On February 19, the Department of Justice (DOJ) unsealed an indictment against two executives—a president of an Affordable Care Act (ACA) insurance brokerage firm and a CEO of an insurance marketing company—accused of orchestrating a massive exchange enrollment fraud scheme that scammed taxpayers out of “at least $161.9 million in government subsidies.”
This case marks one of the first federal crackdowns on unscrupulous brokers and business models exploiting gaping vulnerabilities with the ACA exchanges to manufacture and submit fraudulent enrollments to rake in millions in commissions. Last July, Paragon’s report The Great Obamacare Enrollment Fraud estimated the full extent of enrollment fraud in the program to exceed $15-26 billion in 2024.
The indicted individuals, Cory Lloyd, 46, of Stuart, Florida, and Steven Strong, 42, of Mansfield, Texas, now face more than 50 years in prison for charges related to wire fraud, conspiracies to defraud the United States, and money laundering.
Rampant ACA Fraud: A Biden Legacy
Despite years of mounting evidence, the Centers for Medicare & Medicaid Services (CMS) has allowed fraudsters to run unchecked, turning ACA enrollments into an all too easy taxpayer-funded get-rich-quick scheme.
According to the DOJ indictment:
Lloyd and Strong conspired to enroll consumers in ACA plans that were fully subsidized by the federal government by submitting false and fraudulent applications for individuals whose income did not meet the minimum requirements to be eligible for the subsidies. Lloyd allegedly received commissions and other payments from an insurance company in exchange for enrolling consumers in the ACA plans. In turn, Lloyd allegedly paid commissions to Strong in exchange for consumer referrals.
The two fundamental problems are systemic and inherent to an ‘enrollment at any cost’ approach to government programs: bad policy and lax oversight. Nearly half of ACA exchange signups during the 2024 open enrollment period reported incomes between 100 percent and 150 percent of the federal poverty level (FPL)—the range that qualifies for fully subsidized, 94 percent actuarial value plans. Since the introduction of enhanced subsidies in 2021, enrollments in this income bracket have skyrocketed—exceeding the number of eligible enrollees in many states.
How ACA Fraud Works
Under ACA rules, brokers are paid a monthly commission for each person they’ve enrolled, plus bonuses for new signups—creating perverse incentives to enroll people by misstating information. Fraudulent brokers game the system by either making up information or by coaching ineligible applicants to misstate their income so they qualify for subsidies that make the coverage worth it for the applicant to enroll. The income manipulation means more enrollees and higher broker commissions.
Paragon’s Unpacking The Great Obamacare Enrollment Fraud: How the Exchanges Became the Wild West details how these schemes flourish under weak federal enforcement. Virtually no documentation is required by CMS to verify estimated income and the year-round special enrollment period for people who claim income between 100 percent and 150 percent FPL perpetuates fraud. Poor HHS management and lax oversight of HealthCare.gov worsens the problem by making it easy for agents to access personal identifying information and override consent requirements.
Fraudsters like Lloyd and Strong intentionally prey on low-income Americans to keep the scam running. According to the DOJ:
[Lloyd and Strong] targeted vulnerable, low-income individuals experiencing homelessness, unemployment, and mental health and substance abuse disorders, and, through ‘street marketers’ working on their behalf, sometimes offered bribes to induce those individuals to enroll in subsidized ACA plans.
These brokers then coached applicants on how to maximize subsidies, while insurers—who profit from higher enrollments—have incentives to turn a blind eye to all these new enrollments. As a result of these ruthless and greedy tactics, many victims ended up with disruptions in medical care, unknowingly enrolled in plans that did not fit their needs, and canceled plans that covered their medications and doctors.
ObamaCare’s Built-In Fraud Incentives
Incentives for brokers to maximize commissions and enrollees to maximize subsidies, coupled with the federal government’s lack of verification and enforcement, permit full-scale businesses—including Lloyd and Strong’s—to fraudulently enroll people into the exchanges. As a result, their companies received millions of dollars in commissions.
Lloyd and Strong’s scheme is not an isolated incident — it’s the natural outcome of flawed Biden-era policies. Fully-subsidized or zero-dollar premium plans and minimal income verification create an open invitation for fraud and abuse.
In another example, a class-action lawsuit was filed in South Florida against TrueCoverage and Enhance Health in April 2024. The claimants allege that these firms intentionally misled lower-income Americans with deceptive advertising, falsely promoting ACA subsidies as cash benefits for groceries, rent, and gas. The lawsuit claims “hundreds of thousands” of fraudulent enrollments resulted from these tactics. The complaint further alleges that agents then exploit weaknesses in the enhanced direct enrollment system to enroll individuals in health insurance plans and receive commissions fraudulently—the state of Florida has opened more than 900 investigations into similar allegations in the last year. In September 2024, The Wall Street Journal explained how these schemes work in an article entitled, “Americans Clicked Ads to Get Free Cash. Their Health Insurance Changed Instead.”
Congress Must Let Biden’s Enhanced ACA Subsidies Expire
The DOJ’s latest charges expose just the tip of the iceberg. Paragon’s research shows widespread fraud and that the Biden administration’s policies have turned the ACA into a fraudster’s paradise.
Without serious program integrity reforms, taxpayers will continue to foot the bill for bogus enrollments and fraudulent subsidies. CMS should implement strict income verification, enforce documentation requirements, and require people to pay back more of the subsidy if they misstate income and obtain a higher subsidy than they were entitled to. DOJ should open more investigations and aggressively prosecute the fraudsters.
But even the best reforms won’t make much of a difference in denting the rampant waste, fraud, and abuse in the exchanges if the Biden enhanced ACA subsidies remain. To improve program integrity and ensure that insurers design plans that actually appeal to Americans, Congress must let the Biden-era enhanced subsidies, which started as a temporary COVID pandemic relief measure, expire after 2025.
