Are Obamacare’s exchanges hotbeds of fraud? New research suggests as much.
An estimated 4 million to 5 million people have received fully subsidized health insurance by misrepresenting their income. That’s $20 billion lost to bogus enrollments this year.
The problem stems from the original design of Obamacare – and the ineptitude of subsequent tinkering with the law.
One key element of Obamacare was an expansion of Medicaid to anyone making less than 138% of the federal poverty level, or just over $20,780 for an individual. Most states expanded Medicaid as Obamacare directed; as of today, 10 have declined to do so.
Obamacare also provides subsidies for policies purchased through its exchanges. In 2021, President Biden signed legislation making those subsidies more generous. The 2022 Inflation Reduction Act extended those more generous subsidies through 2025.
Those who make between 100% and 150% of the federal poverty level – between $15,060 and $22,590 – can qualify for premium-free coverage as well as cost-sharing reduction subsidies that minimize deductibles and copays.
The Paragon Health Institute’s research estimates the value of these subsidies at about $6,000 a year. That creates an incentive for an enrollee to report income between 100% and 150% of poverty, rather than below or above those figures.
At the same time, the Biden administration has taken steps to increase exchange enrollment among low-income households and loosened eligibility reviews.
These factors create prime conditions for fraud. As reported by Paragon, over 50% of people who signed up during open enrollment for coverage through the federally-run HealthCare.gov exchange in 2024 estimated their earnings in that range of 100% to 150% of the poverty line — an increase of roughly 10 percentage points compared to the period before enhanced subsidies took effect.
According to Paragon, actual incomes differed significantly from these estimated income figures. In Alabama, Georgia, and Texas, the number receiving the full subsidy exceeded the number of eligible beneficiaries. In Florida, nearly four times more people signed up for an Obamacare plan in the expanded full-subsidy range than were actually eligible.
In theory, “misestimates” of income get corrected at tax time, when erroneously granted subsidies have to be paid back. In reality, caps on what the government is allowed to recapture still make it worthwhile to estimate income in the full-subsidy range. Those recapture limits enable people to come out thousands of dollars ahead.
Dishonest insurance brokers also play a role. Some have been signing people up for or transferring them into subsidized exchange plans without their knowledge or consent. These brokers received commissions from insurers for each enrollee. In May, the Centers for Medicare and Medicaid Services reported that it received roughly 90,000 consumer complaints of unauthorized plan switches or new sign-ups.
Washington needs to take action. It’s time to increase oversight of HealthCare.gov enrollment procedures. Second, those who misestimate income should have to repay in full the subsidies they wrongly received.
The more generous exchange subsidies are scheduled to expire at the end of 2025. Let them. They’re an invitation to fraud.
This op-ed was printed in The Palm Beach Post.
Obamacare needs to police fraud
Sally C. Pipes
Are Obamacare’s exchanges hotbeds of fraud? New research suggests as much.
An estimated 4 million to 5 million people have received fully subsidized health insurance by misrepresenting their income. That’s $20 billion lost to bogus enrollments this year.
The problem stems from the original design of Obamacare – and the ineptitude of subsequent tinkering with the law.
One key element of Obamacare was an expansion of Medicaid to anyone making less than 138% of the federal poverty level, or just over $20,780 for an individual. Most states expanded Medicaid as Obamacare directed; as of today, 10 have declined to do so.
Obamacare also provides subsidies for policies purchased through its exchanges. In 2021, President Biden signed legislation making those subsidies more generous. The 2022 Inflation Reduction Act extended those more generous subsidies through 2025.
Those who make between 100% and 150% of the federal poverty level – between $15,060 and $22,590 – can qualify for premium-free coverage as well as cost-sharing reduction subsidies that minimize deductibles and copays.
The Paragon Health Institute’s research estimates the value of these subsidies at about $6,000 a year. That creates an incentive for an enrollee to report income between 100% and 150% of poverty, rather than below or above those figures.
At the same time, the Biden administration has taken steps to increase exchange enrollment among low-income households and loosened eligibility reviews.
These factors create prime conditions for fraud. As reported by Paragon, over 50% of people who signed up during open enrollment for coverage through the federally-run HealthCare.gov exchange in 2024 estimated their earnings in that range of 100% to 150% of the poverty line — an increase of roughly 10 percentage points compared to the period before enhanced subsidies took effect.
According to Paragon, actual incomes differed significantly from these estimated income figures. In Alabama, Georgia, and Texas, the number receiving the full subsidy exceeded the number of eligible beneficiaries. In Florida, nearly four times more people signed up for an Obamacare plan in the expanded full-subsidy range than were actually eligible.
In theory, “misestimates” of income get corrected at tax time, when erroneously granted subsidies have to be paid back. In reality, caps on what the government is allowed to recapture still make it worthwhile to estimate income in the full-subsidy range. Those recapture limits enable people to come out thousands of dollars ahead.
Dishonest insurance brokers also play a role. Some have been signing people up for or transferring them into subsidized exchange plans without their knowledge or consent. These brokers received commissions from insurers for each enrollee. In May, the Centers for Medicare and Medicaid Services reported that it received roughly 90,000 consumer complaints of unauthorized plan switches or new sign-ups.
Washington needs to take action. It’s time to increase oversight of HealthCare.gov enrollment procedures. Second, those who misestimate income should have to repay in full the subsidies they wrongly received.
The more generous exchange subsidies are scheduled to expire at the end of 2025. Let them. They’re an invitation to fraud.
This op-ed was printed in The Palm Beach Post.
Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.