A recent Paragon report finds that there are large incentives for enrollees to misestimate income to claim more subsidy than the legal amount to which they are entitled. This problem is exacerbated by legislation signed by President Biden which made health insurance plans “free,” or fully taxpayer-subsidized, for enrollees claiming income between 100 and 150 percent of the federal poverty level (FPL). We estimate that there are roughly 5 million people enrolled illegitimately and that the cost to taxpayers will likely be $20 billion in 2024.
One of our key findings, shown in the summary table below, is that this problem is most severe in non-expansion states and states that use HealthCare.gov, the federal exchange.
As expected, the number of people misestimating their income is much greater in non-expansion states, as there is both an incentive for people above 200 percent FPL to report lower income (which also exists in expansion states) and an incentive for people with income below 100 percent FPL to report higher income.
More surprising is that fraud is much greater in HealthCare.gov states. In states that used HealthCare.gov, 8.7 million sign-ups reported enrollment between 100 percent and 150 percent FPL compared to only 5.1 million people likely eligible for such coverage, or 1.7 sign-ups for every eligible person.
Unique deficiencies with HealthCare.gov are shown when controlling for whether states expanded Medicaid. All states with state-based exchanges did expand Medicaid, but many expansion states also used HealthCare.gov. The percentage of open enrollment sign-ups reporting income between 100 percent and 150 percent FPL relative to all those ages 19-64 eligible for such coverage is more than twice as high in expansion states with HealthCare.gov than in expansion states with state-based exchanges.
Some of these problems are innocent mistakes or projection errors, but since this issue is so large, especially in states that use HealthCare.gov, there are clearly deeper problems. As discussed in the paper, there are large financial gains for insurers and brokers when enrollees misestimate their income as between 100 and 150 percent FPL. And the Biden administration has prioritized enrollment over program integrity.
