Reducing Fraud and Waste in the Obamacare Exchanges

The day after Tax Day, it is important to remember that all government spending must be financed through taxation. Taxation can take the form of direct contemporaneous tax payments, inflation (which reduces the purchasing power of our money), and debt (which leads to higher future taxes).

In today’s newsletter, I discuss a proposed rule from the Trump administration that will significantly improve American well-being by reducing federal spending and thus future taxes. Then, I discuss a Paragon-commissioned public opinion survey on Medicaid reform as Congress considers improvements to the program.

Exchange Program Integrity Rule: A Good Step—But Improvements Needed

In March, the Trump Administration released a proposed rule aimed at reducing improper enrollment in the Affordable Care Act (ACA) exchanges and improving the affordability of coverage. The key provisions are aimed at verifying applicant information to ensure the correct subsidy payment.

According to new estimates from the Congressional Budget Office (CBO), the proposed rule would reduce the federal deficit by $210 billion over the next decade. This staggering figure shows just how much taxpayer money has been lost to abuse and mismanagement under the Biden administration. Both CBO and the Centers for Medicare and Medicaid Services (CMS) project that the rule will also lower exchange plan premiums.

Paragon submitted a generally supportive comment letter on the proposed rule, with several key recommendations for how to strengthen it.

The Scale of the Problem & Key Aspects of the Proposed Rule

Because of poor policies and bad incentives, Paragon research found that 4 to 5 million people were improperly enrolled in ACA plans in 2024 alone, costing taxpayers $15–$26 billion that year. In the proposed rule, CMS confirmed Paragon’s methodology as technically sound and likely conservative.

President Biden’s policies allowed people to self-attest income and other information with little documentation while his administration extended deadlines to verify eligibility and introduced easily abused special enrollment periods. His administration’s policies led to massive fraud, including by health insurance brokers.

The new HHS rule proposes tightening verification standards by requiring enrollees to prove income with trusted data or submit supporting documents. The rule would also restore open enrollment periods to those originally proposed by President Obama. To go deeper, see Paragon’s recent policy brief that examines the rule’s major provisions.

Rule Should End Auto-Re-Enrollment in Subsidies

Enrollees who take no action during open enrollment to choose a plan or update their eligibility are automatically enrolled from one year to the next in a subsidized plan. This results in significant waste and perpetuates fraudulent subsidy payments. The rule stops short of ending the practice.
 
Allowing enrollees to remain in largely subsidized plans without updating their income or verifying other information that forms the basis for the subsidy is a recipe for disaster. It increases the chance that subsidies are advanced to insurers based on outdated or unverified data. Once the funds go to insurers, they are nearly impossible to claw back.
 
Ending auto-re-enrollment would ensure that consumers return to the exchange annually, update their information, and obtain a current eligibility determination. This one change would prevent payments of billions of improper subsidies annually and would reestablish consumer engagement and responsibility within the exchanges.
 
Automatic re-enrollment also suppresses consumer engagement, allowing insurers to collect billions of public dollars without proving their value or competing on quality. This dynamic may harm quality by reducing consumer focus on whether their coverage meets their health needs. The declining quality of ACA plans has been well-documented, as insurance companies have increasingly diluted their networks. Similarly, this dynamic may also affect prices. As CMS acknowledged in 2019, a significant number of enrollees received plans where they didn’t have to regularly pay a premium, so they were “less sensitive to premiums and premium changes.” Ending automatic re-enrollment in APTCs would help consumers become more price- and value-conscious.

How the Rule Would Benefit Americans Overall

This proposed rule represents one of the most socially beneficial in HHS’s history. The $200 billion of deficit reduction will ease interest rates and inflationary pressures.

The rule will also reduce the excess burden of taxation—also known as dead-weight loss. This refers to the value of economic transactions that do not occur because of taxes. We estimate the benefit of reducing the excess burden of taxation will be another $100 billion.

Paragon Polling Affirms that Americans Want Commonsense Medicaid Reforms

As the policy debate on Medicaid progresses, it’s important to get the pulse of what Americans think about Medicaid reforms by asking the right questions. Surveying a representative sample of 1,000 registered voters last month, our polling partner Public Opinion Strategies found that commonsense Medicaid reforms are overwhelmingly popular with Americans across party lines, and especially among conservatives.

Under current policy, the federal government reimburses a much higher percentage of state Medicaid expenditures on able-bodied, working-age adults than it does for children, pregnant women, seniors, and people with disabilities on the program. A majority of survey respondents agreed that “It is wrong for the federal government to pay so much more for able-bodied adults than traditional Medicaid recipients like pregnant women, children and the disabled.”

We found the following:

• More than 80% support work requirements for able-bodied adults on Medicaid.
• Nearly two-thirds support equalizing the federal match rate for able-bodied adults with that for traditional recipients like children and the disabled.
• Among Trump 2024 voters, support is even higher: 90% back work requirements, and 76% back equalized match rates.
• Even among Medicaid recipients, support for both reforms is evenly split at 50%.

The polling also found 91% of voters support eliminating waste, fraud, and abuse in federal healthcare programs—including 97% of conservatives, 83% of liberals, and 91% of Medicaid recipients.

Waste, fraud, and abuse in Medicaid are a big target—last month we showed how there were $1.1 trillion in federal improper Medicaid payments over the past decade.

Last month, Paragon released Addressing Medicaid Money Laundering, which discussed how states abuse Medicaid financing to pass higher costs to the federal government and help politically-connected providers. American voters support addressing abuses that result from these financing schemes. If framed correctly, addressing these abuses is also quite popular with American voters.

Using federal funds obtained through financing schemes, many states are now making Medicaid payments to providers that are now well above Medicare rates—a feature of existing policy that will threaten access to care for seniors. More than four-in-five American voters support “Congress requiring that Medicaid payments to health care providers cannot be higher than Medicare payments.”

Finally, Americans support stronger federal oversight to ensure only those who are eligible for Medicaid are enrolled. When given a choice, 64 percent of respondents said that the government should “ensure that only those who are eligible can enroll in Medicaid, even if that means some Americans are left without health insurance coverage.” Meanwhile, just 36 percent of respondents agree that “Medicaid should cover as many people as possible, even if that makes accessing care harder for those Medicaid was meant to serve – pregnant women, children, the disabled, and the elderly.”