The Paragon Health Institute has studied the Biden Administration's expansion of ACA plan subsidies for enrollees with income between 100 percent and 150 percent of the federal poverty line. They estimate that $ 20 billion is being looted from Medicaid by fraudulent exchange enrollment. Fraudulent exchange enrollment is concentrated in States that have not adopted the ACA’s Medicaid expansion and in States that use the federal exchange (HealthCare.gov). Michigan uses HealthCare.gov.
The study is too long to reprise here, so here is its Executive Summary and Background:
https://paragoninstitute.org/private-health/the-great-obamacare-enrollment-fraud/
The Great Obamacare Enrollment FraudEXECUTIVE SUMMARY
What This Paper Covers
The Affordable Care Act (ACA) provided large subsidies for lower-income people to buy coverage in the exchanges. President Biden signed legislation that increased these subsidies through 2025, making plans fully-subsidized for enrollees with income between 100 percent and 150 percent of the federal poverty line (FPL). Enrollees in this income range also qualify for a cost-sharing reduction program that raises plan actuarial value to 94 percent with minimal deductibles and cost-sharing requirements. The Biden administration has also pursued administrative actions which have made this coverage more accessible for lower-income households and loosened eligibility reviews.This paper describes the incentives for people to misestimate income to qualify for larger subsidies. By state, this paper shows the number of people claiming income between 100 percent to 150 percent FPL who sign-up for coverage with the likely number of people who are eligible for this coverage within that income grouping. Then, this paper discusses the problematic incentives facing brokers and insurers for improper enrollment. The paper concludes with a set of recommendations to minimize improper and fraudulent enrollment and spending.
What We Found & Why It Matters
Nearly half of exchange sign-ups during the 2024 open enrollment period reported income between 100 percent and 150 percent FPL, qualifying for fully-subsidized, 94 percent actuarial value plans. The percentage of people signing up who report income in this range has increased substantially since the enhanced subsidies took effect.In nine states (Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, Texas, and Utah), the number of sign-ups reporting income between 100 percent and 150 percent FPL exceed the number of potential enrollees. The problem is particularly acute in Florida, where we estimate there are four times as many enrollees reporting income in that range as meet legal requirements.
The problem of fraudulent exchange enrollment is much more severe in states that have not adopted the ACA’s Medicaid expansion as well as in states that use the federal exchange (HealthCare.gov). In states that use HealthCare.gov, 8.7 million sign-ups reported enrollment between 100 percent and 150 percent FPL compared to only 5.1 million people likely eligible for such coverage, or 1.7 sign-ups for every eligible person.
Overall, fraudulent exchange enrollment appears to be a significant problem in nearly half of states. We estimate that fraudulent enrollment at 100 percent to 150 percent FPL is likely upwards of four to five million people in 2024. We estimate, conservatively, that this cost will likely be upwards of $15 to $20 billion this year.
In all states, there is an incentive for people who have income between 200 and 400 percent of the FPL to report income between 100 and 150 percent of the FPL. They qualify for a larger advanced subsidy and a plan with much lower cost-sharing, and the Internal Revenue Service only recaptures a portion of the excess subsidy when they file their taxes.
In non-Medicaid-expansion states, there is a large incentive for people, particularly older people, to overestimate their income. These individuals do not need to repay any of the subsidy to which they were not entitled.
Controlling for Medicaid expansion demonstrates the problems with HealthCare.gov as the percent of people who report income between 100 percent to 150 percent of FPL as those who are potentially eligible is more than twice as high in states using HealthCare.gov as using a state-based exchange. Evidence suggests that part of the issue is that state-based exchanges have done a more thorough job of re-evaluating people for exchange coverage who were no longer eligible for Medicaid after the public health emergency unwinding than states that use HealthCare.gov.
Unscrupulous brokers are certainly contributing to fraudulent enrollment and the enhanced direct enrollment feature of HealthCare.gov appears to be a problem. Brokers just need a person’s name, date of birth, and address to enroll them in coverage, and reports indicate that many people have been recently removed from their plan and enrolled in another plan by brokers who earn commissions by doing so.
Health insurers are a primary beneficiary of the surge in improper enrollment from people misestimating income. The larger subsidies mean that consumers are less sensitive to prices of plans and are more likely to enroll, and it’s much easier for insurers to collect subsidies from the U.S. Treasury than customers.
What We Recommend
We recommend six steps to reduce fraudulent exchange enrollment:
- Congress should permit the enhanced subsidies to expire after 2025;
- Congress should raise subsidy recapture limits to reduce incentives for people to misestimate their income;
- Congress or the next administration should limit automatic re-enrollment into exchange plans and end it for people moving from or into fully-taxpayer subsidized plans;
- Congress should appropriate cost-sharing reduction payments and prohibit silver-loading;
- Congress should conduct aggressive oversight of the Biden administration’s management of HealthCare.gov, enhanced direct enrollment, and insurer and broker actions to take advantage of misestimating income;
- Congress or the next administration should reverse policies of the Biden administration that enabled such widespread fraudulent enrollment, particularly the continuous open-enrollment period for people who report they have income below 150 percent FPL.
BACKGROUND
An analysis of Affordable Care Act (ACA) enrollment data, Census data, and U.S. Treasury data shows a widespread problem of people misestimating their income to maximize subsidies for exchange plans. We estimate upwards of four to five million fraudulently enrolled exchange sign-ups who will cost taxpayers north of $15 to $20 billion this year. We find that the issue is more severe in states that did not adopt the ACA’s Medicaid expansion (as there is a large incentive to overestimate income in those states) and states that are using the federal exchange platform for enrollment, HealthCare.gov.
Enrollment in the exchanges has grown substantially over the past few years, driven by increased subsidies. The subsidies, structured as premium tax credits (PTCs), reduce the percentage and amount of income that a person must pay for a benchmark plan—the second-lowest-cost silver plan1 available to them.
President Biden signed the American Rescue Plan Act of 2021 (ARPA) in March 2021 and the Inflation Reduction Act of 2022 (IRA) in August 2022, which increased the subsidies through 2025.2 As a result, people who claim that their income is between 100 percent and 150 percent3 of the federal poverty level (FPL) now pay $0 for benchmark plans, meaning that their coverage is fully paid by taxpayers. The ACA limited the PTCs to enrollees in households with income below 400 percent FPL, but the legislation signed by President Biden lifted that cap, extending the subsidies to households in the top two quintiles. Figure 1 shows the percentage of income that households at a given percentage of the FPL had to pay for benchmark plans under the original ACA and from 2021 to 2025 under the increased subsidies.
The ACA subsidies are generally payments directly from the U.S. Treasury to health insurers on behalf of enrollees who select plans in the exchanges. In official terminology, the subsidies are advance PTCs (APTCs), as they are credited to individuals based on their estimated household income and then sent to insurers. The PTCs are refundable4 and larger for lower-income enrollees, as they phase down as enrollee income increases. People with income below 200 percent FPL also qualify for a cost-sharing reduction (CSR) program that significantly reduces deductibles, cost-sharing amounts, and out-of-pocket limits.5 For someone with income between 100 percent and 150 percent FPL who selects a silver plan, the CSR program raises plan actuarial value—the average percentage of expenses paid by the plan—to 94 percent. For silver plan enrollees with income between 150 percent and 200 percent FPL, the CSR program raises the actuarial value to 87 percent.
The PTC structure, particularly after the enhancement, creates numerous problems, which we have explored in other papers.https://www.forbes.com/sites/theapothecary/2022/05/26/fourteen-reasons-to-let-the-expanded-obamacare-subsidies-expire/?sh=32c98a3b6cba style="color:#00A6CF;"> https://www.forbes.com/sites/theapothecary/2022/05/26/fourteen-reasons-to-let-the-expanded-obamacare-subsidies-expire/?sh=32c98a3b6cba</a>; Brian Blase, “Expanded ACA Subsidies: Exacerbating Health Inflation and Income Inequality,” Galen Institute, June 2021, <a href= https://galen.org/assets/Expanded-ACA-Subsidies-Exacerbating-Health-Inflation-and-Income-Inequality.pdf style="color:#00A6CF;"> https://galen.org/assets/Expanded-ACA-Subsidies-Exacerbating-Health-Inflation-and-Income-Inequality.pdf</a> ." href="https://paragoninstitute.org/private-health/the-great-obamacare-enrollment-fraud/#cmfSimpleFootnoteLink6" data-extlink="" data-extlink_label="">6 The focus of this piece, however, is to present data on how the PTC structure—particularly after President Biden signed legislation increasing the subsidies and making fully subsidized plans with very limited cost-sharing available to enrollees with income between 100 percent and 150 percent FPL—has led to far more people enrolling in the lowest income category than are eligible.
Figure 2 demonstrates the shift in overall enrollment to the lowest-income category in the states that use HealthCare.gov. In 2022, the fully subsidized plans were first readily available during that year’s open enrollment period. In 2024, 53 percent of people who signed up for coverage during open enrollment reported that their income was between 100 percent and 150 percent FPL. This figure shows only the federal exchange sign-ups, because not all states with state-based exchanges reported sign-ups by income grouping prior to 2022.
Overall, when including states with their own exchanges, 47 percent of people who selected plans during open enrollment reported income between 100 percent and 150 percent FPL in 2024. The reason for the decline when including states that established their own exchanges is that all those states expanded Medicaid under the ACA. In those states, the ACA requires that people with income between 100 percent and 138 percent FPL enroll in Medicaid and not in exchange-based plans
A Massive Incentive to Misestimate Income
During open enrollment (typically in November and December preceding the coverage year), enrollees sign up for exchange plans. During this period, they, likely with the assistance of brokers or navigators working with them on their applications, estimate their household income for the following year.The APTC is a function of this estimated income, so people generally qualify for larger subsidies if they underestimate their income, although there is an incentive for some people in states that have not expanded Medicaid to overestimate income (see discussion below). When a person files his or her subsequent tax return (generally in April of the year after the coverage), the APTC amount gets reconciled with the amount of the PTC that person was entitled because of actual income. People who received excessive subsidies would owe the excess back when they file their taxes, subject to limits discussed below. Those who received subsidies that were too small would receive additional credit against their taxes when they file.
In Medicaid expansion states, able-bodied, working-age adults with income below 138 percent FPL are eligible for Medicaid. Therefore, in expansion states, only enrollees who estimate their income between 138 percent and 150 percent FPL are eligible for fully subsidized benchmark plans.
In states that have not expanded their Medicaid programs, enrollees with income between 100 percent and 150 percent FPL are eligible for fully subsidized benchmark plans, as able-bodied, working-age enrollees are generally not eligible for Medicaid in those states. If their income is below 100 percent FPL, they also are ineligible for PTCs. This creates an incentive for able-bodied adults with income below the poverty line to overestimate their earnings. By estimating that their earnings are between 100 percent and 150 percent FPL, such an individual can claim a PTC that now covers the entire premium for a benchmark plan that would also have a very low deductible, cost-sharing amounts, and out-of-pocket limit because of the CSR program. By misstating their income, these individuals get generous coverage at zero cost to them—instead of being ineligible for any subsidies at all.
The incentives to misstate income are magnified because the law limits the amount that people need to repay when they file their taxes. For 2024, the amount that single filers must pay back to the Internal Revenue Service (IRS) is capped at $375 for individuals between 100 percent and 200 percent FPL, $950 for those between 200 percent and 300 percent FPL, and $1,575 for those between 300 percent and 400 percent FPL.https://www.irs.gov/pub/irs-drop/rp-23-34.pdf style="color:#00A6CF;"> https://www.irs.gov/pub/irs-drop/rp-23-34.pdf</a>. These amounts are indexed to inflation. The amounts are also double for married persons filing jointly." href="https://paragoninstitute.org/private-health/the-great-obamacare-enrollment-fraud/#cmfSimpleFootnoteLink7" data-extlink="" data-extlink_label="">7 People with income above 400 percent FPL would need to fully reconcile the APTC amounts with the PTC amounts to which they were entitled.
Because of these relatively low recapture limits, many enrollees have an incentive to underestimate their income. For example, for a 40-year-old enrollee at 290 percent FPL, the incentive for estimating income at just under 150 percent FPL is $1,438 on average in the United States. He would receive an APTC of $5,723 to cover the full premium of insurance coverage with an actuarial value of 94 percent. At 290 percent FPL, he was eligible for a PTC of $3,355—receiving $2,368 of excessive subsidy for much less generous coverage (70 percent actuarial value). He would need to repay $950, which would leave him better off by $1,418 in premium subsidies due to underestimating his income and the added benefit of having coverage with much less cost-sharing.
The incentives to overestimate income in non-expansion states are much larger for older enrollees, as the PTC structure limits premium payment to a certain percentage of household income, regardless of the premium amount. Because premiums are three times more for enrollees near 65 than for enrollees in their 20s, the subsidies are also much larger. Nationally, the average PTC for a 21-year-old is $4,478 and the average PTC for a 64-year old is $13,434.8 Older enrollees demand more medical services all else equal, and some may be looking to retire before the age of 65. These factors contribute to a larger incentive for them to overestimate income to earn a PTC.
Given how the subsidy structure works, there is not much differential incentive for older people to underestimate their income to gain a higher subsidy. In fact, the only differential occurs because the value of the cost-sharing reduction subsidy, which we explain below, is greater for older enrollees than younger enrollees.
Figure 3 demonstrates the age dynamic. The incentive to underestimate income is minimal for enrollees with income below 200 percent FPL, so the figure starts showing the benefit of underestimating income at 200 percent FPL. The benefit gradually increases as household income increases until the benefit ceases at 400 percent FPL. Figure 3 includes an estimate of the taxpayer cost for enrollees who underestimate their income to qualify for the CSR program and a 94 percent actuarial value plan.9
People who estimate their income to be at least 100 percent FPL at the time of enrollment but end up earning less than 100 percent FPL do not have to pay any of the APTC back. In that circumstance, the IRS considers the person to be qualified for the PTC so long as the income estimate was not made “with intentional or reckless disregard for the facts.”10 Therefore, people with income below 100 percent FPL in non-Medicaid expansion states have an even more significant incentive to overestimate their income to qualify for a large PTC, as they would not need to pay any of it back. Such enrollees who overestimate their income to an amount greater than 100 percent FPL receive a full subsidy. In other words, they pay zero premium for plans with actuarial values of 94 percent.
In 2024, a 40-year-old enrollee reporting income between 100 percent to 150 percent FPL would receive an average subsidy of $5,869 in Florida, $5,556 in Georgia, and $5,700 in Texas.11 For a 60-year-old enrollee, the amounts in these states would be $12,464, $11,799, and $12,104.12 And their cost-sharing would be far more generous than what all but a few Americans get through their employer-sponsored insurance. These estimates of the benefit of misestimating their income are conservative, because they do not factor in the additional value of the CSR program that benefits them. However, Figure 3 accounts for the extra benefits of the CSR program and the 94 percent actuarial value plan to which enrollees who report income between 100 percent and 150 percent FPL are entitled.
Analysis Confirms People Are Misestimating Income
New research shows that people have been misestimating their income—with a particularly high concentration in Florida—since the ACA’s key provisions took effect. In a 2024 piece using 2015-2017 federal exchange data, three authors—all of whom are past or present Congressional Budget Office experts—find “evidence suggesting that many people in the coverage gap in non-expansion states obtain subsidies by reporting income just above the Federal Poverty Line at the time of enrollment, especially in Florida.”13 The “coverage gap” refers to people in non-expansion states with incomes below 100 percent FPL.The authors continued, “The precise incomes reported by marketplace enrollees suggest that they were aware of the cutoff for PTC eligibility at the FPL. Consider single-person households in non-expansion states in 2015, for whom the lower bound for eligibility for the PTCs was $11,670.… [S]o many enrollees reported income between $11,670 and $12,500 to Healthcare.gov that actual marketplace enrollment was 136% of estimated potential enrollment in that range. Furthermore, many of these enrollees reported [modified adjusted gross income] precisely equal to $11,670, $11,700, or $12,000, suggesting that they were aware of the cutoff for PTC eligibility and reported just enough income to exceed it. Other spikes correspond to round values, like $15,000, or inflation-adjusted round values from 2014.” Such precision on a widespread scale suggests significant counseling of income manipulation by outside entities aware of the program rules.
The authors conclude: “Taken together, these facts suggest that many people who eventually earned less than 100% FPL reported that they expected to earn more than this amount when enrolling in marketplace insurance and were able to receive PTCs. This implies that many people who earned less than the FPL (or, in the ACS [American Community Survey], reported earning less) were effectively eligible for PTCs.”
In 2019 (the most recent year Treasury published this analysis), the Treasury Department estimated that over one-fourth of all PTCs—an amount equal to $11.32 billion—would be paid to insurers on behalf of households with income below 100 percent FPL in 2020.https://home.treasury.gov/system/files/131/Treasurys-Baseline-Estimates-of-Health-Coverage-FY-2020.pdf style="color:#00A6CF;"> https://home.treasury.gov/system/files/131/Treasurys-Baseline-Estimates-of-Health-Coverage-FY-2020.pdf</a>. Total subsidies were $43.89 billion according to Treasury in 2020." href="https://paragoninstitute.org/private-health/the-great-obamacare-enrollment-fraud/#cmfSimpleFootnoteLink14" data-extlink="" data-extlink_label="">14 Treasury estimates that roughly 1.70 million tax filers receiving PTCs would have income under 100 percent FPL, and 1.38 million who would receive PTCs would have income between 100 percent and 150 percent FPL. This data shows that the reported income data that the Centers for Medicare and Medicaid Services (CMS) uses has major problems, as CMS enrollment data did not include any enrollment for people with income below 100 percent FPL. Figure 4 highlights the discrepancy between Treasury estimates and CMS plan selection data. This data shows that misestimating income for people with income below 100 percent FPL was a problem before the enhanced subsidies. That problem was made worse given the access to fully subsidized plans, while the problem with people above 150 percent FPL underestimating income was made more severe.
It is worth noting that people also have incentives to report lower income in order to enroll in Medicaid in expansion states. Medicaid has extremely low (if any) cost-sharing, and the plans are similar to exchange plans in terms of providers accepting the coverage. Our analysis, which focuses on exchange enrollment, excludes this dynamic and thus makes expansion states look better than non-expansion states on these fraudulent enrollment statistics.
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