Congress Opens Investigation of Great Obamacare Enrollment Fraud

Before you celebrate Independence Day, I want to update you on three significant health policy developments: 1) an investigation into massive fraudulent Obamacare subsidy expenditures, which was uncovered by a Paragon data analysis; 2) a recap of the health policy elements from the first presidential debate, and 3) the implications of the Supreme Court’s decision to invalidate Chevron. Before getting into the substance, however, I want to invite you to a virtual discussion on July 17 at 2pm that Theo Merkel, Alye Mlinar, and I will have on Paragon’s report, Follow the Money: How Tax Policy Shapes Health Care. We will lay out an agenda for Congress to improve health-related tax policy as well as discussing the Obamacare enrollment fraud, which is a significant tax-related issue. Register here for this important event.

The House’s Sensible Action

On June 28, 2024, the Chairs of three House committees—Energy and Commerce, Ways and Means, and Judiciary—sent letters to the Government Accountability Office (GAO) and the Inspector General at the Department of Health and Human Services (HHS OIG) requesting information on “an astonishing level of improper, and potentially fraudulent, behavior, in Obamacare markets.” The letters cite Paragon’s recent report in this paragraph:

Individuals enrolled in this [100 to 150 percent of federal poverty level] income cohort nationwide exceed the total number of potentially eligible individuals. This problem appears to be particularly acute in certain states, with some reporting hundreds of thousands, and, in one case, millions more individuals enrolled in these plans than are reasonably likely to be eligible. More than half of all enrollees in the federal exchange now report incomes between 100 and 150 percent of FPL—notably higher than the historical average of roughly 40 percent—further demonstrating the breadth of the enrollment incongruity.

The letters also cite our estimates that the amount of fraudulent spending this year alone will likely be between $15 billion and $26 billion. Here is the newsletter where I explained the issue and our findings, my accompanying Wall Street Journal op-ed, and a Washington Post story about Congress’s investigation.
 
The problem stems from the advanced subsidy structure of Obamacare that relies on estimated income, a huge expansion of subsidies that allows for people reporting income between 100 and 150 percent of FPL to qualify for fully subsidized plans, large incentives for insurers and brokers if enrollees misstate income during the application, and the Biden administration loosening eligibility safeguards.
 
The Committees request that GAO investigate the enrollment practices employed by HealthCare.gov and state-based exchanges, review Biden administration policies that are contributing to improper enrollments, and survey enrollees in fully subsidized plans to determine what portion of these enrollees use their plan or even know they are enrolled. The Committees asked the HHS OIG to estimate the scope of potential improper enrollment in such plans as well as improperly paid federal subsidies provided to insurance companies on behalf of such individuals.
 
This week’s Paragon Pic is the key summary table from our report, which shows that fraudulent enrollment is a much bigger problem in states using HealthCare.gov, the federal exchange. In states using HealthCare.gov, we estimate 1.7 enrollees claiming income between 100 and 150 percent FPL for every eligible person.

Health Policy in the Presidential Debate

While the main takeaways from the debate last Thursday were not related to health care policy, it is clear President Biden intends to make health care a key part of his campaign. The candidates traded barbs about whose policies would save or “beat” Medicare, and clashed on a number of other health care issues throughout the night, such as COVID-19 restrictions, the opioid crisis, and veterans’ health care. I want to provide more context on the drug pricing issues that came up.
 
In his opening statement, Biden overembellished the Inflation Reduction Act (IRA)’s changes to Medicare Part D – a modified cap on insulin copays at $35 (not $15, as Biden initially claimed and later corrected) and a new cap on out-of-pocket spending at $2,000 (not $200 as initially stated). But there is a lot missing from media coverage of these policies. Insulin copayments have actually been declining since 2018. Medicare beneficiaries have had the option to enroll in a Part D plan that capped insulin copayments since 2021. Importantly, insulin manufacturers were forced to increase price discounts as part of President Trump’s Senior Savings Model, but then were alleviated of that burden by Biden in the IRA. Biden also repealed a Trump policy to give insulin to those with low incomes (regardless of insurance status) at under $35. What’s more is the out-of-pocket cap in the IRA was poorly designed, so that millions of seniors are now facing the largest ever premium spike long before far fewer of them will benefit from the price controls (cynically described as “negotiation”) that don’t start until 2026.

Chevron Overruled: What Does it Mean for Health Policy?

On June 28, the Supreme Court invalidated Chevron in the Loper Bright and Relentless cases. In short, the Court ruled that the judicial branch, not administrative agencies, interprets the law. The Court held that the Chevron doctrine violated the Administrative Procedure Act (APA), which empowers courts, not agencies, to “decide all relevant questions of law.”  
 
For four decades, Chevron empowered the administrative state as the Courts granted considerable deference to agencies to interpret statutes in federal regulations. While the Supreme Court has stopped using Chevron deference in recent years, the Loper Bright ruling means lower courts will no longer be allowed to use Chevron.
 
The reversal of Chevron will have significant health policy implications given that federal agencies spend and regulate trillions of health dollars annually. During the pandemic, federal agencies relied on Chevron deference to stretch the limits of their authority. For example, the Centers for Disease Control (CDC) broadly interpreted the Public Health Service Act to issue a nationwide eviction moratorium.

According to Paragon’s Joel Zinberg:

Previously, agencies could rely on courts to interpret any statutory ambiguity in line with their “permissible” interpretation, regardless of whether the court thought it was the correct interpretation. Going forward they will have to present convincing evidence to courts of why their statutory interpretation, rather than the interpretation advanced by the private regulated entity, is the right one. As the Supreme Court held, a statute, ambiguous or not, “still has a best meaning, necessarily discernible by a court deploying its full interpretive toolkit.” Private litigants will have a much-improved chance of prevailing over government bureaucrats.

Joel states three likely outcomes:

1. Agencies will be less aggressive in advancing dubious statutory interpretations.
2. Agencies may try to circumvent Loper Bright‘s ruling by relying on guidance documents rather than notice-and-comment rulemaking since courts under the APA cannot review a challenge to agency guidance until there has been a “final agency action.” To avoid this outcome, Joel recommends reinstituting Good Guidance practices, which he describes in a recent paper.
3. Congress may become more precise and explicit in its lawmaking and delegations to agencies.

Happy July 4^th to you and this great country!

All the best,

Brian Blase
President
Paragon Health Institute