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Review of the Accounting Structure Used for the Administration of Premium Tax Credits

The Office of Inspector General (OIG) conducted a joint review with the Treasury Inspector General for Tax Administration (TIGTA) to identify the Internal Revenue Service (IRS) and Centers for Medicare & Medicaid Services (CMS) justification for determining how to establish programmatic control over the premium tax credit.

We found that IRS and CMS, in coordination with the Department of the Treasury and Department of Health and Human Services (HHS), took significant steps in planning the shared roles and responsibilities for advanced premium tax credit (APTC) payments. These efforts were necessitated by the Affordable Care Act structure of the premium tax credit, which places new responsibilities on both the IRS and CMS.

Planning efforts were initiated in late calendar year 2011 to select an appropriate accounting structure to support APTC payments made to health insurance issuers. IRS and CMS, in an effort to ensure that a sound and lawful accounting structure was selected, identified issues requiring resolution and discussed a variety of accounting approaches. They sought legal opinions from agency counsel and obtained input from the Office of Management and Budget (OMB). Ultimately, three accounting approaches were considered. By mutual agreement, IRS and CMS adopted an allocation account structure. OMB concurred with the use of the allocation account structure.

The allocation account structure provides a framework allowing the use of a permanent indefinite refund appropriation, administered by the IRS, to fund APTC payments certified and paid by the CMS to health insurance issuers. Effective operation of this approach is dependent upon the CMS's ability to reliably validate invoiced charges submitted by health insurance issuers to the CMS prior to certifying the payments. Also critical to the overall effectiveness of the APTC payment process is the IRS's ability to subsequently identify and address incorrect APTC payments when taxpayers file their tax returns. Continuing work by OIG and TIGTA will examine these operations.

OIG and TIGTA made no recommendations in this report. In their responses, HHS provided technical comments and IRS concurred with the report.