Senate Voting Today—Reform or Status Quo

In today’s newsletter, I start with the dueling votes in the United States Senate, including our analysis of the two main proposals—one that protects the costly status quo and the other that represents a strong first step of reform. Then I discuss my testimony to the House Judiciary Committee yesterday, as increasing evidence of massive fraud in the Affordable Care Act (ACA) exchanges attracts more public attention and congressional scrutiny. I share a Wall Street Journal letter to the editor on major flaws in Urban Institute claims about ACA cost control. Finally, I close with an op-ed by Jackson Hammond on problems in Medicare Part D.

Duel in the Senate

Later today, the Senate will consider and vote on two rival plans: Democrats are proposing to extend the enhanced ACA subsidies for three years. Republicans appear set to offer legislation drafted by Senate Finance Committee Chair Mike Crapo and Senate HELP Committee Chair Bill Cassidy. In a Tuesday Prognosis, I assessed their Health Care Freedom for Patients Act of 2025, and there is a lot to like.

Chairmen Crapo and Cassidy deserve credit for holding firm on letting the COVID subsidy boosts expire as originally scheduled in the 2022 Inflation Reduction Act. Letting the enhanced subsidies end on schedule will reduce fraud, reduce phantom enrollment, lessen the government’s bias against workers with employer coverage, and slow health care cost growth.

The Crapo-Cassidy legislation would expand consumer options, lower premiums, and shift more control to patients without increasing overall federal spending. It does these things by appropriating cost-sharing reduction (CSR) payments, which would end silver-loading and cut premiums 11 percent while reducing the ten-year deficit by $30 billion. It also would expand ACA catastrophic plan eligibility for people to all ages to boost choice and competition and would provide $1,000 to $1,500 Health Savings Account (HSA) contributions for enrollees in bronze and catastrophic plans who have income below 700 percent of the federal poverty level.

With any legislation, there are opportunities for improvement. I suggest a few ideas: 1) add the HSA option, 2) include a minimum $25 monthly premium to deter fraud and protect potential ACA enrollees from being enrolled without their knowledge, and 3) build on health care options expanded by the Trump administration such as Association Health Plans, short-term limited-duration health insurance, and individual coverage health reimbursement arrangements.

The Cost of Extending COVID Subsidy Bonuses

In a Washington Examiner op-ed, I discussed the problems with extending the COVID subsidy bonuses.

Here are some key points:

• ACA exchange enrollment is running ahead of last year’s enrollment at this point. More subsidies for people in the market just replaces private spending with government spending and serve to push up federal deficits, interest rates, and inflationary pressures in the economy.
• The original, permanent ACA subsidies are very large—roughly $8,000 for a typical enrollee—and automatically grow more generous over time because taxpayers pick up almost all the premium increases (90 percent of premium increases since 2014). The main crux of the issue is whether the federal taxpayer should finance 80 percent of the premium or 90 percent of it.
• Extending the enhanced subsidies further distorts a market that already provides much greater benefit to workers who do not receive coverage through an employer, harming those workers and leading small employers not to offer coverage.
• Most critically, zero-premium plans have fueled rampant fraud: millions of ineligible or phantom enrollees are costing taxpayers billions—$27 billion in 2025 alone. Requiring enrollee payments is the simplest, surest way to reduce fraud.

Tackling Obamacare Fraud

On Wednesday, I testified before the House Judiciary Committee on rampant ACA fraud. I pointed out that “The law entrenched an inefficient, insurance-dominated health sector by sending massive subsidies straight to insurance companies.” I told the story of how Paragon came to expose the staggering cost of fraud in the ACA based on a conversation I had in Texas in May 2024. One direct result of this fraud has been widespread phantom enrollment. From my oral remarks:

Many enrollees were victims, signed up without their knowledge. Some lost plans they liked, and others now face tax penalties.

One customer service agent said that half of the people signed up had no idea they were enrolling in health insurance.

A new study from the Competitive Enterprise Institute shows two times more people enrolled in exchange plans than who report being enrolled. …

Given widespread improper enrollment and many enrollees unaware of their coverage, we would expect many to never use their plan. The Biden administration refused to release information on zero-claim enrollees. But fortunately, in August, the Trump administration did.

What did we find? A surge in enrollees who never used their plan—no doctor visits, no prescriptions, no lab work. In 2024, nearly 12 million enrollees did not use their plan a single time—up from fewer than 4 million in 2021.

Overall, 35 percent of all exchange enrollees never used their plan, and 40 percent of fully subsidized enrollees did not have a single claim.

Zero-claim exchange enrollees are more than double what occurs in a normal health insurance market and are double the rates before the COVID-era subsidy expansion.

There are unquestionably millions of phantom enrollees in the exchanges. Federal taxpayers sent more than $35 billion to insurers in 2024 for people who never used their plan.

The Wall Street Journal had a powerful editorial this week, “ObamaCare is a Mecca for Fraud,” that mentions Paragon’s work and examines a new report from the Government Accountability Office. As the Journal put it, “The Minnesota Medicaid grift illustrates how open-ended government welfare can easily become an inducement for fraud. A new [GAO] report finds the pandemic-era sweetened ObamaCare subsidies are also ripe for gaming.”

Paragon looked at the same GAO report in a recent Prognosis. We concluded that “As a result of expanded subsidies and porous federal oversight, the federal exchange approved subsidized health insurance for 23 of 24 fictitious applications submitted by GAO. In addition, GAO found that tens of billions of dollars in advanced subsidies to health insurers have not been properly reconciled. Together, these failures show that the ACA exchanges lack even minimal oversight and are rife with fraud and abuse that is hemorrhaging taxpayer dollars.”

Correcting Bad Analysis from the Urban Institute

Jessica Banthin and John Holahan of the Urban Institute wrote a letter to the editor in The Wall Street Journal that made the false claim that Obamacare controls costs better than employer-sponsored insurance. I am grateful to the Journal for publishing my response.

In my own letter to the editor, I highlight four of the major errors in the Urban Institute data:

• First, ACA premiums have grown much more than ESI premiums. This is clear when examining the full period rather than the selective years Banthin and Holahan used.
• Second, the ACA subsidies in their design, structure, and ongoing impact are inflationary.
• Third, taxpayers have picked up almost the entire ACA premium increase since Obamacare was enacted in 2014. This means Obamacare insurers face weaker incentives to control cost than in employer plans, where more spending on health insurance means lower wages.
• Fourth, the COVID-era boosts make the deep structural problems of the ACA even worse. They have exacerbated the underlying inflationary incentives—increasing already out-of-control premiums and health care prices and leading more employers to drop coverage.

Medicare Part D Fiscal Cliff Travails

As a result of Biden’s Inflation Reduction Act, the Medicare Part D stand-alone market is deteriorating: plan participation is plummeting, options are shrinking, and premiums are soaring, despite expanded taxpayer subsidies.

Average plan bids exploded by 589 percent—from $35 in 2023 to $239 in 2026—driving up premiums and federal subsidies. Facing politically perilous premium spikes before the 2024 election, the Biden administration spent $5 billion in 2025 on a sham “demonstration” program that simply paid insurers not to raise premiums. The administration scheduled this as a three-year demonstration, creating a fiscal cliff in 2028.

In a new op-ed for Issues & Insights, Jackson Hammond writes that CMS is wisely phasing down this bailout early to avoid a sudden shock in 2028. As with the ACA, the real solution is not more taxpayer money papering over bad policy. Rather than bailouts, Congress should consider modestly raising the out-of-pocket cap to reduce bids and premiums—without affecting the vast majority of beneficiaries.