IRS successfully and promptly expanded the Health Coverage Tax Credit as required by the American Recovery and Reinvestment Act of 2009, but predicted the IRS will have difficulty in handling significant increases in the number of monthly enrolled participants.

The HCTC is a refundable tax credit created in 2002 to assist certain workers who lost their jobs due to foreign trade, and retirees who receive payments from the Pension Benefit Guaranty Corporation. The TIGTA report found that the IRS successfully increased the federal government's subsidy for the HCTC from 65 to 80 percent and allowed individuals to receive a reimbursement while enrolling in the monthly payment option.

While the IRS successfully processed a 67 percent increase in the number of individuals whose health plans received monthly payments (from 15,533 individuals in 2009 to 25,960 individuals in 2010), its ability to process a significantly larger volume is limited, TIGTA found. The HCTC program and systems are built to support only 57,000 enrolled participants. The IRS will face challenges if there is a significant increase in the number of monthly enrolled participants as a result of provisions included in the Recovery Act or newly enacted health care reform legislation.

"Fortunately, the number of claims for this credit has been within IRS's capacity to process the claims and payments," said TIGTA Inspector General J. Russell George in a statement. "The IRS will need to take program and system capacity limitations into consideration when preparing for implementation of new health care laws."

TIGTA made three recommendations to improve the accuracy and consistency of HCTC payment information, including ensuring that individuals receive accurate Health Coverage Tax Credit Advance Payments (Form 1099-H) payment information. The IRS agreed with two of the three recommendations, but disagreed with TIGTA's recommendation to ensure individuals receive accurate Forms 1099-H.


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