Closing the Fraud Floodgates: Proposed HHS Rule Cracks Down on ACA Exchange Fraud and Lowers Premiums

On March 9, the Department of Health and Human Services (HHS) unveiled a sweeping proposal to improve integrity in the Affordable Care Act (ACA) exchanges—reversing Biden-era administrative decisions that enabled millions of improper or fraudulent enrollments and billions in improper spending. The “Patient Protection and Affordable Care Act; Marketplace Integrity and Affordability,” proposed rule aims to lower premiums and rein in practices that have led to staggering improper enrollment. The rule is projected to save taxpayers an estimated $150 billion over the next decade—an indication of the magnitude of improper enrollment in the exchanges, though the rule would be even stronger if it tackled the problem of automatic re-enrollment. HHS also expects that the proposed rule, if finalized, would lower ACA plan premiums by at least 5 percent. A new Paragon policy brief I coauthored with Brian Blase evaluates the rule’s major provisions and how they would address problems unleashed under the Biden administration.

The proposed reforms mark a return to common-sense guardrails, many of which originated under the Obama administration but were later dismantled under President Biden. According to HHS, these rollbacks caused improper enrollment to skyrocket. As Paragon research uncovered and which the proposed rule confirms, four to five million people were improperly enrolled in an income category that qualifies for fully subsidized plans. The incentives of enrollees, brokers, and insurers were all to misstate income to qualify for more taxpayer subsidies. Rogue brokers exploited the system, enrolling individuals—sometimes without consent—and raking in commissions for bogus sign-ups. In 2024, HHS received more than 44,000 complaints just from Medicaid beneficiaries who could not use their Medicaid benefits because they were unknowingly enrolled to ACA plans—more than 12,000 of them deemed “medically urgent.” These consequences flow directly from the Biden administration’s decision to prioritize enrollment at any cost.

Restoring Integrity to Eligibility Determinations

Under the ACA, the U.S. Treasury Department pays subsidies in the form of premium tax credits (PTCs) in advance to insurers, based on the income estimates enrollees provide. As Paragon has previously explained, President Biden’s policies allowed people to self-attest income with little documentation. His administration unnecessarily extended deadlines to verify eligibility and introduced easily abused special enrollment periods.

The new HHS rule proposes tightening verification standards by requiring enrollees to prove income with trusted data or submit supporting documents. Americans instinctively know that transactions that implicate thousands of taxpayer dollars should require documentation rather than just taking people’s word on whether they are eligible. This verification requirement would go back to requiring documentation, a policy originally implemented by the Obama administration. HHS estimates that verifying income would take less than an hour over the course of 90 days. These provisions would drastically reduce fraud.

The proposed rule would also close long-exploited loopholes. Currently, individuals can hop from plan to plan with the same insurer without paying overdue premiums—forcing insurers to absorb losses and prompting higher premiums for everyone else. The proposed rule would restore the policy allowing insurers to deny new coverage until past debts are paid.

The proposed rule would also enforce the requirement that individuals must reconcile excess subsidies—caused by underestimating their income—on their tax returns to remain eligible for future subsidies. President Biden’s policy gave enrollees an extra year before disqualification, incentivizing abuse and exposing unsuspecting consumers to tax liabilities.

Making Enrollment Periods Rational Again

A key driver of the recent surge in ACA fraud was President Biden’s decision to permit enrollment at any point in the year for most enrollees. His administration extended open enrollment through January 15, confusing consumers and increasing the number of people dually enrolled in multiple forms of coverage including an employer plan and an exchange plan as well as Medicaid and an exchange plan. The new rule would restore the November 1 through December 15 open enrollment period—the same one proposed by President Obama and in place during President Trump’s first term. This would more closely align the ACA’s open enrollment period with those of employer plans and Medicare Advantage.

The new rule also proposes eliminating the special enrollment period (SEP) that allows people who claim income between 100 and 150 percent of the federal poverty level (FPL) to enroll at any time during the year. The 100 to 150 percent FPL SEP resulted in 90,000 complaints about plan-switching in the first three months of its implementation in 2024. It encouraged people to wait until they were sick to enroll, worsening the risk pool and raising premiums. Paragon’s policy brief explains that “SEPs were intended for people who experience substantial life events that require them to change coverage. But having a certain income is not a life-changing event like having a child or losing a job, so creating a SEP for an entire income range was a clear overreach and out of step with the ACA’s structure.”

HHS estimates that this SEP raises premiums by between 0.5 and 3.6 percent, while the lack of verification on all but one of the SEPs increased premiums around “0.5 to 1.0 percent for 2026 plan year and 1.0 to 2.0 percent for the 2027 plan year.” Eliminating the 100 to 150 percent FPL SEP, as well as the provision requiring verification for SEP eligibility, means lowering exchange premiums across the board while ensuring a more stable insurance market.

Ending the Enrollment at Any Cost Governing Strategy

President Biden’s exchange policies drove up premiums, fraud, debt, and distrust. This new rule signals a return to governance grounded in fiscal responsibility and rule of law. The new rule reverses a reckless “enrollment at any cost” philosophy that led to an explosion of improper spending, record complaints, and increased premiums. It brings back commonsense provisions from the Obama administration to help ensure accurate subsidy payments, while reducing fraud and improper enrollment in the exchanges. HHS can significantly strengthen the rule by ending automatic re-enrollment, which perpetuates fraud and improper enrollment and spending, and negatively impacts the quality and price of insurance.

While letting Biden’s COVID enhanced subsidies expire after 2025 is the most potent way to reduce fraud and wasteful ACA-related expenditures, the proposed rule is a strong step toward restoring integrity in the exchanges. HHS estimates that the rule would reduce enrollment by approximately 1.4 million in 2026—largely among those with other coverage or who were fraudulently enrolled—while delivering an estimated $150 billion in taxpayer savings over 10 years. This level of savings directly translates into lower federal debt, interest rates, and inflation.