Pervasive Fraud in Government Health Care Programs

As the House prepares to vote on extending Biden COVID-era Affordable Care Act (ACA) subsidy bonuses, the nation’s attention in health policy has turned to Medicaid and welfare fraud in Minnesota. Unfortunately, as Paragon research has documented and quantified, fraud is a defining characteristic of the ACA exchanges and is particularly relevant to the ongoing ACA debate.

The growth of improper and phantom enrollment in the exchanges is just one reason why Congress should not extend COVID-era subsidies, which go directly to health insurers. Other key reasons include their inflationary effects, punishment of people with employer coverage, the erosion of work incentives, and the massive cost to taxpayers. In a new Paragon Prognosis, I highlight an emerging reason for not extending ACA subsidies: year-over-year sign-ups have not meaningfully declined as predicted. That reality exposes just how over-subsidized—and structurally broken—the exchange market has become.

In today’s newsletter, I highlight a variety of new Paragon products, including three Prognoses and a report on the benefits of schools banning smartphones.

Phantoms Still Enrolled: Why Initial Obamacare 2026 Enrollment Has Stayed Flat

Despite a roughly 26 percent increase in gross premiums and the expiration of COVID-era subsidy boosts, initial 2026 ACA exchange enrollment in states using the federal exchange is roughly flat from last year. In a new Prognosis, I write that enrollment has stayed flat because of automatic re-enrollment, inflated underlying subsidies, and aggressive silver-loading practices. Millions of enrollees are rolled forward each year without re-verifying eligibility or income, many of whom are unaware they are enrolled at all, while the federal government continues sending advance subsidies to insurers.

In 2024, roughly 35 percent of all exchange enrollees—and 40 percent of fully subsidized enrollees—had no medical claims, more than double what is seen in normal health insurance markets. Paragon estimates that between 3 and 4 million enrollees are likely “phantoms,” including fictitious individuals and real people who are unaware they have coverage. Many of these enrollees are repeatedly auto-re-enrolled year after year.

Aggressive silver loading further compounds the problem. By inflating silver-tier premiums, insurers also inflate benchmark subsidies, producing zero-premium bronze and gold plans even after the COVID bonuses expire. These zero-premium plans eliminate the friction that would otherwise cause improper and phantom enrollment to unwind.

The result is a market saturated with taxpayer subsidies—covering roughly 85 percent of premiums during the COVID era and continuing to grow on autopilot even after the bonuses expire. I make four recommendations to improve the integrity of the ACA: 1) reject further COVID-era subsidy boosts, 2) require a meaningful consumer premium contribution, 3) end silver loading, and 4) end advance subsidies after the first missed premium payment and penalize insurers that receive subsidies for nonpayers.

Banning Smartphones in Schools: Review of the Literature Shows Positive Impact

A new Paragon report by Drs. David T. Marshall and Tim Pressley examines the growing body of evidence on smartphone bans in schools and finds that comprehensive bans significantly improve student outcomes. Marshall and Pressley are education policy experts who have both previously worked as K-12 teachers. Drawing on international studies and early U.S. evidence, Marshall and Pressley find that limiting phone use during the school day leads to better academic focus, improved classroom behavior, and increased student engagement—especially for lower-achieving and disadvantaged students. The research finds that partial bans—allowing phones during lunch or between classes—are less effective.

Teachers report fewer disruptions and easier classroom management when student phone use is restricted. Students report higher concentration and more face-to-face interaction with peers. Early evidence from U.S. states and districts adopting full bans mirrors results seen internationally.

At a time when youth mental health, social isolation, and academic disengagement are growing concerns, these findings underscore a simple conclusion: schools that remove smartphones from the school day create healthier, more focused learning environments. Paragon’s brief also outlines best practices for implementation, addressing common concerns about safety and communication.

Medicaid Money Laundering Harms Long-Term Care

In a recent Prognosis, long-term care expert Stephen A. Moses highlights new research showing that Medicaid money laundering schemes not only waste taxpayer dollars but also harm nursing home residents—particularly patients with Alzheimer’s and dementia. The analysis draws heavily on a new National Bureau of Economic Research (NBER) working paper led by UCLA economist Martin Hackmann, which examines how Medicaid’s financing structure distorts state incentives in the nursing home sector.

Using audit reports, administrative data, and surveys, the NBER authors find that between 2000 and 2002, 16 states diverted at least $17 billion away from nursing homes through creative financing schemes. States inflated nominal reimbursement rates to increase federal matching funds, while paying providers much lower effective rates and redirecting the difference to other state uses.

The paper’s central case study focuses on Indiana and illustrates how these perverse incentives operate in practice. After federal restrictions in 2003 limited some diversion tactics, Indiana converted private nursing homes into county-owned facilities, allowing intergovernmental transfer (IGT) schemes to continue. (Last month, Paragon released a policy brief on the Medicaid IGT scheme.) By 2017, public nursing homes accounted for 95 percent of facilities in the state. The strategy proved highly effective at maximizing federal dollars: Indiana now receives nearly $1 billion annually in Medicaid supplemental payments for nursing facilities, with a large share diverted away from patient care. By encouraging rapid expansion of Medicaid volume at lower-quality facilities while siphoning resources away from care delivery, these schemes worsened outcomes for long-stay, high-need patients who depend most on consistent, high-quality nursing care.

Crucially, the NBER study finds that these schemes worsened patient outcomes. Medicaid nursing home volume increased most sharply in lower-quality facilities, particularly for long-stay Alzheimer’s and dementia patients. The authors estimate that Indiana’s financing distortions led to roughly 50 additional deaths per year and hundreds of millions of dollars in wasteful spending over time. The research underscores a clear lesson: creative Medicaid financing may enrich state budgets, but it may do so at the expense of the program’s most vulnerable patients.

Advanced Explanation of Benefits 

In a new Prognosis, Ryan Long highlights a basic but profound flaw in the U.S. health care system: patients often have no idea what they will owe until after they receive care, leading to surprise bills and poor financial planning. The Advanced Explanation of Benefits (AEOB), enacted in legislation signed by President Trump at the end of his first term, was designed to change that by requiring insurers to provide upfront, personalized out-of-pocket costs before scheduled services. This transparency would empower patients to compare prices, budget for care, and choose lower-cost providers. Although implementation was delayed in the Biden administration, fully realizing AEOB could reduce billing surprises, promote competition, and help families make informed decisions about care costs.