Unpacking The Great Obamacare Enrollment Fraud

A few weeks ago, Paragon released The Great Obamacare Enrollment Fraud, which quantified improper exchange enrollment at 4-5 million people with improper subsidy expenditures of $15-$26 billion. The report attracted considerable attention from key members of Congress, who called on government watchdogs to open an investigation, and the media. Today, we released a follow-up investigative report that unpacks the fraud and explains how the exchanges became the Wild West.

Today’s newsletter also highlights the Biden administration’s extralegal demonstration to infuse billions of taxpayer dollars to insurers so they don’t raise premium payments on Medicare Part D enrollees before the election—premium increases resulting from The Inflation Reduction Act (IRA). It concludes with an op-ed today from Liam Sigaud defending Paragon’s Medicaid financing reform proposal and how it would protect the interests of traditional Medicaid enrollees.

How the Exchanges Became the Wild West

This follow-up report, which I authored with Elle Kalisz, was motivated by brokers who contacted us after our initial report with additional details about the problem. It is largely based on information provided by brokers, agents, and tax preparers that describes the enrollment fraud. We make ten key findings:

1. Brokers and insurers have enormous incentives to encourage ineligible applicants to misstate income when applying for coverage.
2. Lead generators are misleading enrollees with promises of free coverage and other enticements.
3. Unscrupulous brokers are fraudulently enrolling people in coverage, leaving some Americans unaware of their enrollment.
4. People may face tax penalties for plans in which they were enrolled without their consent.
5. Rogue brokers are fraudulently switching enrollees’ coverage without their consent.
6. Virtually anyone, including unscrupulous brokers, can abuse special enrollment periods and enroll at any time.
7. People are losing plans they selected, preferred doctors, and needed prescriptions.
8. Automatic re-enrollment amplifies fraudulent enrollments.
9. Many people have duplicate enrollments in public programs.
10. Sophisticated crime in south Florida has reaped windfall profits from enrollment fraud.

Unfortunately, HHS mismanagement—combined with large financial incentives to misstate income and the widespread availability of fully subsidized plans—have created an environment where fraud, waste, and abuse have flourished in the exchanges. The widespread problems suggest a needed change in direction in both policies and HHS management. The two most important reforms would be to Congress permitting the enhanced subsidies to expire, and HHS putting in place rules for real income verification.

The Biden Administration’s Extralegal Taxpayer Bailout

In Monday’s Prognosis, Jackson Hammond explained the IRA’s Part D redesign that is causing large premium increases for standalone Part D plans and the mechanics of a Biden administration demonstration to offset those premium increases. You should consult Jackson’s piece for the explanation of the Part D redesign and why it increased premiums. I am going to focus on the demonstration.

Jackson explains the three components of the demonstration. But the key takeaway is that it will infuse insurers with billions of taxpayer dollars so that they don’t raise premiums before the election.

CMS has authority to conduct demonstrations that are limited in scope and that can actually demonstrate something, meaning there is a control group against which the results of the demonstration can be measured. According to Jackson, “[d]emonstrations are supposed to be budget neutral and done with the input of experts – small experiments that help us test out ways to make Medicare better and more sustainable, not cover up bad policy at taxpayer expense.”

This demo is massive in scope and cannot test anything. Moreover, as Jackson writes, “[t]his isn’t Congressionally approved and isn’t funded. This is unilateral action taken by the Biden administration at the last minute to avoid ugly headlines about massive Part D premium increases.”

The new demonstration parallels one previous demonstration—denounced as poorly designed and with major legal concerns by the Government Accountability Office (GAO). That demonstration cost an estimated $8.3 billion over three years and was used by the Obama administration to offset cuts that the Affordable Care Act made to Medicare Advantage plans before the 2012 election. This new insurer bailout using demonstration authority will likely blow that one out of the water. Back-of-the-envelope math puts the cost over three years well above $10 billion. On Monday, congressional leaders requested that GAO review the Part D demonstration.

Ending Medicaid’s Discrimination Against the Most Vulnerable

Last month, Paragon released proposals to reform Medicaid financing by ending the discrimination against the most vulnerable, equalizing the percentage of Medicaid expenses states receive for traditional enrollees (children, pregnant women, seniors and people with disabilities) and for the able-bodied, working-age expansion population, and reducing the disparity in federal Medicaid funding that currently benefits wealthy states over poorer states. In a piece out today in National Review, Liam Sigaud defended the Paragon proposal from misguided criticism. In one key excerpt, Liam explains how status quo hurts the most vulnerable:

There is robust evidence that expansion led to a host of negative spillover effects that have harmed traditional enrollees, including children. In one study, my co-author and I found that per capita Medicaid spending on children grew less than one third as fast in expansion states as in states that opted not to expand, implying that the surge in new adults joining the program probably made it harder for children to receive care. Other scholars have found that Medicaid expansion led to longer waits for doctors’ appointments, slower ambulance response times, and greater delays in emergency rooms. Ending the federal government’s favoritism toward able-bodied, working-age Medicaid enrollees would help traditional enrollees, not hurt them.

All the best,

Brian Blase
President
Paragon Health Institute