Billions Being Wasted in Obamacare Subsidy Fraud

11 of 12 Fictitious People Were Granted Subsidies in GAO Test

Man walking by Obamacare center in Florida
Florida Residents Sign Up For Affordable Care Act on Deadline Day. Joe Raedle / Getty Images

The U.S. federal government is wasting billions of taxpayer dollars by failing to properly verify the eligibility of people getting Obamacare health insurance subsidies, according to the Government Accountability Office (GAO).


The Patient Protection and Affordable Care Act – Obamacare – provides subsidies to qualified low-income people to help them pay for health insurance coverage as required by the law. While these subsidies are not paid directly to them, the recipients benefit through reduced monthly premiums and lower costs paid at the time of receiving health care services, such as copayments.

According to the Congressional Budget Office, Obamacare subsidies cost the government an estimated $37 billion in fiscal year 2015, and will cost an estimated $880 billion over the period of fiscal years 2016 through 2025.

In an effort to prevent wasting taxpayer money through fraudulently claimed benefits, the Centers for Medicare & Medicaid Services (CMS), the Internal Revenue Service (IRS), the Social Security Administration, and to some extent the Department of Homeland Security share responsibility for verifying the accuracy and truthfulness of information provided by applicants for Obamacare subsidies.

In order to be eligible to enroll in an Obamacare qualified health plan, a person must be U.S. citizen or legal permanent resident; live in the service area of an Obamacare marketplace service area; and not be incarcerated.

The Obamacare marketplaces are required by the law itself to verify the applicants’ eligibility for enrollment and, when applicable, determine the applicants’ eligibility for the income-based subsidies.

To be eligible to enroll in a qualified health plan offered through a marketplace, an individual must be a U.S. citizen or national, or otherwise lawfully present in the United States; reside in the marketplace service area; and not be incarcerated.

But a GAO Test Turned Up Major Problems

In February 2012, the GAO reported to Congress that its investigators had found that the systems used by CMS often failed to find inconsistencies in data on Obamacare subsidy applicants.

As a result, noted the GAO, billions of dollars in Obamacare subsidies may have been granted during 2014 to applicants committing fraud.

“According to GAO analysis of CMS data, about 431,000 applications from the 2014 enrollment period, with about $1.7 billion in associated subsidies for 2014, still had unresolved inconsistencies as of April 2015 -- several months after close of the coverage year,” noted the report.

In an undercover test of the combined Obamacare applicant verification systems, the GAO created 12 fictional people for the purpose of applying for individual health care coverage with low-income subsidies.

During the test, the federal Obamacare Marketplace wrongly approved subsidized health coverage for 11 of the 12 fictitious people the GAO had created. In fact, the GAO’s “make believe” Obamacare enrollees went on to get a total of about $30,000 in annual advance premium tax credits, plus eligibility for lower copayments.

Throughout the year of the investigation, the fictitious enrollees were allowed to maintain their subsidized coverage, despite the fact that the GAO sent the CMS false documents, or no documents at all, to resolve the inconsistencies in their applications.

“While the subsidies, including those granted to GAO’s fictitious applicants, are paid to health-care insurers, and not directly to enrolled consumers, they nevertheless represent a benefit to consumers and a cost to the government,” noted the GAO.

But Real People Are Also Slipping Through the Net

Among subsidized coverage applications submitted by real people, the GAO found that in 2014, the CMS and Social Security Administration had failed to resolve inconsistencies in Social Security numbers on about 35,000 applications resulting in the improper or fraudulent payment of about $154 million in subsidies.

In addition, the GAO found that the CMS failed to notice that about 22,000 applicants for subsidized coverage were in jail at the time, this time costing taxpayers about $68 million.

The GAO concluded that the CMS has so far failed to develop procedures for using the fraud detection tools it has.

“CMS foregoes information that could suggest potential program issues or potential vulnerabilities to fraud, as well as information that might be useful for enhancing program management,” noted the GAO’s report.

The GAO also found that the CMS depends on a private-sector contractor for processing all Obamacare documents and for reporting possible instances of fraud. However, CMS does not require the contractor to have any specific fraud detection capabilities.

Perhaps worst of all, the GAO found that the CMS had failed to do a comprehensive fraud risk assessment – as recommended by the Obamacare enrollment and eligibility process.

“Until such an assessment is done, CMS is unlikely to know whether existing control activities are suitably designed and implemented to reduce inherent fraud risk to an acceptable level,” wrote the GAO.

Not the First or Only Report of Problems

If you think this is just a one-off, rare occurrence, the GAO and other government watchdogs have been warning Congress of serious problems in the Obamacare subsidy program since June 2015.

  • On June 16, 2015, the Office of Inspector General of the Department of Health and Human Services (HHS) reported that during fiscal year 2014, CMS had approved and paid $2.8 billion in Obamacare subsidies without any applicant verification at all.
  • In September 2015, the Treasury Department’s Inspector General for Tax Administration reported that both the federal and state Obamacare insurance exchanges were failing to give the IRS enough information to properly verify the eligibility of new Obamacare enrollees for low-income tax credits.
  • On October 23, 2015, the GAO first reported that both the federal and state Obamacare exchanges were not properly verifying subsidy applicants’ income, Social Security numbers or even proof of U.S. citizenship.
  •  In December 2015, the HHS Office of Inspector General reported that the CMS was relying solely on information provided by health insurance companies to verify that Obamacare enrollees were paying their monthly premiums. The Inspector General found that in too many cases, the information provided by the insurance companies was not adequate to confirm the individual enrollee’s continued eligibility for coverage.

    What the GAO Recommended This Time

    Third verse, same as the first? As it has in the past, the GAO recommended an array of ways in which HHS and CMS, the federal overseers of the program, could reduce the risk and actual cases of costly fraud in Obamacare.

    Specifically, the GAO sent the agencies eight recommendations, including that CMS “consider” more carefully assessing the results of the Obamacare enrollee verification system, resolve any problems that showed up, and more fully study the ongoing risks for fraud in the Obamacare Marketplace applications.

    As it had before, the Department of Health and Human Services agreed with GAO’s recommendations.