Golden Fleece Award

WASHINGTON, D.C. - Rep. French Hill (AR-02) named the Centers for Medicare and Medicaid Services (CMS) as the latest recipient of his Golden Fleece Award for their implementation of an Affordable Care Act marketplace subsidy structure that encourages fraudulent behavior and lack of oversight and policies to safeguard against these actions.

Rep. Hill said, “The Biden Administration pushed out enhanced subsidies that offered individuals health insurance without premiums through the Affordable Care Act marketplace without safeguards to ensure the integrity of those receiving the payments. These subsidies were designed to encourage over-enrollment in the program, which the administration greatly valued to tout the importance of Obamacare. Furthermore, by litigating against income verification in favor of allowing individuals to self-report their income and by allowing brokers to enroll individuals in plans without their consent, CMS has welcomed bad actors to take advantage of a broken system to defraud the federal government of tens of billions of dollars."

In a letter to CMS Administrator Chiquita Brooks-LaSure, Rep. Hill writes:

I write today to inform you that the Centers for Medicare and Medicaid Services (CMS) is the most recent recipient of my Golden Fleece Award. I am awarding this to CMS for your agency’s implementation of a poorly designed enhanced subsidy structure that encourages adverse consumer behavior, support of additional policies that make enforcement difficult, and lack of oversight that could have prevented or deterred waste and fraud of the federal government.

In 2021, the American Rescue Plan Act (ARPA) established temporary marketplace subsidies for lower-income individuals to buy health insurance through the Affordable Care Act (ACA) marketplace with lower premiums. In 2022, the Inflation Reduction Act (IRA) extended these subsidies for an additional three years through 2025. While ARPA originally boosted existing subsidies for all whose income falls between 100 and 400 percent of the Federal Poverty Level (FPL) and already qualified for some grade of subsidies under ACA, it notably reduced the contribution amount for individuals whose income falls between 100 and 150 percent FPL to zero, such that they can purchase fully-subsidized health insurance without paying any premium. The IRA continued this. Prior to ARPA, individuals whose income was between 100 and 133 percent FPL had to pay about 2 percent of their total income and subsidies would cover the remainder of their premium. During the 2024 open enrollment period, almost half (47%) of all exchange sign-ups reported income between 100 and 150 percent FPL.

In June, analysis from the Paragon Health Institute reported that an estimated four to five million enrollees in ACA marketplace plans may have enrolled fraudulently, conservatively costing the federal government who is covering the subsidies for this population upwards of $15 to $20 billion. There were 8.7 million sign-ups for individuals who reported their income as between 100 and 150 percent of the FPL despite there being only 5.1 million people who likely fell into that income range. This cost estimate is based on the average subsidy for a 40-year-old, even though the average age of an exchange enrollee is older, and does not account for other anticipated variations of improper enrollment that are bound to happen in every state.

Part of why this happens is because of the way ACA marketplace subsidies are structured. The subsidies are refundable advance premium tax credits (APTCs) and reduce the percentage of income that a person must pay for a benchmark plan; however, the APTCs are paid directly to health insurers from the U.S. Treasury on behalf of enrollees who select the insurers’ plans. APTCs are credited to individuals based on the estimated household income they report when signing up. Because APTCs are paid to them directly and they are held harmless when enrolled individuals receive larger subsidies than they were entitled to, health insurers are the primary beneficiaries of these improper enrollments. Only after an individual files their subsequent tax return (which occurs the year after they received the coverage) does the APTC amount get reconciled with the amount of subsidy that an individual was actually entitled to, and the individual policyholder owes the excess or receives additional tax credit.

Since the enhanced subsidies reduce an individual’s premium on the front-end, they become less sensitive to the prices of various plans and more enroll. In states that have not expanded their Medicaid programs, ablebodied, working-age enrollees with income between 100 and 150 percent FPL are eligible for fully subsidized benchmark plans since they are ineligible for Medicaid; those whose income is below 100 percent FPL are not eligible for a subsidy. This creates an incentive for individuals in these states with an income below 100 percent FPL to overestimate their earnings in order to receive no-premium health insurance with a low deductible, low cost-sharing amounts, and limited out-of-pocket expenses. Furthermore, in states that have expanded Medicaid, individuals have an incentive to underreport their income in order to receive larger subsidies and enroll in these benchmark exchange plans because the APTC is a function of an individual’s estimated income for the upcoming year.

During the Biden Administration, the President and his agencies, including yours, have continually made political decisions that prioritize enrollment in public programs over program integrity. Some examples of this include the extending the COVID-19 public health emergency to delay Medicaid redeterminations, creating a continuous open enrollment period on exchanges for individuals below 150 percent FPL, and litigating against income verification requirements for low-income exchange enrollees in favor of self-reporting. Additionally, individuals whose income falls below 100 percent FPL but estimate their income to be at least 100 percent FPL at the time of enrollment in order to qualify for subsidies do not have to reimburse any of the APTC back so long as the IRS considers that the income estimate was not made “with intentional or reckless disregard for the facts.” Because individuals would not have to reconcile their tax credits before the next enrollment period – if they will even owe excess – and because of automatic re-enrollment, a significant number of people become enrolled for a subsequent year despite potentially already having other coverage, moving to another state, passing away, or not realizing they were ineligible. The administration’s policies and implementation are exacerbated by the direct benefits of over-enrollment for insurance companies who reap additional windfall by the lack of recapture for overreporting individuals.

Health insurers are already beneficiaries of these subsidies – it is easier to collect the APTCs from Treasury directly than premiums from inured individuals, the enhanced subsidies lead to larger payouts, and they are not liable for overpayments in APTCs. These elements of the ACA subsidy program are a significant financial incentive to encourage improper enrollment. Moreover, some brokers are likely contributing to the problem and may receive commissions from insurers for each new enrollment to one of those insurer’s plans. Because of the direct enrollment feature of HealthCare.gov, as long as a broker is registered on HealthCare.gov, all that a broker need to enroll an individual is their name, date of birth, and state of residence. Enrollees can be signed up or have their coverage switched without their knowledge, and some false advertisements encourage individuals to contact brokers to learn about potential government benefits without an understanding of the potential fraud. Such scale of this widespread abuse suggests that individuals who misreported their income must have received outside counseling.

In the first half of 2024, your agency reported more than 218,000 complaints about unauthorized enrollment or plan-switching in the first quarter of the year. This issue has caught the attention of my colleagues – Representatives Cathy McMorris Rodgers, Jason Smith, and Jim Jordan, specifically – as well, who requested investigations by the Government Accountability Office and the Office of Inspector General at the Department of Health and Human Services in a pair of letter sent on June 28, 2024.   Further, the three-year extension passed as a part of the IRA does not address issues around increasing access to health insurance, but continues push back the eventual insurance premium cliff when the enhancements expire.

The combination of implementing a poorly designed structure for increased APTCs that misaligns incentives and instituting policies that prioritize easy enrollment in ACA marketplace plans to artificially boost support for the program has created this problem. These issues have allowed bad actors to undermine the integrity of the ACA program, harm patients, and defraud the federal government of billions of dollars for their own personal gains. Your agency must conduct oversight of the issues that cause this fraud to happen and enact safeguards to protect taxpayer dollars and the policyholders who rightfully qualify for their subsidies.

I am committed to ensuring effective fiscal practices at our Nation’s federal agencies. Should you require any additional authority from Congress to address these concerns, I urge you to notify us as soon as possible. I would also welcome any technical assistance you could provide to Congress to correct statutory issues that may have contributed to this problem. Thank you for your consideration and I look forward to working with you to address this important issue.